The In-House Survey: Blurred lines – the GC as business leader

Climate change and sustainability dominated news headlines in 2019. Extinction Rebellion protests, Swedish teenager Greta Thunberg leading climate strikes around the world, while the President of the US has labelled it all a ‘hoax’. Investors are, in turn, increasingly putting pressure on the world’s largest companies to respond. It has become an enormous area of risk management for every business sector.

And responsibility for managing and assessing that risk has increasingly fallen upon the general counsel (GC). Andrea Harris, group chief counsel at the world’s largest marketing and public relations company, WPP, in recent years took on the head of group sustainability role, as has Heathrow Airport GC Carol Hui. Lawyers at Specsavers sit on that company’s sustainability group to help shape policy, while the GC at FTSE 100 energy giant Centrica, Justine Campbell, identifies the area as one of the biggest challenges she faces.

‘That’s a huge issue for us, to make sure we do our bit for the low-carbon future,’ Campbell comments. ‘There is a lot of focus on ESG [environmental, social and corporate governance] and we are seeing more of that from investors. Making more sustainable energy will affect my role as much as others’. Adds Harris: ‘There are more GCs thinking about this issue, but not many have sustainability in their remit and from my perspective this is mainstream governance.’

It is clear the role of the GC and in-house lawyer is becoming more complex and multifaceted as big businesses face risks in different forms. Agile working – in the sense of being able to pick up pieces of work across different areas – is the latest trend. Legal Business surveyed 100 in-house lawyers at major companies and interviewed 16 GCs to understand how the in-house legal market has evolved, and where it is headed. In-house headcounts and legal budgets have continued to rise, while nearly 80% of survey respondents have a policy of bringing more work in-house.

The Law Society’s Annual Statistics Report for 2018, however, shows that in-house growth is plateauing: the proportion of solicitors working in-house was 22%, the same as 2017. The Law Society notes this is likely an underestimation, but with the proportion having moved from 16% in 2003, growth has slowed.

GCs cannot endlessly add headcount and as such the remit of their teams is expanding. At The Royal Bank of Scotland (RBS), a critical requirement is that its lawyers are able to respond to change and adapt.

‘In-house is no longer seen as the backstreet where bad lawyers end up.’
Alison Kay, National Grid

‘We’ve seen a move towards agile working, both in terms of flexibility but also in people needing to spread themselves across a few more issues,’ says RBS head of legal governance and regulatory affairs and data privacy officer, Suzanne Rodway. ‘We’re starting to see projects where teams don’t want a commercial lawyer and a privacy lawyer, they just want one lawyer who can work with them for six weeks then move on. That’s a very different way of working.’

The other Big Law

Over the last five years, a large proportion of in-house teams have grown. Lawyer headcount is up for 66% of responding teams, and has increased by more than a quarter for 15% of departments. Nearly a third of responding in-house teams now boast more than 300 lawyers and over half have a headcount north of 100.

‘It is no longer seen as the backstreet where bad lawyers end up but where people want to work,’ comments National Grid’s group GC and company secretary Alison Kay.

At RBS, the legal, governance and regulatory affairs function boasts more than 400 staff, up 100 on last year following the addition of corporate governance and regulatory affairs to GC Michael Shaw’s remit. Matt Wilson, Uber’s associate GC EMEA, will have added another 20 lawyers by the end of this year to reach 70 staff: a startling rise from when he was the company’s first lawyer in the region back in 2015.

Claire Chapman, who built a centralised legal team when she joined outsourcing company Capita in mid-2018, has seen the number of lawyers grow to about 40. The reasons for widespread growth are multiple: an ever-increasing regulatory burden; the improved stature of in-house roles; and the requirement to maintain a better handle on costs. Says Kay: ‘Regulators are keener to make their mark on businesses not on the top of the tree for likeability. The net is closing in around us.’

‘With the rise of regulation, I don’t think you can avoid having a substantial legal and business integrity function,’ adds WPP’s Harris, whose team numbers 120. Uber’s Wilson believes that until legal technology can take over repeatable tasks effectively, in-house growth will not peak. Many feel that is still some way off, unconvinced by the majority of in-house legal tech providers and increasingly turning to existing tools within their organisations. With growth, increasing emphasis is being placed on talent retention and development. Capita established a legal tech academy as part of a wider focus on training for its lawyers, while Uber lawyers can apply for opportunities in other jurisdictions and areas of the team through a career exchange programme.

