From monkey to organ grinder – assessing the modern in-house team

Sabine Chalmers was concerned about coming back to the UK. Absent for more than two decades, most recently in the US as chief legal and corporate affairs officer at drinks giant Anheuser-Busch InBev, she had built a reputation as one of the leading lights of the general counsel (GC) community. But when she first left the UK, the GC role lacked stature, particularly in contrast to the US. ‘I was concerned about how a UK role would compare to the experience I’d had in the US.’

But she did return in 2018, to one of the most senior legal roles in the UK – BT group GC. ‘It’s been encouraging and interesting because the role of the GC has grown. They sit at the top table and report to the chief executive, they have the compliance and company secretary hats: that’s great for the function.’

Why that has happened is clear. ‘There has been a massive explosion in regulation and a lot of compliance crises,’ Chalmers notes. ‘Some of the crises have given GCs and lawyers the opportunity to show what they can do to help companies solve problems.’ It has not all been post banking-crisis forces, however. Instead, many GCs talk about the influence of globalisation, new products and technology – more jurisdictions to cover and emerging digital economies with fresh legal challenges.

‘When I see corporate scandals I think, “What on earth was their GC thinking?” As the role’s profile increases, the criticism of GCs when things go wrong will increase.’
Philip Bramwell, BAE Systems

Legal Business surveyed 100 in-house lawyers at major companies and interviewed three dozen GCs to understand how the in-house legal market has evolved, and where it is headed. Despite the regular rhetoric of doing more for less, in-house headcounts and budgets have mostly increased. What has shifted has been where that money is spent, with many teams bringing more work in-house: 85% of survey respondents have a policy of doing this to reduce legal spend, up from 70% in 2015.

As a result, teams are being re-organised and roles are broadening. Commercial skills are increasingly considered a must, while managing risk is core to the job description. The trend is more accurately about doing more with more, and spending less on external advisers. BAE Systems GC Philip Bramwell is blunt on the ramifications: ‘When I see corporate scandals I think, “What on earth was their GC thinking? What discussion at the board led them to reach the conclusion that that was the right thing to do?” As the role’s profile increases, the criticism of GCs when things go wrong will increase.’

Follow the money

When Maaike de Bie joined Royal Mail Group nearly five years ago, the rest of the business was convinced it could save money by shrinking the legal department. Since then, however, the legal team has almost doubled to just under 40 lawyers: largely through new lawyers based in Sheffield and a business crime team now reporting to the GC. External legal spend, understood to be more than £10m a year, has subsequently dropped more than 10%. ‘I’ve been able to prove that having more lawyers actually saves money,’ she says.

In-house headcounts are still climbing. Legal departments at the biggest, and most regulated, companies rival law firms for size: Barclays has more than 700 globally; UBS 700; BT 500. Teams at young fast-growth companies have equally grown. Uber’s EMEA legal team is up from just 15 in 2015 to 50 today, while TransferWise has seven people where it had none just three years ago. Funding Circle GC Lucy Vernall was that company’s first full-time UK lawyer five years ago: the global team is now at 32.

‘I’ve been able to prove that having more lawyers saves money.’
Maaike de Bie, Royal Mail Group

It has not all been one-way traffic, with many other teams reporting declining headcounts. Insurer RSA has halved to 25 in the last five years, while budget fell 5% this year. Standard Life Aberdeen has fallen from 170 to about 100, impacted by its 2017 merger. But the statistics show overall in-house lawyer numbers on the up. The Law Society’s Annual Statistics Report 2017, published in June 2018, shows solicitors working in-house increased 3% to 27,767, or 22% of the profession. Our survey found 68% of teams have increased headcount in the last five years, the same proportion as Legal Business’ last in-house survey in 2015. A third of responding in-house teams now have more than 300 people.

Budgets, too, are broadly up. Nearly 60% of respondents say their budget increased in the last year, mirroring the proportion in 2015. The size of those budgets has grown, however. Nearly a quarter reported an annual legal spend of more than £10m, compared to just 9% in 2015. More than half have a budget in excess of £1m. At KPMG, GC Jeremy Barton’s team has doubled to 39 lawyers in the last five years. His legal budget has increased by nearly half in the last year, while his external budget is up about 40% over the same period. It is clear why: the Big Four accountant has faced intense regulatory scrutiny, dominating the legal function’s workload.

