A growing role

A growing role

Properly managing legal spending remains the top concern for leaders of Canadian legal departments, as they try to strike a balance between what they spend and what they get in return.

Legal spending was one of the topics discussed at the annual roundtable organized by Canadian Lawyer InHouse in co-operation with the Association of Corporate Counsel.

The sixth annual InHouse/ACC General Counsel Roundtable had the participation of legal department leaders coming from a cross section of the business community. The group was selected to be diverse in terms of industries it represented and the size of legal departments.

In legal spend management, discussions focused on the relationship between in-house counsel and the law firms they hire for external work and budgeting trends in legal departments. Alternative fees and discount arrangements with law firms were at the top of the list, in addition to strategies small legal departments have employed to take more work in-house as a cost-saving measure.

Participants also explored the growing role of in-house counsel in how Canadian companies are run, their reporting lines, and access to management. In-house counsel’s key role as ethical watchdogs for their companies was also explored.

Two other topics tied to important trends in in-house practice this year were discussed: privacy and privilege.

Legislative changes and the shifting nature of how business is done in the digital age have placed privacy protection top of mind for legal departments across Canada. Roundtable participants noted that in addition to increasing regulations, the biggest motivator to follow strict privacy codes is to protect the company brand.

Solicitor-client privilege as applied between an in-house counsel and his or her company is under pressure internationally. Different rules apply in other jurisdictions. But the roundtable participants said their biggest worry about protecting privilege came from its misuse or lack of understanding in their companies’ outside legal departments, not from erosion of the concept in general in North America.

Most of the participants worked for companies that do cross-border business, so international issues were part of most of the discussion topics — from cross-border movement of data and privacy to protecting privilege when doing business in other jurisdictions.


This year’s participants were: Kenneth Fredeen, general counsel at Deloitte & Touche LLP; Barry Fisher, vice president, general counsel, and corporate secretary at SAP Canada Inc.; Fernando Garcia, general counsel and corporate secretary at Navistar Canada Inc.; Sue Gaudi, vice president, general counsel, and corporate secretary at The Globe and Mail Inc.; Georgia Sievwright, vice president of law and government affairs at Hewlett-Packard Co.; and Fred Krebs, president of the ACC. InHouse editor Andi Balla moderated the discussion.


INHOUSE: How has the way you manage your legal spending changed in the past couple of years? Law firms say they have devised a number of value billing and alternative fee arrangements with different companies, only to be met with requests for more discounts. What has your experience been with this?

GEORGIA SIEVWRIGHT: HP is definitely very cost-conscious, when it comes to legal spend and there have been cutbacks over the last couple of years. There is a lot more accountability in terms of where the spend is. We are definitely looking for ways to get more for less from the firms. At the same time, when we are dealing with firms, we need to still get the best quality, and that is kind of a challenge [in] making sure you are managing the cost, but getting the quality.

Another trend is we are definitely looking for talent that can do more in-house, as opposed to outside. So in terms of recruiting new talent, we are looking for people who are able to often do what outside counsel might have done a few years ago, and keeping the capabilities and training in-house so we are able to do and manage that.

KENNETH FREDEEN: I think that's key — having a group of lawyers who can do work that, otherwise, you might be forced to send out, and finding that balance between finding the expertise, externally, at the right price.

I am not too fussed on price, quite frankly. I think if you get the best, you will pay those lawyers to do that work. But it is those lawyers in-house who will have value to the equation, in my view, managed properly.

BARRY FISHER: My fundamental concern was not about the hourly rate, but rather the multiple that goes into that. I would prefer to have a $1,000-an-hour lawyer solve an issue within one hour, than have an $800-an-hour associate take three or four hours. So, ultimately the issue around cost is the ultimate matching of the result for the amount of money spent and being able to predict what happens throughout the year on our budgets.

SUE GAUDI: I absolutely agree with that. It's much more common for me to phone the most senior lawyer at the firm, for a three-minute conversation about something that I have already sort of determined what I think the answer is, to tell me if I am on the right track or not, than to just farm out the entire question to an associate at the firm.

