Moving business forward

Moving business forward
For the first time since we started conducting our annual Canadian Lawyer InHouse General Counsel Roundtable we decided to take the discussion on the road and outside Toronto to Calgary. What a great experience!

The ninth annual InHouse General Counsel Roundtable included legal department leaders from a variety of sectors in Calgary including the oilpatch as well as banking and post-secondary education. These in-house counsel work for dynamic organizations, some with global operations and fierce competition on the world stage, such as Bryce McLean of Pason Systems Corp. — a technology company that provides services to the oilfield drilling industry in 12 countries with 14 companies. Or Bonita Croft of Trican Well Service Ltd. which operates in eight countries including Canada, the U.S., Russia, Kazakhstan, Algeria, Australia, Columbia, and Saudi Arabia.

For Karen Jackson of the University of Calgary, the organization has a bold strategy to become one of the top five research universities in Canada by 2016, its 50th anniversary. All of them are working on behalf of trailblazing companies in a city that seems to have endless optimism about their future and that of the country.

While the lawyers on our roundtable were all passionate about the organizations they represent they brought particular enthusiasm around a couple of subject areas including the impact of regulatory regimes on not only their departments but how a steady stream of regulations impacts the business — at MEG Energy Corp. Grant
Borbridge says he feels the pressure of the court of “public opinion.” As well, they have found that as lawyers, they approach risk management like no one else in the organization. Their training and ability to think about an issue makes them ideally suited to this job. Thus they are finding themselves drawn into discussions where they might not have been themselves before.

The changing dynamic of the legal landscape is also playing itself out before them. Several have adopted new legal services models that rival those of the big firms they might have once retained to do the same work. Some are tired of seeing big bills with really no additional explanation for the price hikes, while others understand it is going to take some time for external counsel to adjust to the new normal.

We hope you find the discussion informative and insightful. This is an extended version of the article that appears in this month’s print and digital edition.

This year’s participants were Bonita Croft, Vice president legal, general counsel and corporate secretary Trican Well Service Ltd.; Bryce McLean, Vice president of legal and corporate secretary Pason Systems Inc.; Grant Borbridge, Vice president legal, general counsel MEG Energy Corp.; Gail Harding,  Senior vice president, general counsel, and corporate secretary Canadian Western Bank; Karen Jackson, General counsel University of Calgary.
InHouse editor Jennifer Brown moderated the discussion.

INHOUSE: Can each of you discuss how regulatory matters are curently affecting your workload?

CROFT: We are a highly regulated business in the oil industry. The regulations impacting our clients impact us indirectly as well, and that includes, as a company that operates in oilfield services at well site services, anything relating to the drilling and production of oil wells in terms of the practices we have to have on site.

Our company operates hydraulic fracturing, and that’s certainly been an area that’s received regulatory attention and, from all accounts, will continue to do so; and those are certainly things we have to stay up to speed on.

BORBRIDGE: From our perspective, the biggest issue from a regulatory perspective is the changes that are happening within Alberta to bring three different departments underneath the umbrella of the Alberta Energy Regulator.

That change has meant a great deal of uncertainty about what the rules are in this period of transition, and a difficulty in understanding where the regulator will ultimately end up. I would also say we are similar to Bonita’s company. We’re regulated a little bit by public opinion because we are an oilsands producer, and that means we have to constantly strive to improve our processes so that we’re being environmentally responsible within an industry that is not necessarily, at its core, easy to do.

McLEAN: I wouldn’t say there’s one regulatory governance issue that preoccupies our time but having such a large global footprint, and operating in so many different jurisdictions, we’re just subject to so many regulations.
The pace of change seems to continue to increase in, not only in Alberta but in the U.S., as political offices change and as public opinion changes.

JACKSON: The biggest regulatory issue facing us right now is getting ready to comply with the Canadian anti-spam legislation,that comes into effect July 1.

The university has a number of electronic messages it sends out from multiple sources and so getting a handle on which ones are commercial electronic messages and which ones aren’t is a big job in and of itself. The second part of that is just keeping track and providing evidence to confirm we have implied consent or express consent.
It’s not something we kept track of before, so that’s a big challenge.

HARDING: I could talk for two hours about regulatory issues. I don’t think you can begin to comprehend the regulation in banking and in wealth management and insurance. Particularly since the global financial crisis we have seen a tidal wave of regulation from every corner and so certainly, the volume we have seen in the last five years is unprecedented. The other change we’ve seen is that regulators are increasingly giving shorter time frames to implement from the time they’re finalized something to the time you have to be compliant. When you’re talking about a change to your IT system, it can’t be done in a few weeks or months. So whether it’s CASL, or our favourite one lately, FATCA (Foreign Account Tax Compliance Act), the system changes are huge.