No GC can see regulation and enforcement slowing anytime soon, either. The Carlyle Group global GC for investments and head of Europe, Heather Mitchell, comments: ‘We’ll always ensure compliance with regulation, and so if that’s where we need to direct the spend, that’s where the money will go.’

Vodafone’s legal function has grown 25% to 500 people in the last five years. Group GC and company secretary Rosemary Martin says that while the number of lawyers is flat – about 400 – the team has grown as new areas of work, such as compliance and GDPR, have come into the team. It is a recurring theme, with many functions growing as areas such as external affairs and public policy come into legal. Most in-house teams have added data privacy lawyers – regularly described as the hottest recruitment market. BAE’s team of 250 added half-a-dozen lawyers to cover cyber security and IT, another common area of growth. Bramwell comments: ‘We have to keep adding because the business is being presented with so many challenges in that area. That’s a significant investment but it’s work best done in-house because of the specialist knowledge of the business it requires.’

‘Crises have given GCs the opportunity to show they can help companies solve problems.’
Sabine Chalmers, BT

GCs do not struggle to find talent. Private practice lawyers are better paid, but GCs believe the allure of a better work-life balance in-house remains strong. Blue-chip corporations and exciting brands have huge drawing power. Uber recently posted a UK job that attracted more than 150 applicants in a week.

UBS’ investment bank and EMEA GC Simon Croxford, who recently returned after 13 years at Barclays, has a team of about 200. He says the focus has shifted to what lawyers are working on, rather than how many there are, and on bringing more work internally (for more on teams bringing more work in-house, see ‘Shake it all about’). ‘Among other things, we’re looking at where we can most efficiently perform a legal task in house. That means your headcount might go up in those areas but, in theory, your total cost should come down. It’s important you continue to analyse and be flexible and make sure you’re not too siloed because change is constant.’

The business of change

‘The role is going to change hugely in ten years’ time,’ says National Grid group GC and company secretary Alison Kay. ‘It will become broader and the nature of people that get to be GCs will change. They will have spent more time in a business role – they won’t have come up through a traditional legal role.’

Kay was UK transmission commercial director at National Grid before becoming GC in 2012. She is not alone in her view. More teams are offering business training and experience as part of professional development (see ‘The MBA all-stars’). Many in-house teams are going through some form of organisational design exercise, too: FTSE 250 company Capita hired its first-ever GC, Claire Chapman, in early 2018 to build a legal function, while Kingfisher is redesigning under GC Elizabeth Messud.

‘The role is going to change hugely. The nature of people that get to be GCs will change. They will have spent more time in a business role – they won’t have come up through a traditional legal role.’
Alison Kay, National Grid

Pearson’s legal team has reduced from 220 to 170 in the past five years, led by the work of associate GC for technology and strategy, Robert Mignanelli, and the legal operations team (for more on legal ops, see ‘Legal ops of horrors’). GC and chief legal officer Bjarne Tellmann has plans for a four-tier structure for the legal function. Legal operations will co-ordinate in-house lawyers, external law firms, and alternative service providers. But this requires restructuring his in-house team to create smaller groups of highly-skilled lawyers who work on broader business issues and rely on New Law resourcing when required. His lawyers undertake MBA-style training at various external providers, but Tellmann believes a business school needs to develop a specific legal MBA.

‘It’s about how you move from troops and divisions all reporting into generals to special ops groups that are autonomous, upskilled and can plot their own paths. We’re at a good place in headcount but the next step is breaking borders: taking on new tasks.’ His plan reflects broader trends: in-house legal departments are equipping themselves for broader roles within businesses. Pearson’s function has cut 40% from its fixed costs in recent years, and is aiming for a further 20% over the next two. ‘We’ll have to get to the point where GCs are running their legal departments like CEOs,’ he says.

Coca-Cola European Partners GC and company secretary Clare Wardle says technology is a main driver: it will reduce some of the existing workload, which in turn frees up the function to make broader contributions. ‘Historically, lawyers have tended to advise on incidents and single cases as opposed to trends and big-picture processes. We need to move much more into that world because that’s where everyone else is going.’

‘If anyone calls me a “business partner” I’ll thump them. I hate the phrase “internal client”. You should be fully integrated into the business.’
Rob Booth, The Crown Estate

But while almost every GC interviewed points to the impact technology will have, there are still few examples of fundamental changes. There are plenty of purported solutions out there, but many GCs are wary of buying external products. Some have partnered with start-ups: Network Rail, Trainline and Monzo are customers of Apperio, an external legal spend tracker, while Skyscanner has signed up to contract management platform Juro. Associated British Foods is looking at implementing AI tool Kira, while rival Luminance recently launched a dedicated in-house product. Lloyds Banking Group GC Kate Cheetham comments: ‘What technology promises and what can actually be delivered are still a distance apart due to the realities of setting up appropriate due diligence. Firms are working hard to deliver their own tech solutions, but there’s not a total breakthrough yet.’