I think there is a huge value to in-house counsel who know what the business and strategic direction is and know the players in the company; they are much better placed to be able to at least come up with a theory as to how to answer a question, and then work with external counsel to get it right, than an associate who knows the law, but doesn't know anything about the company.

FERNANDO GARCIA: On our end, I am the only lawyer in Canada, so I don't have the ability to do that distribution within the place, but what I do is I leverage quite a bit with our American counterparts. We have 45 lawyers there, so we do quite a bit of that. We try to redefine the issues, try to narrow down the scope of what needs to be addressed, how Canada is different than somewhere else. We also use external counsel, where needed, but external counsel that we use have been with us for 25 years, some of them, so they have an intimate knowledge of the company, the issues, and so we are able to get quick answers and a lot of historical information to them, as well. So we try to leverage that.

FRED KREBS: One of the things that we have seen. . . mostly with in-house departments, be they in Canada, the U.S. or in Europe and Latin America, the surveys that we have done and the surveys that I have seen, indicate that approximately 70 per cent — the number is up and down a little bit — but somewhere around 70 per cent of the law departments, when they are asked, their budgets are either flat or being reduced. So in the sense of: "Do you have to do more with less?"

We've noted. . . there are a couple of things that go into this: The relationship between what you are paying and what you are actually getting, but also things like predictability. We are seeing, too, where there is a greater push to firms to be more predictable and to set budgets and to try to actually live with the budgets because you have to live with your budgets, so trying to move the firms to do that.

And then there is a whole line of things that might be done with respect to how you manage your department, and how you manage your legal spend and things in terms of relationships with the firms and what [the] firms themselves might do and how they might change their particular structure, and how you might force that sort of thing.

FREDEEN: It is interesting how there is this expectation that certain law firms are going to do more for less, the value equation, and yet I think sometimes, as general counsel, we expect that our budget will grow. I think the expectation should be on us, too, to find more efficient ways to do things internally, to find equations around talent, flexibility, and work arrangements. I think we have not addressed, as general counsel, on how we manage our own groups, to keep that budget flat or actually have it decline.

GAUDI: Two years ago our legal budgets were structured a little bit differently and when the recession hit, we consolidated them and I got all the budgets. So, previously there had been sort of professional fees and legal fees sitting in each of the departments.

It worked well under the theory that the departments knew what projects they were going to be working on and, therefore, could budget for external fees. The problem was they had no idea what those external fees would cost and they had no negotiating power with external counsel.

I took them all on, and I meet regularly with each of the departments to forecast on a monthly or sometimes a quarterly basis depending on the department, to see where they think they are going to be going in the future, so that I can forecast out what I think we can do in-house and what I think needs to be done externally.

That really informs whether I [bring] my budget up or down, and my thinking for next year's budget. I think that is really key — all that communication with the business — is really key to understanding what your legal spend is going to be.

Otherwise, when I inherited the budget the first year, there was a little bit of a dog's breakfast because there was no visibility into [how] they had allocated certain amounts and some of it was just carried over year to year. It didn't reflect the incredible growth that our company was going through, and growth requires more legal resources.

GARCIA: In my end, obviously, I mean manufacturing has been hit pretty hard over the last couple of years, so one of the keys for me was getting a deduction. And I did manage to get a little bit of a discount from our major law firms, as well, of between 10 to 20 per cent, so that was quite successful.

Also working with them on a strategy to try to use more junior lawyers or also to use other legal staff, as well, in terms of reducing some of the costs. Those were some of the issues, but fixed fees or anything like that, we haven't gone to that.

SIEVWRIGHT: We have had arrangements where a law firm has been very helpful on a number of occasions, with secondments, so if somebody has gone on mat-leave or somebody has been ill, the firm has provided a legal resource, actually, at the same salary that the person that's left would have been receiving. It has also been great because we've actually had people that we brought in full-time, hired from the secondment. We also get discounts, for sure, and I know we've had a very robust process going out for RFPs for counsel, looking for a lot of value added in a number of ways, in terms of how they bill.

I guess the final thing I would say is we have service-level agreements and retainer agreements with all the firms. So, in terms of how they travel, where they stay in hotels, how many people can be on a file. We have a monthly firm form they fill in terms of how they are billing, so we can track and monitor what they are working on. That is what's happening in HP these days.