We have a minimum of three-to-four on-site examinations a year by one or two regulators. We also have some regulators do mystery shopping on our frontline staff.

It’s a combination of following a complexity of systems, training, and very, very, very short time frames that is making the regulatory landscape, in and of itself, our number one issue.

INHOUSE: How much of it do you manage in-house and how much do you draw on outside counsel for advice?

HARDING: It has to be kept in-house because only you know the risk tolerance, only you know the systems, only your training department can put in place the training system. Legal has to be involved, and we can sometimes rely on outside counsel to help us interpret some of the legislation, but by far, it still falls on the legal department because we’re working directly with compliance and with the business units.

CROFT:  I think we need to rely on outside counsel to help us keep up on the myriad of regulations coming out, and like Bryce, we operate in a number of countries that we can’t possibly be sure we’re on top of all of the regulations and the changes that are coming down. But as Gail said, I would absolutely agree the application to your business can only be done in-house where you understand the people, and where that knowledge is required. It really is a team effort with outside counsel, but it couldn’t be done without in-house counsel bearing the greater share of the load.

BORBRIDGE: At our company we have one lawyer who does nothing but regulatory issues — that’s his job, and as the piles of paper on his desk continue to increase, because of regulation, I think we’ll end up having more lawyers who deal with nothing but regulatory matters. We do lean on an outside counsel as well, particularly when it comes to U.S. compliance, getting our product through pipelines or on barges or however we’re getting it to market; so we do lean on outside counsel especially in the U.S., and we do in Canada as well.

JACKSON: I just don’t see how you could rely on outside counsel other than for advice about interpretation of a particular issue. It will be interesting to see how things evolve once CASL is in effect. I can see where, down the road, we might consult with outside counsel on particular issues; but to really understand and operationalize and train people, I think it’s an in-house function.

McLEAN: I would agree, and at the risk of oversimplifying, you can use outside counsel to identify the regulations that may apply to you but when it comes to applying the law or regulation to the facts of your business, that’s in-house counsel’s job; and you need to have a good understanding of your business to make sure you’re identifying all potential areas where that regulation could cause change for different behaviour in the business.

INHOUSE: To what degree do issues around intellectual property provide a challenge to your legal departments?

McLEAN: Forgive me if the colour drains from my face, but we’ve had significant intellectual property challenges, partly as a result of our David and Goliath industry, where we compete with some companies that are 10, 20, even 30 times our size in the oilfield services industry. But in the patent system, we’re really disenfranchised right now for a few reasons, and I think some of them stem from the patent offices themselves, and the legislation will need to change. I speak boldly because we have some scar tissue on this issue. Firstly, the overly broad patenting that seems to be proliferating in Canada and the U.S. is a problem, and I think there’s a big disconnect between the patent examiners, their agenda, and the agenda of intellectual property lawyers from a policy standpoint.

Secondly, there is the increase in non-operating companies prosecuting patents. We’ve seen a lot of patent trolling in the U.S., and I think this is going to definitely expand to copyright trolling, as we’re starting to see more tools being created to troll the Internet for copyright violations. That one probably isn’t going to affect our company; but we are an Internet services provider, so we need to deal with it, and it’s going to add cost. The third issue I think is the rise of large companies using patents and their patent portfolio as a profit centre more than just a competitive tool. It’s abusing a potential competitive tool to create either additional competitive positions or, in some cases, outright anti-competitive behaviour.

We simply can’t publish a patent application everyday like some of our competitors can, and that sort of behavior is causing the medium and small businesses in a place like Calgary, where we’re known for great oilfield technology, to be stifled.

BORBRIDGE: Our challenges are limited to trying to differentiate different technologies based on very, very small differences. The engineers and geologists will say, “No, this is a lot different than their technology because . . .” and they have a reason. But from the big picture, it looks very, very similar, and trying to make sure you’ve differentiated enough, not just to satisfy the patent office, but to ensure you’re protected from the risk management point of view down the road from claims of patent infringement, that’s a big job, and it’s a very important job.

CROFT: I certainly echo everything that’s been said. Trican has always built itself on being a technology company in the space we’re in, not offering just commoditized services, but customized and prior technology services that help contribute to better production for our customers. We have a growing patent portfolio in a number of different areas of technology. Last year we purchased a company that upped our game and it has really increased a demand for legal services to manage the growing patent portfolio.

