The in-house debate: Look to the future now

David Halliwell, Pinsent Masons Vario: The world is now seen through a ‘VUCA’ lens – it’s Volatile, Uncertain, Complex and Ambiguous. Are the risks that businesses are facing much more uncertain? What does that mean for how you are working in your roles?

John Ventress, Lombard Odier Investment Managers: As in-house lawyers, we need to be aware of the risks faced by our business, but our role is to support the business in navigating the future and helping it to develop, rather than being risk managers.

Gillian Duffy, Aldermore Bank: If you have come from organisations that have been severely distressed, you come well-prepared into a maelstrom like this, where everything needs to be operated in a more effective version than previously.

A lot of my peers who are [general counsel] GCs have had lifelong careers in quite mature, stable organisations. They are not used to being creative on solutions and there is that resistance to looking at things differently. Lawyers are more valued in a crisis than in everyday normal, and a lot of general counsel have a chance to demonstrate their value to their organisations because everything has to be looked at in a different way.

David Halliwell: Are businesses more ready to ride out some of the bumps than they might have been?

Gillian Duffy: I see a very challenging financial and economic market where investor cash will go into more mature, stable businesses with interest rates so high. That cheap cashflow that was around in the last three or four years when everything went digital has come to a close.

Metro Bank struggled recently, Silicon Valley Bank collapsed, Monzo had a bit of trouble and Revolut has been taken over by HSBC. As financing is getting more expensive, we either get creative about how we raise finance, or that venture capital, seed funding and private equity is going to collapse in the next 12 or 18 months.

Yasmin Mangalji, Advanced: Businesses are building the muscle for dealing with crisis and uncertainty. Investors are paying more attention to the benefits of embedding pragmatic risk management frameworks. That might not have been top of the board agenda a few years ago, but the learnings from some of these scenarios have driven investors to start thinking a little differently.

As GCs we are not just risk mitigators and crises managers, we are enablers of the strategic objectives of the business.

David Halliwell: Do you think some of those risk management approaches are now being seen as driving shareholder value?

Yasmin Mangalji: Yes, absolutely. Part of the challenge is to present those quite boring-sounding risk management initiatives as a route to shareholder value, high growth or whatever it is that that business is focused on. Because we are experiencing these bumps in the road, there is more willingness to hear about those initiatives.

Gillian Duffy: You can only flag things to clients. There are going to be stages of the market where there is so much exuberance and competition, that everyone is thinking that they are going to lose out on the next great deal. Many of the people who are investing; their performance, remuneration and prestige within the organisation is built on the deals they close and getting their names in the papers. It is very difficult in those circumstances.

David Halliwell: Do you think those flags are being given more attention now than they might have been ten or 15 years ago?

Gillian Duffy: What helps in financial services is having the power on the governance side of the business. If you are the company secretary, you are managing the directors and the board, and you can make them cognisant of their responsibilities under corporate law. If you have a well-educated board of directors, they are not going to take the fall for a huge issue where they are going to get a corporate sanction, or lose their directorships.

If you are just general counsel rather than corporate secretary, then you probably do not have a great deal of influence. If you are not on the remuneration and the nomination committees, you do not have that policy influence on who in the organisation is coming in to balance the views on the risks and the takes on that. When there are evident practical risks in the market, then people are a bit more open to listening to your concerns.

Lucia Guijarro, Honeywell: I agree that companies are more appreciative of the work we do. Even larger organisations like Honeywell can be caught off guard in extreme situations such as Russia and Ukraine. No-one was prepared for the geopolitical conflict. Some companies had some experience winding down operations in Iran, but that was like nothing compared to Russia in terms of magnitude. As a result, we now have a more robust organisation.

We rely a lot on external counsel because everything we do from an oil and gas perspective and in other business sectors is impacted by sanctions. We have gained a lot of credibility as in-house lawyers, and I see that in the fact that legal teams are more robust. We used to have lots of contract managers and representatives, but now we also have many assistant general counsel and general counsel. We are getting recognition.

David Halliwell: Do you think that the gap between private and in-house practice in terms of the ability to assess and advise on risk is getting bigger?

Stephen Jurgenson, Savannah Energy: Yes, although our business is a bit unusual as it was founded in 2014 and the legal team is growing. We need lawyers with not only private practice expertise but also commercial understanding, especially in the markets in which we operate. We are focused on Africa and bumps in the road are all in a day’s work and we need lawyers who can navigate those.

David Halliwell: How did private practice prepare you for that?

Stephen Jurgenson: We have a deal-intensive environment at Savannah which suits my private practice background. My role of GC is not just about risk management, but it is also about delivery and sometimes leadership and mentoring. When the unexpected happens senior lawyers have to be a calming influence for the rest of the business.