FISHER: And I think that's probably where a lot of Canadian law departments fall in managing the details of the relationship, the disbursement of expenditures, the numbers of attorneys or lawyers working on a file. I think a lot of organizations have some difficulty with alternate fee arrangements because it is directly — in many cases — proportionate to the amount of the [legal spending].

So, if you . . . don't have a huge budget for external expenditure, your leverage is therefore reduced in your ability to have the terms accommodate specific types of alternate fees arrangements.

One of the alternatives I've seen organizations engage in is to boutique the practice. That is, instead of having one firm take all of your legal work with the advantages — they understand the background of your business, etc., all that sort of thing — is to say: “Much of the external legal spend I have is for specific kinds of advice that may be less tied to the core values of my business, and is really driven more by the delivery against the budget. Therefore, the firm wanting to receive more business from me is going to build into the efficiencies necessary to keep them in my light and give me better value for what I am getting, as opposed to structured arrangements all with one firm.”

KREBS: We have our initiative, the ACC's value challenge. And there is quite a bit going on there, and we have quite a few resources available on that, but what we are seeing is companies and law firms are in different places.

Some are focusing on discounted arrangements; others are moving away from billable hour, as the default mechanism for billing and at least looking and exploring various types of flat-fee arrangements or some type of incentive arrangements or taking different approaches, and we see firms offering up a variety.

The secondment is something that seemingly is becoming much more popular and much more available, and that seems to be beneficial to both sides of the equation because you get a lawyer who, if they go back to the firm, they understand your business so much better, and the communication is better, and presumably they can respond more quickly because they can do a better job, and they can add value. But we are also seeing things as simple as just looking at the process. You alluded to this earlier, Barry, where you talked about asking better questions, so that is on the substantive side.

But what we are also seeing is people really carefully looking at how they do work, both internally and how their firms do work in order to just improve the efficiency. You don't repeat things. You change the process, so you don't look at the matter four or five times.

You get better, internally, how you do it and looking at firms and requiring firms to get better, themselves, as to how they do their work. So there is a wide range of what seems to be going on. All of it is driven, I think, by, ultimately, the economics of it. What can you afford? How do you get the most for the amount of money that you have available?

FISHER: One of the myths of moving from a large law firm context to becoming in-house counsel is that you don't have to be marketing any longer. We are constantly marketing the value of the law department to our management.

One of the ways in which we integrate that with our outside law firms is to ask them "What's the one time, for all the expenditures you have, to get law firms to retain you: your marketing, your seminars, your publications, your sharing of documents, et cetera . . . . What is the one time that you know your outside counsel are going to be completely focused on what you send them?" And it's the bill.

And what's happening — and I want to see this broken through because I don't think it is really being done efficiently yet – it’s on the standard bill. It's the name of the attorney, the hours, the bill, disbursements, et cetera. I have to take and justify that. I am offering to outside counsel the opportunity to use their bill to sell the value of what they have done. So they can tell me, not only for this amount of money, this is the value we brought to the organization. Look creatively at your bills, as an opportunity to tell a story because people will then take that into their own thing, it relates to them directly, they are not just looking at a number, but they are looking at how they can promote their own law departments, and you are assisting counsel in developing value for the services they are rendering.

GAUDI: I think that you just need to ask. In my situation I have negotiated all of those things. I've had a lawyer on secondment, which was fantastic, and I hope to do it again. I've had a summer student donated to me by one of our partner firms, which was even more fantastic because that was free. I have negotiated flat-fee arrangements for discrete tasks. . . and discounts, especially during the recession. It was very appreciated when our partner firms gave us discounts during the recession. It helped us out a lot and I think it built a lot of loyalty with them, so it is a win-win.

KREBS: Have you fired firms because of their bills, just simply either you were surprised by them, they didn't keep you informed or you just decided they are too expensive and you are going elsewhere?

FREDEEN: It is the Canadian way; we just don't use them.

SIEVWRIGHT: I had one instance a number of years ago, where I was coaching the firm because one of the business people that was using the service wasn't happy with them. So I said, "What I would recommend is you set up a meeting with this business unit leader and come in and chat with them," and the lawyer came in, chatted with them and sent me a bill for it. I didn't use them again. And that was a big firm.