There is a view a lot could change in the next 12-18 months, however, as GCs look to broaden roles by relying on technology for high-volume, low-value work. What could accelerate that further is the widely-held view that alternative legal service providers are expensive (for more, see ‘Assault on the alt’). Some believe the most innovative in-house teams, such as Shell and Unilever, could soon commercialise products for the wider market, too.

But efforts have been focused on fee structures. Regular use of the hourly rate has come down marginally, from 55% in 2015 to 50% this year, while those who ‘never’ use it has risen from 12% to 18%. Fixed fees per project are used often by 67% of respondents, largely the same proportion as in 2015. Capped fees were similar: with the 55% often using these rates up on 52% in 2015 but down on 64% in 2014. Discounted rates remain prevalent, with 60% of in-house teams using them often, although this mechanism has lost its status as the most popular billing method to fixed fees per project.

Kay comments: ‘Hourly billing is still the norm and I’m no fan of hourly billing but then I’m often thinking, “Well, what else can we do here?” What we do much more is individual tendering for certain pieces of work. We’ve got our panel but if we’ve got chunky pieces of work we’ll then go back to them and ask, “What can you do this for?”’

‘It’s not just legal risk, it’s regulatory risk, reputational risk – what’s the right thing to do? The role of the lawyer and compliance officer is fundamental to making those kinds of decisions.’
Simon Croxford, UBS

That said, survey respondents ranked quality of advice, quality of service and experience in similar matters as all being more important than pricing levels and flexibility in billing. Nearly half said the main reason work was sent externally was because it was too complex to handle in-house, while just 13% said it was more cost-efficient. Most GCs agree external adviser attitudes have improved in the last five years. Telefónica UK GC Ed Smith, with an external legal spend of between £3m and £6m over that period, captures the tension. He is under cost pressure, but his first objective is to provide the best legal advice. ‘If I was just doing the second objective, no-one would thank me if I wasn’t also meeting the first. It’s inherently less important. Law firms are excellent and the way they work with us gives us more certainty over costs than ever before. It gives us more confidence.’

Shot to ribbons

Croxford believes in-house lawyers had a more clearly-defined role a decade ago. But it has since widened to what he calls ‘holistic risk managers’. ‘It’s not just considering legal risk, it’s regulatory risk, reputational risk – what’s the right thing to do? The role of the lawyer and compliance officer is fundamental to making those kinds of decisions.’

Many GCs make the same argument about the future of in-house lawyers: as regulation and enforcement continue to sweep industries across jurisdictions, the prominence and responsibility of legal functions will rapidly expand. The Crown Estate GC Rob Booth comments: ‘If anyone calls me a “business partner” I’ll thump them. It’s also why I hate the phrase “internal client”. You should be fully integrated into the business.’

‘You’re expected by default to take into account different considerations, not advise in a vacuum.’
Matt Wilson, Uber

The public has higher expectations of companies post-banking crisis, which often leads to new regulations. But people are increasingly concerned with ethical issues, too: environmental and social impacts regularly attract publicity. Uber’s associate GC for EMEA Matt Wilson says: ‘You’re expected by default now to know and take into account, when giving advice, different considerations like the relevant politics, economics and the operational impact on the business: not just advise in a vacuum.’

That creates an opportunity for in-house legal teams to become more valuable. But, as the UK community increasingly aligns with the status legal departments have reached in the US, the repercussions and scrutiny will follow. Consider Felix Ehrat, who in May resigned as GC of Novartis because of a deal the company made with US President Donald Trump’s former lawyer, Michael Cohen, to learn more about approaches to healthcare. Ehrat’s parting statement was telling: ‘Although the contract was legally in order, it was an error.’

Bramwell concludes: ‘With greater influence comes greater levels of responsibility. If you have a higher profile, you’re going to get shot to ribbons when it all goes wrong. So while it’s energising being valued and making more of a contribution, perhaps we’ll see a little more downside over the next ten years.’ LB

tom.baker@legalease.co.uk

hamish.mcnicol@legalease.co.uk

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