Yasmin Mangalji: The key is always enablement. It is always saying, ‘Yes, there is a risk, but this is how we move forward.’

Stephen Jurgenson: There is a reward in risk, so you have to make sure you are paid for it. My role is often making sure we do not take risk for free.

David Halliwell: Now that you are operating in this environment, have your expectations of outside counsel changed?

Lawson Crawford, UCL Business: We need them to understand quite quickly what we as a business do. When I have meetings with my counterparts, they too share the view that there is a need for external counsel to see themselves as advisers who understand significantly what the business is, what we do, how we do things and what the risk points are.

It is a multiway process. There are some external counsel who yearn to understand how we as a business operate and what our risk pinch points are. We would like them to understand and advise from primarily a legal, but also from a commercial, risk perspective, what our legitimate concerns are. Yes, GCs can assist with facilitating this understanding.

Peter O’Keeffe, Dr. Martens: I agree with Lawson. I would also add that in my experience the better private practice lawyers understand what your particular business or industry drivers are and generally what c-suite stakeholders’ concerns and expectations are of you. This makes a significant difference in speed and quality of their advice. And if I am coming to them, I probably need both.

David Halliwell: Do you often have lawyers from private practice come to you and say, ‘I do not know enough about your business. Can you tell me all about it?’

Krishna Raman, Schroders Personal Wealth: I do not think they will say, ‘I do not know anything about your business’, but they will ask open questions and they will try and get to know the business better. Lawyers cannot assess risks for organisations unless they understand the organisation and the market in which they operate, but they need to know what our pinch points are, and they will only do that by spending time with us.

David Foley, Centrica: With an external lawyer, I expect them to know the law. I do not expect them to know everything about the ins and out of how the business works, otherwise they would be working for us. They can invest time, but the reality is they are never going to know the business as well as the in-house counsel. That is what the role of the GC is – to help them.

Lawson Crawford: I do not expect them to understand every intricacy of the business, but I do not like them to give advice in a vacuum.

David Halliwell: What are the situations where you would use external counsel?

John Ventress: I use external counsel in limited situations when the subject matter is well outside of the mainstream asset management or corporate comfort zone – an electric car scheme contract for example. I expect me and my team to be as competent and knowledgeable as external counsel within the asset management world. If we were not, I think there would be a problem.

Lucia Guijarro: I rely on external counsel when I am not familiar with the matter or the jurisdiction and when I need validation.

In-house lawyers are not only knowledgeable of technical aspects of the business, we also know our policies, constraints, annual operating plan. We have all this information that external counsel does not have, so we sit in the middle.

‘The better private practice lawyers understand what your particular business drivers are. This makes a significant difference in speed and quality of their advice.’
Peter O’Keeffe, Dr. Martens

Peter O’Keeffe: I agree. There are also times when going external is not a question of jurisdiction, scope, or value of a particular issue. If I believe a certain issue may impact the reputation of the brand or standing of the company, I might go external.

David Halliwell: It used to be a choice between doing something in-house or sending it to a traditional law firm, but there are now many other players in the market. How are people making choices as to where to go?

Gillian Duffy: There has been a swing towards looking at outsourcing, especially in my area in investment banking, corporate banking and M&A, to these quasi-legal operations. If we are looking at a large-scale litigation issue or a big product overhaul issue and a reinterpretation of our products, I would rather get a London law firm in to manage that team. Then I will go to an alternative legal services provider that has a bunch of lower level lawyers. I can cost it that way rather than in the old format. We cannot justify having the whole London legal team anymore on some things.

David Foley: There are some organisations that need an outsource centre somewhere to churn the cookie cutter contract stuff. We do not have those. We went to a lot of effort a few years ago to simplify our procurement contracts so the majority do not come through legal.

We reviewed our precedents and trained procurement to do it themselves so the contracts that the central commercial team are seeing are only the high value ones.

John Ventress: I work on the basis of the legal team being a mini law firm within my own business where we apply the same high standards you have in private practice. It is not sustainable for an in-house team to apply a low grade approach.

Peter O’Keeffe: We try and do as much as possible in-house. But we are a lean team so need to move at pace. Where possible, we look to streamline the contracting process and for the low-value or low-risk work, do it quickly. The economics of giving this to an alternative legal service don’t work for us. Stepping back, the larger question is what the next evolution of a legal function looks like? What will businesses need and what does legal need to do to be able to provide high-quality support and advice to meet the business’ demand? I don’t think alternative legal services are a long-term part of this for us. I think the broader question most in-house leaders are asking ourselves is ‘do we wait for AI or invest in better tech or more people now?’ Ultimately generative AI is coming. And when it comes it will do average and above average work better than a lot of lawyers.