INHOUSE: At a time of legislative changes and a shifting nature of how business is done in the digital age, how are you dealing with privacy issues? Whether this means protecting your brand, customer, or your employees, how are you approaching protecting privacy in your legal departments?

SIEVWRIGHT: We have world-renowned global privacy policies and we took the strictest standards in the world and really worked from them and obviously spent a lot of time and attention on making sure the privacy statements are up to date in terms of being on the web.

We are in so many different businesses: consumer, commercial, corporate, enterprise, service. All of those businesses have different privacy concerns and challenges, so it is something that we are constantly working on.

We obviously have a privacy officer in Canada. We have a global privacy office. It is very important for them to stay networked with the local privacy commissioners in the provinces and around the world.

The cross-border data is definitely an issue when you are dealing with a global company.

One of our challenges is when you are trying to save money and you are dealing with the consolidating IT strategy around the world, there are a number of very important customers in Canada that require data to stay in Canada. So we have to work very carefully lobbying around the world with the various IT people to make sure they know and understand that certain data has to stay in the province in some cases, and certainly has to stay in Canada in other instances.

So it is a fun challenge, but I am very proud of HP for everything it accomplished because I think we are world-renowned for our privacy.

GAUDI: At The Globe and Mail, I am the privacy officer. But there is an interesting dichotomy at The Globe, of course, and any other media organization because your commercial operations are all subject to privacy legislation, etc. It is critically important, so without knowing our customers and knowing information about our customers, you can't respond to them, and we can't address their issues in our products. . . . But we have this whole machine, that is the backbone of the organization for which privacy is anathema, and we fight it very strenuously in the courts. There’s no privacy in the editorial sphere, so really I see both of those sides.

On the commercial side, for sure, of course we have a privacy policy. We have protocol in place. I do training internally, and anything that anybody can't handle gets floated up to me, which fortunately isn't too much because, of course, as has been said previously, your brand and your reputation is absolutely everything, and people would certainly take us to task immediately if they thought we didn't do the right thing by their personal information. We would hear about it.

FISHER: A lot more focus has been, I think, being paid by many organizations now, down to the financial — not only the reputational — consequences of breaches in this area.

GARCIA: We tend to be involved in privacy concerns regarding payroll. We are currently going through a project of consolidating all the payroll information in the U.S. so we have some of those cross-border issues. Again, we just try to look at it in terms of developing the highest standard possible and making sure that people are notified of the fact that the information is going to be. . . transferred to the U.S., obtain consent, and answer questions that people might have regarding the level of security and ensuring that we use contracts to ensure that security and to take the highest possible level of protection.


INHOUSE: Following the European Court of Justice decision in Akzo Nobel Chemicals Ltd. v. European Commission, are you worried solicitor-client privilege as applied between in-house counsel and their companies is under pressure and at risk of erosion worldwide? What are some other issues in-house counsel face in this particular area?

FISHER: Maybe I should take a first shot at this, to talk a bit about AkzoNobel because we are [headquartered in Europe]. The rule about the independence of employed lawyers is not particularly new. It has been around since the early ’80s, so we are conscious of that in that jurisdiction. You also need to consider that particular judgment is EU-related. It, therefore, falls primarily into two major areas of competition and merger.

And there are two things that will allow the preservation of that privilege within the community: One is that it is for defence purposes and; secondly, it is with an independent lawyer, meaning an independent EU-admitted lawyer, so your American or Canadian lawyer would not qualify sitting in the Paris or London office.

It also, though, applies only in EU-related matters, so in many jurisdictions, the Nordic countries, Iberia and England, for example, they do have protections for privilege that are better known to us. And as a matter of domestic law within those jurisdictions, will still be preserved for privilege within those particular jurisdictions.

At first I think people get concerned when you have a European parent to be reporting on North American litigation that, somehow, that report would be subject to a discovery request in North American litigation. I don't think you are properly concerned about that.

I should say as a sideline, I think Akzo is wrong, ultimately, because it underplays. And, basically, the decision was that the role of in-house counsel has not evolved sufficiently for them to be considered independent.

