Chinese companies put in-house lawyers at arm’s length

Fewer than half of in-house lawyers at major Chinese companies have voting power in board meetings, a survey by Baker & McKenzie and the China University of Political Science and Law (CUPL) has revealed. 

The report highlights that 90 of the 100 polled companies put general counsel at group level, with 29 of them having the general counsel role in both group company and important subsidiaries. Three-quarters have established dedicated in-house legal teams and 57 have established either formal panels or lists of preferred external counsel.

However, only 52 per cent of general counsel positions are dedicated roles, with the rest holding other managerial roles such as vice president, chief financial officer or company secretary.

Of those surveyed, 76 allow general counsel to attend management and board meetings, but only 39 companies give their general counsel voting rights on key decisions. General counsel in just three companies have veto power, but mostly because of their additional position on the senior executive management or the board.

“This reflects on the low position of some companies’ general counsel in the management structure, which means they are not able to get involved in key decision making and not able to prevent major legal risks from the early stages,” said Ye Xiaozhong, the director of CUPL’s research centre on corporate legal affairs management. “This also shows that Chinese companies are not attaching enough importance to legal risk management.”

The report also showed that 71 per cent of the general counsel have a legal education background and only 11 per cent have private practice experience. More than two-thirds (68 per cent) of legal chiefs are promoted from within their companies, and 21 per cent were from other public sector organisations, such as government bodies.

“Many state-owned companies have started appointing general counsel through a public, competitive recruitment process. This can help improve the technical and professional standards of the general counsel,” said Ye.

The majority of the general counsel are responsible for in-house legal department and legal affairs, while only 30 per cent of them also oversee compliance, risk control and intellectual property departments. 35 per cent of them mostly focus on management issues rather than undertake specific legal tasks. This is much lower than their counterparts in the US and UK.

“The definition of the general counsel roles in Chinese companies is quite vague. This is an area for further reforms going forward,” added Ye. “General counsel need to put more emphasis on management and take on a more strategic role rather then handling legal matters.

“General counsel is still a new concept among Chinese companies and its responsibilities remain narrowly focused and limited by management culture and the quality of talent at present. But I believe it will improve as more Chinese companies are adopting and moving towards international best practices.”

The research surveyed around 100 large Chinese companies, including 37 central-government level state-owned enterprises (SOEs), 44 provincial-government level SOEs, 12 private companies and seven foreign-invested enterprises in China. Over half of those surveyed have annual revenues of Rmb10bn (£1bn).