Lucia Guijarro: At Honeywell, we do not have a policy as such on how to use ChatGPT, but we have guidelines. We can use ChatGPT or other third-party generative AI products, but we cannot upload anything. We cannot provide information on the products or the customers.

Yasmin Mangalji: The board expects continuous cost savings – use of technology is helping us to deliver and ensure resilience and scalability. As a PE-backed business we are particularly conscious of the need to stay lean – so we’re grateful for any opportunities to increase productivity and efficiency. At the same time we’re conscious of the need to use GenAI tools responsibly.

Gillian Duffy: Things that are talked about a lot on the internet in terms of AI are not necessarily correct. The problem with the robots is they do not know how to assess things, never mind against market or environment.

Lucia Guijarro: The capabilities are there. I agree that future general counsel have to start from somewhere, but the reality is that shareholders will probably say, ‘Instead of hiring five entry-level lawyers, I can have these robots creating drafts.’

Peter O’Keeffe: Generation Alpha will not learn drafting in the traditional sense. They will learn prompts for AI. The skill will be knowing what prompts.

Gunter Eren, Konica Minolta: I don’t believe you can leave AI to create a legal document by itself at this time.

However, I have found that some AI chatbots are surprisingly good. That does not mean they are perfect, it simply means you need to edit the output to meet your requirements. I have found that a chatbot will sometimes raise a point I have not considered, and then I can evaluate whether to incorporate it into my memo or contract, as appropriate. I see these chatbots as a tool that can assist lawyers in their legal work.

Regarding how we train our juniors, I believe they should be using ChatGPT and other AI tools now, so when they prepare a draft memo or contract for your review, the quality of the draft should be much improved. They in turn will learn from your final edits to the text.

David Halliwell: Juniors learn by looking at great drafting, which has come from a great lawyer. If the technology is presenting them with great quality product, they will learn what great quality product looks like.

Gillian Duffy: If I farm out my knowledge and my experience on how I approach these agreements to a technology firm I am depriving my junior counsel of their training.

When I am mentoring trainees or junior counsel within my organisation, I am teaching them how to assess the risk in these clauses, limitations or indemnities. They understand the case law and then from a practical position. It is a major training disadvantage for general counsel if we give that over to the robots.

John Ventress: I have not been in private practice for 13 years, but I do not see that sense of paranoia that we had about putting in the long hours when I was a more junior lawyer.

I do not think they have that kind of ‘battle experience’ that we might have had by virtue of the sheer amount of long hours we put in. On the other hand, for society as a whole, not having that experience and instead getting home and having a life in your late 20s and your early 30s is priceless.

David Foley: How many good lawyers did we lose from that? From a diversity point of view, how did that whole way that we learnt drive, largely women, I suspect, out of the legal profession?

John Ventress: In giving the ability to have more flexibility in your working life it is probably beneficial to a broader sector of people, not just women, but generally people that want their own lives back.

‘The board expects continuous cost savings – use of technology is helping us to deliver and ensure resilience and scalability.’
Yasmin Mangalji, Advanced

David Halliwell: What is your perspective on whether some of the barriers to entry and advancement which existed in the past, are getting easier to overcome? Do you find that it is easier in-house than it might have been in private practice for people from various backgrounds to rise to the top?

Lucia Guijarro: I am Hispanic and I was in private practice for a very short period of time, working for Honeywell for eight years, and also worked at a development bank in the City of London. All these firms already had inclusion and diversity initiatives and programmes in place when I joined, which has made me feel more confident.

David Foley: I am not sure if there is an in-house/private practice divide on this. Some in-house companies are probably very good at it, and there are probably some private practice firms which are very good at it. I have also seen some awful performance by private practice where they are talking a game, but not delivering. I suspect there are some in-house teams that are the same.

David Halliwell: Are there things which private practice law firms could learn from other professionals that you engage with? Are there other professions that are doing this well where the lawyers are not doing it so well?

John Ventress: The accountants have a better steer on it because of the nature of their business. It is easier for non-lawyers to operate and break down barriers to entry because they are not restricted by the requirement to be UK qualified. As an accountant you can pretty much qualify in most jurisdictions and then go to any part of the world. It is more difficult for the legal community because we are more compartmentalised.

Yasmin Mangalji: The barriers to entry seem to be getting lower as some organisations implement changed hiring practices, and begin to understand the commercial benefits of diversity of thought within the workplace. I think it’s yet to be seen whether the barriers to success have changed, the majority of senior lawyers I work with, particularly external counsel, are still not a diverse group. LB

nathalie.tidman@legalease.co.uk