I think I'd take some offence at that in a North American context because it is partially the dilemma that we all face, that we are regulated. So, when we are sitting with our management team, we have to remind them that we are counsel to the corporation, not to them as individuals. And there may be circumstances in which we are brought to a higher calling, and that may come into conflict and it may require us to go over their individual heads. It may ultimately require us to resign because we are in conflict with our rules of professional responsibility. Properly taken in that context, and if we understand that role, we are independent and, therefore, what we do and say should retain the degree of privilege which is intended by the rules.

On a summary basis, I am not as concerned with this particular decision or seeing a trend, as eroding the concept of privilege.

What I see more frequently is that, a) it is not understood and; b) it is overused, so copying a lawyer on something will get you privilege.

KREBS: You make a very good point in the scope of the action in the Akzo decision. The decision was very limited, in that it was EU, and it was EU competition matters. . . . I think a critical point is if we say "Oh, there's no privilege in the EU or no privilege in Europe," that will become a self-fulfilling prophecy because in other jurisdictions, if you are not vigilant in either recognizing or protecting what you have, then you are going to lose in other areas.

FREDEEN: I think that is happening a lot. I think we do wear multiple hats, so we have to be careful all the time to maintain that privilege because I am always fearful that it will be eroded for in-house counsel. It is pretty important that we are seen in the same light as external lawyers around issues as important as this to an organization.

GAUDI: I definitely think it takes some vigilance. If you have two seats at a company, for example, anybody who is secretary to the board or has a seat on the board has a very different role than they do as counsel to the company. And anybody who sits at the executive table, helping to manage the business from a business perspective, as well as being counsel, and that is a lens through which they sit at that table, which is my case, it is rife with issues for privilege, for sure. So that takes quite a lot of vigilance, and a little more formality around the things that are truly legal, than you may otherwise have to do. As core counsel I tend to agree with what was said before about waiver of privilege, and it is, unfortunately, quite common for counsel — especially with e-mails. If you send an e-mail, even if you mark it "privileged" and have one person that you send it to, they will then inform their entire team, "Here's what the lawyer said," without thinking about it. Well goodbye privilege. The worst thing that can happen to you if you have carefully crafted some advice, is to see an e-mail from the other side with your advice, forwarded from your internal client to them, "See, this is what our lawyer says. What do you think about this?" Privilege gone.

SIEVWRIGHT: We have a litigation department that does litigation hold documents that go out in terms of the relevant people with very nice discrete instructions in terms of what you are and you are not supposed to do, but you always worry about the smoking gun, and you always worry about somebody who is just going to push the send button and it is going to be to a distribution list and you are going to have a problem.

GARCIA: Also, I think as we said before, as you do more in the organization, you become more involved in the strategic business decisions, you have to be very careful that you know which hat you are wearing at that particular point in time. Are you giving legal advice? Are you giving business advice? And that becomes a very difficult balancing act.


INHOUSE: The role of in-house counsel inside their organizations is growing, according to several surveys, including a very recent one by Deloitte. What do you believe are the reasons behind this trend?

GARCIA: I think, especially as the only legal officer for the company, you are basically involved in a lot of the major decisions, a lot of the different departments to the point that no one else is. You see the bigger picture more than most people do, who focus on their department or their objectives. You have a wider perspective. You understand the regulations. You understand some of the problems that could arise with certain decisions. You are able to provide that strategic advice upfront. So I think you are in a very privileged position because you are able to see the entire picture that adds value to that role.

GAUDI: And I would add to that, absolutely. Not only do you have a fantastic perch with which to oversee all of the operations (until the end of May, I have been the only legal counsel at The Globe, since I started almost five years ago), you really get to see everything. Recently I have picked up the secretary to the board role, as well. That gives an added layer of strategic insight to the organization.

I think that between those two roles, you are very well-placed to help the company execute on its strategic plans. I think that is one of the very big reasons why counsel end up in greater leadership roles.

FREDEEN: I am very familiar with the Deloitte survey because we spent a lot of time looking at it. The interest there was to see what's  happened in the last five years. One of the interesting findings in that study was that the role of general counsel has evolved, has expanded and that is in the last five years, in particular.