There are also issues where you might not expect to see them such as with clauses in contracts that will potentially impede your ability to practice your technology — you can find them in the least suspecting places.

For example, in service agreements with customers there are often standard clauses tucked away on the 61st page that deal with ownership of technology in just a couple of lines, and it can really change whether you can continue to offer the technology you have developed to all your customers, not just that one. Confidentiality agreements, which I think are more and more ubiquitous for everybody, can often have clauses tucked into them that could really affect your ability to have one hundred per cent ownership or control of your technology, your intellectual property.

HARDING: We don’t have patents, so when we think of intellectual property, our issues are focused on two things — trademarks of our products and protecting data, and phishing schemes where they have set up fake web sites that look like your bank’s web site.

JACKSON:  When I think of IP challenges, I think of copyright because being a university, we use copyrighted materials in our research and our teaching, and so that’s a focus for us. We’re also a public institution, so we have to be cognizant of the amount of money that we’re spending and using that wisely; so we try, to the extent we can, to make use of the fair-dealing exceptions in the Copyright Act.

Other than that, we enter into a variety of licenses and agreements with copyright owners or representative organizations to ensure the material we are providing to researchers, students, teachers, and professors comply with all copyright laws.

INHOUSE: How do you manage risk in your department?

JACKSON: The university is in the process of developing what we refer to as an enterprise risk management system. We’re looking at risk from an enterprise point of view, and in terms of the strategies that we have in the academic plan and research plan, and what factors may affect the achievement of those strategies. At the overall university level, there’s the executive leadership team, and they’re charged with setting the risk parameters, and focus on financial risk, operational risk, and reputational risk; and then that’s for the university as a whole.

We started this about a year ago. People always did it in an informal way, but we’re putting more process to it now.

McLEAN: We’ve had a fairly rigorous enterprise risk management process in place for about 10 years, and the legal department does play a role in enterprise risk as an adviser, and they lend expertise to many risks in addition to the ones you traditionally think about. But as most in-house lawyers do, you have to wear multiple hats, so I facilitate the enterprise risk management process in my role as a businessperson, and often we’ll rely on people in other departments and sometimes bring in, on a periodic basis, a consultant to help facilitate the process to ensure we’re objectively looking at the risks that are posed to our strategic objectives. Sometimes people in specific industries, if they haven’t given some thought as to looking at this from the balcony rather than down on the floor, they tend to focus on areas of risk rather than risk to your ability to succeed on your strategic plan.

CROFT: I think business is all about risk. Accepting risk is an inherent part of doing business or you won’t be in business very long. That is something I think many lawyers come in-house with some understanding of, that’s why many lawyers choose to be in-house because they recognize that is where they can add value.

But in many cases it requires training and a bit of a mind shift when they do come in house to understand that your job is not to avoid risk, it’s to really help the company manage it, which are very different things. The in-house departments really add the most value when they look at all of the business risks, and they help manage them in a variety of fronts. What we really need to do to add value is to help to identify the opportunities to mitigate the risk.

HARDING: I do believe that, as lawyers, we have been trained to view problems from many different facets. This was really brought home to me when I was asked to participate in a “blue sky” session on a product launch that had no legal implications. They were telling me: “You ask really good questions.” It’s not just a legal risk/liability risk — it’s just our whole mindset. We can give very holistic advice and knowledge to situations but ultimately, risk must be owned by the business units doing it.

BORBRIDGE: We’re currently going through a review of our risk management and we expect to deliver it, as an executive team, in a couple of months. But one of the important questions that was asked during that process is, Where should risk management sit? Should they be in the finance department? Should they be in the legal department? Where should it be? My answer to that question was they should not be in any department — they should be an entity in and of themselves because finance people will focus on finance. The legal people, while we try to reach into all areas of consideration, by nature, we will focus more on the legal issues.

It is a facilitator between departments, and would coordinate the considerations of risk within the company.

INHOUSE:  Are you using alternative billing or fee arrangements with external firms?  

McLEAN: We’re using a different model, but I’m not sure it’s really unique in other industries by any means. We are subcontracting staff and some of our legal services, through a staff augmentation arrangement. We’re both blessed and cursed with being in an industry that can be extremely volatile. In the oil and gas drilling business, it has its ups and downs, so we need to be scalable, and we need to be able to ramp up and ramp down to support the business initiatives that are taking place. We’re constantly outsourcing on a project-by-project basis because there are just certain things that lend themselves to outside expertise, versus certain things that we want to use critical in-house legal resources where it’s necessary to have a higher level of understanding of the products of the business.

