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Cover story - Passing the torch: 25 years of in-house growth

|Written By Jim Middlemiss

The in-house legal market is enduring strong and steady growth, as banks, insurers, and power companies have replaced transportation, oil and gas, and trust companies as the private sector’s top employers of internal legal talent in Canada over the past quarter century.

When we set out to determine which Canadian companies were the biggest employers of legal talent, we weren’t sure what we were going to find. We wanted to see how companies stacked up to the test of time. So using the Canadian Law List (www.canadianlawlist.com), the country’s oldest legal directory, we poured over the lists for three periods: 2006, 1996, and 1981.

The way the list is structured is that it includes lawyers (and notaries in Quebec), who are called to the bar and paying their fees at that time.

It does not necessarily mean the lawyers are focused entirely on practising, but could also be working purely in a business capacity, such as operating as a financial adviser at a financial institution or running a company or its division. In fact, one of the more interesting things we noted was the diverse range of legal titles people are assuming these days.

So the list is not a statement of the exact size of a corporation’s legal department, but it’s fairly close. It also doesn’t include the number of lawyers a corporation has hired outside of Canada’s borders. We focused purely within our own borders. We also didn’t look at government departments, which are some of the biggest employers in the country when it comes to legally trained individuals, but we did include any relevant Crown corporations.

We also tried to look at the big picture, so, for example, in the case of banks we looked at them as a single entity and tallied their employment figures across the various operating companies to include things like insurance and brokerage.

Our goal was to get a sense of where the opportunities for lawyers lie these days and which industries or companies have become sophisticated enough to employ the majority of legal talent. We also wanted to get a sense of growth in legal jobs within corporations.

Remember, though, like any top 20 list, it’s simply a snapshot at a moment in time and its accuracy fluctuates like a stock market, rising up and down with the movement of lawyers and merger and acquisition activity. Today’s top dog could be tomorrow’s mutt.


Public companies rule the roost

So what did we find? It came as little surprise that the top employers of legal talent are publicly traded companies and our list somewhat reflects the TSX rankings of top stocks based on market capitalization — suggesting the bigger you are, the more lawyers you hire.

As such, our list is heavy on financial institutions and energy companies. Canada’s five biggest banks alone employ about 10 per cent of lawyers who work in corporations. RBC Financial Group leads the list, followed by CIBC, and the Insurance Corporation of B.C., which handles claims from that province’s no-fault insurance system. Rounding out the top five are BCE and Manulife Financial.

The remaining list is made up of insurers, including Stewart Guaranty Title — which didn’t even exist in Canada a few years ago — the other big banks, a few oil and gas companies, and a number of power companies. Only one industrial, Bombardier, makes the list. Canada Post also makes the cut, as does the Société québécoise d’information juridique (SOQUIJ), a Quebec legal publisher, and the Canadian Broadcasting Corporation.


Passing the torch

What was surprising, though, is how fluid the list is and how it has changed over time to reflect our changing economy and the rise and fall of corporate Canada. To make the list today, a company would need to employ at least 20 lawyers. In 1981, 20 lawyers would put you in the top five.

Twenty-five years ago, only one of the banks, CIBC, even made the top 20, and it ranked below Canada Permanent Trust. In 1981, the top five employers of legal talent included a diverse collection of companies from the transportation, telecommunications, financial, and power industries. Canadian Pacific Ltd. topped the list, tied at 45 with the Business Development Bank of Canada, which then employed lawyers in offices across the country. Next were Canadian National Railways, Bell Canada, and B.C. Hydro.

The remaining were insurers, trust companies, and oil and gas companies — many of which don’t exist in name anymore — and oil and gas companies were prominent employers on the top 20 list. While more economic sectors such as mining and pulp and paper and even technology were present in the 1981 mix, by 2006, they had dropped out of the top 20. Those companies may still employ a number of lawyers, but they have not kept pace with the growth of the banks, insurers, power corporations, and telcos.

During the 25-year span we studied, the number of lawyers employed in the corporate sector has tripled. Employment rose from 1,125 individuals in 1981 to 2,546 by 1996 and hit 3,329 in 2006. That works out to a compounded annual growth rate of roughly 4.3 per cent, almost double the 2.2 per cent endured by the private bar over the same period. In 1981, 30,098 lawyers toiled in law firms, compared to 52,247 by 2006.
The number of departments in which lawyers are listed — which includes either geographic location or a division within a company — has also exploded, from 324 in 1981 to 1,313 today.


Financial services explodes

But the real story is the explosion in financial institutions and their emergence as powerhouses in the employment of internal legal talent.

That’s no surprise, says Jean-Paul Bisnaire, senior executive vice-president, business development and general counsel at Manulife Financial. “The financial services industry has continued to grow over the last several years. Our business is very highly regulated and as a result of that I think there’s been a natural growth in the number of in-house lawyers to provide services to our clients internally.”

David Allgood, executive vice-president and general counsel at RBC Law Group, part of RBC Financial Group, says it is no surprise that over the past 25 years banks have gained prominence as Canada’s top legal employers.

He notes that there are 85 lawyers alone in his group focused on practising law internally. He says over the past 25 years banks have grown into diversified financial businesses, with much of that growth taking place in the 1990s. That’s when the pillar separating banking, trust, insurance, and brokerage services fell and consolidation and acquisitions took place. For example, RBC acquired brokerage and trust businesses and entered the insurance market, as did many of the other major banks.