It is a North American phenomenon; it is not the case in other parts of the world, Europe as an example. . . . Plus I think a lot of what we do is compliance-based, so things naturally flow, like compliance issues, whether it is anti-money laundering or privacy or other parts of compliance. That kind of naturally flows into our jurisdiction because we kind of do that already.

Secretary of the board, same thing; it is very much a legal kind of position. I think, naturally, lawyers are inquisitive and intelligent, of course.

SIEVWRIGHT: I know in HP, certainly a measure on my team's accountability in their performance review is: do they have a seat at the table? When I do performance reviews you go to senior managers of the different businesses. They are at the meetings; they are on the strategic planning sessions; they are part of the team.

I think if you don't have that trusted advisor role, I don't think you are there to hear when something might be in the planning stage that you might need to give advice on, and it is critical in terms of success in a complex organization to be joined at the hip with management.

FREDEEN: One of the things that you raised, which I think is "bang on," is the reporting structure has to be through the CEO.

In fact, there would be some that would say that there should be a dotted line or another line to the board, but certainly a connection to the board because the board sees general counsel as being independent to the corporation. This reporting line is critical and, certainly in Canada and North America, that is more likely to be the case than in other parts of the world.

That is what our study found at Deloitte. With that reporting line, comes access to a CEO who is making decisions around who will do what. I think what we have are a very talented group of people who are being able to show that they are capable of doing things beyond strict law — to your point Barry, if they are giving business advice — and from that comes a thought that maybe those people should do things outside of law, in addition to what they do. I think you are going to see more of that.

I think as that role is understood and as that starts happening, you will see it happen in more organizations that those responsibilities are given to general counsel. I think that is a really good thing.

FISHER: I see this issue less, perhaps than others, of the importance of organization chart reporting lines. To me, it is the issue of access and access is earned. So, I don't care if I am the junior lawyer on a file, if I have something to say to the president that needs to be said, the measure of the success is that the president is prepared to hear that from whatever source that may come from.

The fact that I can't see you because you don't report to me, is not the right answer, so I think there are some lines.
SIEVWRIGHT: And if they trust you and your advice, they will listen and they will act on what you are recommending.

FISHER: From my perspective, the critical part is that you need to be within the line of fire, as opposed to the organizational chart line. I fear when I hear — if I ever heard — someone say "Well, let's just give that to the lawyers." If they don't know who that is, then the individuals are not sufficiently known to be in a role to provide trusted advice to begin with.

That is a symbol to me of potentially some issues in the organization of division lines of people who look at the boxes on the chart, as opposed to the ability of the individual or group to participate concretely in business decisions, which have either legal components to them or certainly have real ramifications.

KREBS: Well, it strikes me to your point of, if you aspire to the role of trusted advisor or persuasive counsellor — certainly trusted advisor — if they don't know your name, you probably haven't achieved that role yet. . . . And to come full circle to the start of the conversation about showing value and talking about value and pushing, with respect to your outside counsel, both of you or, in fact, all of you have made the point about how you have to do it internally, as well. There are many ways, either through the advice that you provide, through the money that you save and on the legal side, through the things that you prevent, whatever it is, so you have to have your seat at the table, but . . . it's not like you are taking out advertisements and saying, “come to me,” sort of thing. But you create for yourself or for your department, you create your own brand. You have whatever that brand is, and it might be trusted advisor.

FISHER: I don't think it may amount to a billboard, but I don't think counsel should be afraid to be ardent self-promoters for themselves and for their departments, and a large part of this is not just "Here's the money we spent, and here's the result we got," more importantly on occasion is engaging in this kind of activity, by having your inside counsel at the front line. These are the situations that would have happened that we avoided, and those would have had far more disastrous consequences. We need to say that we are in control of the design of the game, and that we have worked around to provide solutions for problems that would have happened if we hadn't been proactive in cutting them off beforehand.

And that is a critical role. We have to continue to reinforce that because, otherwise, we just get judged as we are back to where we started with the budget. Budgets are getting cut. Do more with less. Work smart. I hear that kind of expression more. It is not looking at the role of the legal department in a way in which it really can assist an organization, in just looking at it as a cost factor.

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