We’ve brought in a lawyer on a four-day-a-week basis temporarily to support some of the commercial work we’re doing, and that’s worked out well. I think we will continue to look at outsourcing arrangements like that in the future for some of the higher volume work that is there on a semi-regular basis. We’ve also, not so subtly, hinted to our traditional law firms that they need to start adopting those processes as well, particularly on the prior art searches when we’re doing freedom-to-operate opinions.

INHOUSE:  What’s the feedback been from the law firms?

McLEAN: Well, it’s all been positive, actually. I think a lot of it is going to take time to actually see some of the benefits. But the more we pressure outside law firms, I think the more they understand they’re simply going to lose the work if they can’t become more efficient. Unfortunately, the billable-hour structure is a huge hurdle, and some of the profit centres that the big law firms have in their associates takes a lot of unwinding to get back to a place where they can look at how to deliver value most effectively because they’re not set up for that right now.

That said if the transaction is large enough, they’re often willing to work with you to try and do a scoping exercise without billing you.

Another alternative fee arrangement I was really happy with was rolling out a new equity plan, a phantom equity plan for our international subsidiaries where it was a little more difficult for them to participate in the stock option plan. We had an Argentine law firm that provides our corporate services to our Argentine subsidiary quarterback that project using its network of Latin American law firms. Because the Latin American legal market and particularly the Argentine legal market has been quite depressed, we were able to do it very cost effectively with a lot expertise as well.

BORBRIDGE: We use two arrangements, one is a fixed-fee arrangement on certain projects but the tricky thing with those is, the law firms certainly review what they think the project is, and they come up with a fixed fee.
The tricky part for the company to know is, is it in fact, good value? Is it any better than we would have seen if we had an hourly billing rate arrangement?

It takes enough understanding of the transaction or the piece of work, and the experience to know whether that will actually provide good value. You really have to question whether it will make any difference at the end of the day to the ultimate bill we receive? In the circumstances when I’ve used it, I think we beat what we would have paid by a little bit, but not by a substantial margin.  

HARDING: I think the fixed fee is not a way of significantly lowering the legal bill; it’s a certainty. Every other department that deals with outside service providers gets a project, this is our fixed fee, and they don’t understand why the legal profession seems to think they don’t have to do that.

McLEAN: Gail, I might say it’s certainty, and also an alignment of interests to a certain extent. It’s caused us to provide instructions, and to provide materials more efficiently because the law firm knows that can be a big time waste for them, so they know how to more effectively communicate either through point people in our business or directly to the business people who need to provide them with information.

HARDING: I have been able to get the fixed fee on corporate transaction matters, but on the litigation, what we find is with the fee they’re only prepared to commit stage-by-stage.  

JACKSON: It’s realistic. And you don’t know how far it’s going to go, and you don’t know what’s going to be discovered — whether there will be a smoking gun or not in the documents. Let’s face it, a fixed-fee arrangement is only as good as the assumptions that underlie it — you have to be very focused, and make sure that they are really realistic.

INHOUSE: It sounds like maybe a fixed fee doesn’t really get at the core of the issue which is that the law firms need to be doing things differently?

JACKSON: I think it’s up to in-house counsel to really push for innovation in terms of the way you work with your outside counsel. From my experiences as outside counsel you can spend a lot of time doing what really, in effect, is project management; and that’s much more efficiently done in-house. When you’re establishing a relationship with your outside counsel you should make it clear you’ll gather the information, you’ll distill it, present it in an efficient and effective way, and they don’t have to worry about project management as much.

I think it’s about trying to enter into long-term relationships with different outside counsel so they realize it’s worthwhile spending time and effort to learn about the university, or about the service industry that you’re in, and to think creatively about how to really deliver value. Of course cost is part of the value equation, but you have to really focus on value — what are you getting? Most of us, let’s face it, are only going to outside counsel because it’s a very difficult problem we don’t have the in-house expertise to deal with, and so we need the very best advice.

CROFT: More and more we’re asking for budgets, something I think we’ll probably work on more often than we have in the past, and see where that takes us. We look at it on a staged basis, and it opens the conversation, and allows you to have the conversation before the bill comes, before the work is done rather than after. I think that’s the only methods I have really found to be actually reducing cost. It’s about having really good communication at the outset of what you really are looking for. The other way I found more effective at reducing cost is in-sourcing our core work. Law firms have priced themselves out of the market for a lot of the work that’s not highly specialized.

