COVER STORY : The great legal takeover

Smoother, smarter and more stealth-like than slick manoeuvre on television legal drama, lawyers are quietly pulling off corporate takeover. In companies the country over, in-house lawyers have sprouted, their numbers up 40 percent this decade. And they’re not just confined to the backrooms, swotting up on law books and finding fish-hooks in contracts. They have inveigled their way into the management suites.
“It’s really growing across all industry types and all sides – private and public – and what is happening more and more is people are seeing in-house counsel not just sitting there practising the law, but as people who are able to take on quite broad mandate,” says Helen Mackay, president of the Corporate Lawyers Association, which represents in-house counsel.
Since 1998, the number of practising certificates issued to government, corporate and professional and trade association lawyers has grown from 1038 to 1874. As proportion of lawyers overall, the sector has increased from 13 percent in 1998 to 18 percent last year.
Further, as Ron Pol, director of professional services consultancy Team Factors, points out, that’s probably conservative number. “Because many of the functions and duties of in-house counsel don’t require practising certificate, the growth of the in-house profession is probably greater than the figures show,” says Pol.
Andrew Poole, managing partner of Chapman Tripp, says most of its large clients have an in-house team these days, marked change from five or 10 years ago. The size of the in-house teams has grown too, although that varies from company to company. “Fonterra and Telecom are interesting ones to compare,” says Poole. “Telecom has gone for model of significant number of in-house counsel and is therefore briefing less work, whereas Fonterra has gone for much smaller model and relies much more on external counsel.”
Poole has noticed, too, that the increasing trend is for in-house counsel to have greater responsibilities. “In the early days of in-house counsel there was discrete legal team and it was probably seen as something of cost and set off to one side. More and more you now see in-house counsel sitting as the top table executives. These are senior management positions.”
Mackay knows from first-hand experience what Poole is talking about. When she took corporate job at gas company NGC seven years ago, her role revolved around quite specialised legal tasks. In her current position as general counsel of New Zealand Oil & Gas, she is part of the senior management team and her responsibilities cover investor relations and communications as well as legal matters.
These days, she says, company’s general counsel can be the legal adviser, compliance manager, strategic and risk management leader, change agent and governance champion.
Fonterra’s general counsel, David Matthews, who has six lawyers in his legal team, has recently been handed extra responsibilities too, taking on government relations and management of trade and regulatory sides of the dairy giant’s business. But he sees it as natural progression for in-house counsel, rather than any kind of boardroom revolution, and doesn’t think generalisations apply. “You could say general counsel are developing broader portfolios within their companies but I would say that relates to individuals within specific companies,” says Matthews. Lawyers, like other professionals, earn their place in company through their technical abilities. Extra responsibilities come once they’ve developed their strategic and management roles.
And many of the positions lawyers are taking up in companies, he says, have relevance to the law. His new responsibilities, for instance, will see him lobbying the Government. “So rather than just looking at the law once it’s passed, you have hand in shaping it and discussing how it should be shaped. It’s just being more proactive about the law and regulatory areas. I would call that very traditional role of the lawyer.” Other general counsel fill roles in risk management, public relations and insurance. “They are disciplines that are easily taken up by lawyers and sit within legal portfolios but in other companies you might have insurance run out of finance, PR out of marketing,” says Matthews.
Vector general counsel Steve Bielby left Russell McVeagh about eight years ago, attracted by the opportunity of corporate role. Initially, his responsibilities revolved around the traditional company secretary tasks. Since then, they’ve expanded to encompass public affairs and risk management.
He says while the situation varies from company to company, theme which is leading to more in-house lawyers joining the top ranks keeps emerging. “Somewhere you need to have straight-line reporting on things like not just legal but risk management, health and safety, and public affairs,” says Bielby. Chief executives struggling to find room for all the required direct-report positions in the “front row” will hand some of those responsibilities to general counsel.
Research conducted by Team Factors backs up Bielby’s point about chief executives wanting to hear directly from the company lawyer. Nearly half of all private sector chief legal officers report to the chief executive or chairman. While this is low figure internationally (in the United States it’s 63 percent), it’s expected to increase. “Internationally, this reflects that the value of in-house counsel doesn’t reflect the ability simply to access cheaper source of legal services or more effectively manage law firms,” says Ron Pol. “The real value of in-house counsel lies in the involvement of lawyers at the earliest stages of developing products and strategies to meet organisational goals.”
The other issue which has changed the role of in-house lawyers is the expanding importance of corporate governance, says Bielby. “Post Enron-type issues, there has been whole focus around governance. What my team talks to the organisation about is providing governance systems that bind the company together. Now, boards of directors demand greater focus in that area so they can demonstrate that to shareholders.”
Stronger corporate governance is one factor driving the changes for lawyers, but Mackay thinks there’s combination of other factors too. Business is becoming more complex, with awkward regulatory minefields and thicker red tape to navigate; and lawyers’ skills are being more broadly recognised. “Their training makes them good problem-solvers,” she says.
The quality of in-house counsel too has also increased, says Bell Gully’s Chris Fogarty, board member of the Asia-Pacific Professional Services Marketing Association (APSMA). When he worked in London in the 1990s, the profession was dismissive of in-house counsel, thinking of them as terribly nice people who were not good enough to make partner in firm. “Now in the UK and the US there has been dramatic change in power,” says Fogarty. corporate role is seen as an invigorating career choice.
Major corporates in Australia have started headhunting partners. And New Zealand’s in-house fraternity is equally grunty. “If you look at teams like ANZ National or Contact, there are people in there who would walk into partnerships in most law firms,” says Fogarty.
Costs are an issue too. While Fogarty says the jury is out on whether it’s cheaper to outsource legal advice or have in-house counsel, he admits it has been driver for companies hiring their own lawyers.
It’s theme which came through strongly in the Chief Legal Officers Report, Team Factors’ survey of corporate and government users of legal services. The cost of doing work in-house versus externally is one factor: while law firm charge-out rates can be as high as $600 an hour, the report showed that the median cost of in-house lawyers was $125 an hour, based on 1400 billable hours per annum. The difference between those figures, though, is believed to have been inflated, because it’s thought not all compa