Richard MacKenzie, vice-president, law at Bank of Montreal in Toronto, notes that 20 years ago banks didn’t have securities or insurance subsidiaries. “None of these activities existed and now they do. As the businesses have grown, the support groups, including the law, have grown.” He adds that the larger financial institutions have “been able to grow in a constrained way,” even though bank mergers are outlawed.


Attitude shift

There has also been a shift in attitude at the top levels towards the role of lawyers inside a company. Allgood says 25 years ago, “law was not a big function in these banks. Today, it’s a much more respected function. There’s been a much more serious look at insourcing the appropriate work. There’s a greater acceptance that there are things you can do better inside where you are closer to the client.” For example, he says, credit card products and derivatives “are areas where you won’t find real expertise in the private sector. Most of the banks have grown them internally.”

Knowing when to add lawyers to the internal roster and growing a department is a challenge, notes Michael Riley, national manager, legal services at Aviva Canada, which grew by merging three insurance companies in 1999. “We’re pretty rigorous about our assessment of when we need a lawyer.”

He says the past decade has seen a wave of consolidation in the insurance business, which led to larger legal departments. Now that the dust is settling, “the numbers have levelled off a bit.”

He notes that the insurance business is litigation-heavy and the legal jobs internally tend to reflect that. “With the costs of legal services rising, it made it more economical for companies to hire in-house counsel to control litigation costs.”

With a number of provinces introducing no-fault insurance reforms in the past few years, claims are levelling off and he says insurers are watching claim volumes to decide their next steps in terms of in-house growth.


Titles and talent

That growth in sophistication isn’t isolated to financial services. It is noticeable in the way that most large companies now break out their legal departments and dish out titles. In 1981, if a lawyer had a title, it was usually general counsel and secretary or maybe vice-president. For those lower in the ranks, it was
associate counsel or solicitors.

Today, departments are much more diversified and legal tasks meld to fit a division or business line and are more specific in nature. For example, Bell Canada has assistant general counsel for regulatory law, while banks have lawyers who specialize according to departments, such as auditing or special loans, suggesting greater specialization is also taking place inside the corporate counsel bar, similar to the private bar.

The titles are also much more elaborate or stratified, ranging from counsel to senior counsel and assistant or general counsel. As well, there are now deputy, director, and manager positions and titles that more closely align one to a function, such as chief of compliance.

It’s been done as part of creating career paths for lawyers internally. Allgood notes that when you join a law firm you are either an associate or a partner. When you go in-house, there “tends to be a few more titles.”

MacKenzie says on the banking side the titles are more traditional, while on the securities side, “titles are aligned with the business. To accommodate career progression, we had to introduce a few more titles.”

Allgood notes that at his bank, the issue of titles is actually under review and he refers to the famous Reebok Rules, drafted in 1992 by Jack Douglas, then general counsel of the sporting goods company. Rule 18 is to avoid titles, especially in small legal departments, because they can create bad blood and disharmony.


New players emerge

The growth of lawyers being hired internally is not only the result of bigger companies and more consolidation, but also shifting economic activity. Take Stewart Guaranty Title. It wasn’t even an entity in Canada back in 1996, but is now one of the top employers of lawyers. That’s because the real estate business has shifted and title insurance is now a leading product. Stewart works with lawyers to provide title insurance in closings.

Marco Polsinelli, vice-president and general manger of the Canadian division of Stewart, says as business took off, so did the demand for internal legal talent. “Since our clients are lawyers, it’s necessary, given the complicated circumstances around a lot of transactions. It requires us to have that special knowledge.”

Another company that has seen significant growth in its legal department over the years is Canada Post Corporation. It stands out on the list as an oddity, but is in many ways like a transportation or logistics company moving items from one place to another.

Gerard Power, vice-president, general counsel, and corporate secretary of Canada Post, say the reason for the large legal department is simple. The company has 71,000 employees, most of whom are unionized, including one bargaining unit with 44,000 workers. It also has 600 flights a day, maintains 7,000 offices, and has more than 7,000 trucks on the road each day. “We get sued,” he says matter of factly. But the bulk of the work internally, about 60 per cent, relates to labour relations.


More regulation spawns hiring

As most of Canada’s major corporations list on U.S. exchanges, Allgood says anti-money laundering laws, terrorist legislation, and new corporate governance rules are drivers for internal legal hiring. “There is just a lot more regulation of financial institutions than there used to be.”

MacKenzie says there is also a growing need for lawyers with securities expertise internally driven by the buoyant capital markets. “But that could change. It depends on how the business ebbs and flows.” Risk management expertise and intellectual property skills are also sought after internally. “I think we’re becoming a little more risk sensitive . . . than we were before.”


The future

So what will happen 10 years from now and who will top the list? Have financial services peaked and will they go the way of the railway companies? What about the telcos? Can they remain near the top in the face of changing technologies and new entrants into the market?

It may very well be a loosening of financial institution merger rules that changes the shape of the list in a decade. If two banks were suddenly allowed to merge, it would two mean two chief legal officers and a lot of duplication, notes Aviva’s Riley.

He says it’s unlikely that the legal department left at the end of the day would simply double in size. “They would shrink, but not shrink in half.”

So whether it will be a bank, insurer, or a combination of the two, what we do know is that the future top 20 list will likely change again in the next 25 years, driven by the same factors that have generated this list — mergers, growth, decline, and new opportunity. 


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