HARDING: The problem is the fact most lawyers in private practice believe they are entitled to a minimum five-figure jump annually every year, year after year after year throughout their entire career, and the overheads and the costs. There’s been a huge disconnect between the cost and the work. Everyone is struggling with what alternative fee arrangements to go with. Unless we can find a new model for external counsel beyond the billable hour and this entitlement attitude to a $10,000 plus a year increase, there is going to just be a constant growing disconnect, and in-house are going to constantly look for ways to use the external less and less and less.

JACKSON: I think the really large firms are getting the message. I think they are searching for ways to adjust. I think large law firms are very concerned. The international law firms are coming into Canada and Heenan Blaikie failed. These are things causing a lot of concern. I don’t think they’re not trying to change but change is difficult.
I don’t think law firms traditionally have been particularly nimble.

INHOUSE:  Do you ever experience challenges when you want to add to your legal department?

CROFT: Our company has been on a tremendous growth pattern since I joined, which was nine years ago. I was the first lawyer, and we've grown the department as the company has grown. We have 13 lawyers internationally, five in Calgary, two in Houston, six in Russia.

Even with a fluctuating economy, and a fluctuating business in our industry we really have never seen dips for the demand for our legal services — there's always a lot more going on. We may be making an acquisition, or we're building a new service line, or something like that; so we've had pretty continuous growth.

We're still lean for the amount of work that we do in the number of areas that we're in; but the complexity has grown, we've grown geographically, and we've grown in size; and we have been able to show the value required and we have had good management support to keep the department at the level it needs to be to continue the level of service we have been able to provide.

BORBRIDGE: We're at six lawyers now and we have a contract lawyer as well working with us.  My expectation is we will add another three lawyers over the next two years. It's a growing company and I think the expectation that people in the other departments can have the convenience of in-house counsel is just increasing all the time.
So as we get busier as a company, that demand increases; and I fully expect that we'll be bigger within a short period of time.

McLEAN:  One thing my CFO constantly reminds me though is to be responsible for the growth and the convenience that you're giving the business because it's sometimes too convenient to have a lawyer down the hall.

I find it's important for in-house counsel and general counsel particularly to make sure the business knows what the legal department is there for, and what it's not there for.  There doesn't need to be strict rules or policies, but rather making sure  you're working on things that are appropriate, but you're still requiring the business to make their own decisions, and to only come to you where it's really necessary to get legal advice.

CROFT: One of the things we focus on quite a bit in our group is making sure we allow the company, as a whole, to learn from every experience that we have.

Rather than continually coming to legal every time the same issue comes up, we look for every opportunity to train our internal clients on how to manage those issues in the future, whether it's creating precedent documents, or giving them training programs, or checklists, or cheat sheets, or just being the help desk that will give quick phone calls, but not necessarily write the document for them every time.

There are a lot of methods we've applied to try to manage the volume because that's the constant challenge in-house, and you don't need a lawyer doing everything all the time, particularly if you have smart business people who really take what you teach them, and apply it in the future. That's something we spend a lot of time working on so we can leverage the knowledge as a company, not just in our department.

CROFT: A part of that is teaching them why and giving them the answer, not just this is what you do here, but this is why, this is the basic concepts of the law around it, and these are the key issues you're going to see, and giving them all of that context when you handle a problem for them, whether it's an HR problem or a contract negotiation problem.

If you take the time to tell people why you're giving certain advice, they tend to be able to use that and not come to you every single time when the same problem comes up.

HARDING: If you're going to start to enlarge your department your clients have to perceive you give a value-added service; and if you can't do that, then you're not going to get anywhere, and so it does relate to their perception of the legal department, and being focused on adding value.

So you do need to track those activities that can start to slowly consume your resources that aren't truly value added and come up with some strategies to reduce them. We track the requests coming in to see where the pain points, are and that helps us. If we can empower them to do more, that frees up our time to add value so when we do need to get additional resources we are perceived as a department that is actually adding value to our company.

JACKSON: We've grown the department by adding a lawyer to help with the policy initiative that we've undertaken, that's on a two-year. Being a publicly-funded institution you’re always under different scrutiny than either a private company or a public company. Quite frankly, most taxpayers think of their money is going to the university to fund teaching and research and a terrific student experience.  They don't really understand why any of their money should be going to legal services. So I think that's a bit of an extra challenge that we have, and you have to be particularly careful when you're stewarding taxpayers' dollars.

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