20 YEARS OF THE LAWYER: IN HOUSE
5 December 2007
In-house counsel are no longer the poor relations of private practice lawyers. We look at how in-housers have become power brokers
One of the most dramatic developments in the past 20 years has been the changing role of general counsel. The days of being ostracised by the board and controlled by external firms are over.
Back in the 1980s, going in-house was seen almost as career suicide. “In 1985, everyone wanted to go into private practice. It was the only place to work if you were a lawyer,” says general counsel at RGA International Catherine Regan. “Everyone thought I was nuts!”
The one and only…
The Dupont model, which sees a corporation using one firm for all its needs, has been much discussed, but until recently it was not used widely.
The model requires considerable flexibility on the part of the chosen private practice firm. Eversheds, which has made somewhat of a name for this work on the back of its experience as preferred provider for Dupont, also scored big with Tyco in 2006. Tyco general counsel Trevor Faure picked the firm to service the company’s needs across dozens of jurisdictions. Eversheds’ rival, DLA Piper, now advises Linde on a similar basis.
Reuters general counsel Rosemary Martin recalls a similar story. “Having moved in-house from being a partner in a City firm, it was quite an eye-opener to discover how arrogant some private practitioners can be towards their clients,” she says.
Aside from being snubbed by their private practice counterparts, in-house lawyers also had little respect from their respective boards. Management saw legal heads as a means of contract producing and often felt that the lawyer(s) had too much free time. As such, in-house counsel – especially sole in-house counsel – ended up doing dual roles, usually as a human resources manager. General counsel would have to clear any positions on panels with board members, or at least a finance director. And if that wasn’t bad enough there was no e-mail.
But all that is no more. “The Big Bang opened up the stock exchange to foreign firm investment,” says Laurie Adams, consultant at Outside Insight and former general counsel at Citibank and ABN Amro.
By the late 1980s, companies began exploring cross-border M&As more actively and in-house lawyers found themselves extending the capabilities with a focus on capital markets.
“The free movement of capital through EU legislation increased the volume of business transacted,” explains Adams. “The growth in capital markets and all the new products that came from it led to an explosion of transactions and these needed documenting and controlling. This led to a rise in the in-house lawyer.”
The huge rise in regulation and the demanding requirements of the regulators such as the Financial Services Authority (FSA) sent a second shock to in-house legal departments.
“The rules had to be completely re-written and lawyers had to do it very quickly,” Adams recalls.
The surge in the scope of work and the increased management powers they found with their increased legal teams led to heads of legal and general counsel finding that they had more control over their external advisors.
“I think the biggest watershed moment for the in-house sector over the past 20 years was when companies realised that outside counsel should be managed by in-house counsel,” says consultant at Outside Insight and former Allen & Overy partner Jeremy Thomas.
In 1995, the Law Society called for in-house lawyers to assert more vigorous controls over external advisors and were urged to police firms to ensure promises made were kept. The early 1990s saw corporates and banks set up formal panels. Credit Suisse First Boston only formed its panel of external firms in September 1994, citing cost controls and quality of service as its reasons. At the time, Geoff Ireland, the man appointed internally by Credit Suisse to oversee the establishment of the panel, said the banking market had been shifting and that the group had to see if its internal lawyers met the bank’s changing needs.
US consultants Altman Weil Pensa released a law department compensation benchmarking survey in 1997 which demonstrated, for the first time, that the salary gap between in-house lawyers and private practitioners had narrowed, marking a major milestone in the sector. The consultants said, at the time, that the increased migration of lawyers from law firms into corporate law departments had grown, leading to a lessening of the salary gap between the two. Another survey by Taylor Root in the same year revealed that demand for in-house lawyers had grown, with 29 per cent of corporates increasing the size of their internal legal departments from August 1996 to 1997.
The advancement and international acceptance of technology was no doubt another factor in the metamorphosis of the in-house legal team, opening up opportunities for 24-hour dealing.
By 2000, internationalisation meant that in-house teams had to get global. June 2000 saw Barclays announce plans to set up its first global panel of firms to work with the varied international scale of work, and increase efficiency and cost management.
And it wasn’t only the private sector embracing change. The 1980s saw the rollout of Compulsory Competitive Tendering (CCT) by the Conservative government in a bid to initiate greater efficiency to local government services through the use of competition.
“Once CCT came along, legal directors had to shift focus from focus from internal matters to preparing specifications for bids to perform legal work for councils,” says Eversheds head of local government group and former in-house counsel at Leeds City Council Stephen Cirell.
“We had to package our litigation team into a separate business unit under a litigation manager for our team to bid for our litigation work,” adds David Daniels, assistant director of law, London Borough of Islington.
Although this initiative did successfully introduce competition into the public arena and brought wide-scale savings, it brought with it an undue reliance on economy rather than what could provide the ‘best value’ for the government. “All it really did was confirm that in-house legal advice was better than that of private practice,” Cirell adds. “It’s too expensive to go outside for legal advice anyway.”
Daniels says: “We had to expose our work to our competition. I recall exposing about 40 per cent of our work, and after that we didn’t get any bids except the one from our in-house team.”
CCT did two positive things for the in-house sector: it was the first step towards better management of the private and public balance and it also made local authorities measure their operations. The regime was replaced by the ‘Best Value’ system in April 2000 by the Labour government. The extension of CCT placed less emphasis on cost and allowed councils to consider non-quantitative elements of bids. But CCT’s legacy lives on in the improvements in the in-house legal teams of local authorities in terms of standards, measurement, organisation and efficiency.
The year 2000 also saw the incorporation of in-house lobby group Commerce & Industry Group (C&I Group). The group began trading in 2002 and was chaired by Edward Smethurst, head of legal services at Latium Group.
“We are the lobbyists for in-house counsel,” says C&I Group chair and general counsel for Prices Foods Martyn Rodmell.
Three years later, a second in-house lobby group was launched. The GC100 was created in March 2005 for lawyers working within the legal teams of companies in the FTSE100. The group was created in response to an increase in volume and complexity of domestic and international law and
regulation affecting UK-listed companies. It was chaired by Barclays general counsel Mark Harding.
The Lawyer launched its Lawyer Summit in 1998 in Monte Carlo to address the need for a development-based networking event within the sector. Today, the Lawyer Summit has grown to become one of the most prestigious and noted networking events within the industry.
But this year has seen a major blow to the in-house counsel sector. On 17 September, the Court of First Instance (CFI) ruled against Akzo Nobel in the case of Akzo Nobel Chemicals Ltd and Akros Chemicals Ltd v European Commission (2007). The decision reaffirmed that in-house counsel could not withhold privileged communications made by its in-house lawyers from the Commission. The move struck a blow to in-house lawyers around the globe, with lobby groups such as the Law Society voicing their discontent with the ruling.
“The loss of legal privilege has to be one of my deepest regrets,” says Northern Foods general counsel Carol Williams in a typical in-house comment. “I find the idea that an
in-house lawyer cannot operate with the same high standards as an external lawyer very offensive.”
A number of general counsel, including Alliance Boots’ Marco Pagni, Honda UK’s Daniela Baker and CMC Markets’ Dominic Bacon expressed similar disappointment with the ruling.