Anglo American group GC Richard Price comments: ‘The economics of in-house versus external is that it’s more in favour of in-house growth.’ Adds Royal Mail group GC and company secretary Mark Amsden: ‘The cost of external law firms is two-and-a-half times more expensive than doing work in-house. The more senior the GCs, the less cost effective it is to go to a law firm.’

Marsh chief counsel for UK and Ireland Nick Havers has been reorganising his 11-strong legal team since the company’s $5.6bn acquisition of fellow insurance giant JLT. He added senior roles in litigation, corporate commercial and privacy to create more opportunities for progression. He says that in-house growth has allowed and prompted teams to hire in more specialised areas such as data privacy and competition. ‘The in-house career path was pretty well established when I moved almost ten years ago but it has developed since then. In our sector, the ever-increasing volume of regulation and new laws has given us the opportunity to grow our roles and expertise. It’s becoming not just wider, but deeper as well.’

Amsden, however, believes there is room for improvement: ‘Working in-house is different [to private practice] and people don’t give you real credit for how many years qualified you are. I don’t think businesses do that well on the reward structure for lawyers, but we’re working on that.’

Others also point to the growing need for in-house lawyers to be agile and adaptable to multiple problems in different areas. Heathrow’s Hui expects her team of about 30 lawyers to be able to work across a diet of corporate, commercial, operations, property, regulatory, employment and safety security issues. ‘The brief of lawyers is very wide and varied and there is a requirement for them not to be too fixed. It’s important for lawyers to have a flexible approach to things, just because one is trained to be a corporate lawyer, doesn’t mean they can’t do anything that’s thrown at them.’

Despite this, many GCs believe their teams have reached full capacity, with no plans to hire going into next year: AIG, RBS, Uber, Capita and Specsavers among them. AIG EMEA GC Chris Newby comments: ‘Because of cost pressures in our sector, going on an expansion spree at the moment would be hard. GCs need to find ways of automating work, because if you have 30 lawyers doing commercial work and you ask the chief executive for an extra five lawyers, I suspect the answer would be no.’

‘The economics of in-house versus external is that it’s more in favour of in-house growth.’
Richard Price, Anglo American

Centrica’s Campbell picks up the point: ‘Very big companies have fully-functioning legal teams and there was a time when people just added on more lawyers. There’s now a reflection that you can’t just keep adding on because of the cost. You need to ensure that teams are doing higher-value work and automating other tasks to make sure they are being efficient.’

Indeed, Centrica’s in-house legal team has gone the other way, shrinking from 300 to 200 in recent years. As the company embarks on a change programme aimed at taking it from a utility oil and gas company to a technology-led, low-carbon energy provider, Campbell has reduced costs by 35% internally and externally.

Legal budgets increased for just shy of 60% of respondents in 2019, however, with 12% of companies reporting an annual legal spend of more than £10m. But while 36% of respondents say demand for external legal services within their organisation increased this year, this is down from 47% last year. The trend is towards exclusively sending high-value work to external providers and keeping everything else in-house: 62% of respondents said they send work to law firms because it is too complex to handle, up substantially from 44% last year.

Moving on up

As the expectations of business on GCs have grown, so have GCs’ expectations of law firms and other external providers. For those with panels, the vast majority of interviewees indicated that they are pushing heavily for their advisers to demonstrate that their lawyers are from diverse backgrounds.

‘Diversity and social mobility will continue to be an increasingly important part of the agenda along with a broader sense of inclusion for people with disabilities, LGBT and diverse backgrounds,’ comments Centrica’s Campbell. ‘The focus is on the role big business plays in society.’

Reduced in-house legal spend is going to affect external legal advisers: 39% of survey respondents report that just 1-10% of their budgets are spent on external services. A further 18% do not spend any money externally. ‘Considerable legal work is still outsourced. If a company is building a significant internal legal function, part of the payback for that internal growth needs to be lower external costs. However, there will still be times where you need to draw on the specialist expertise of external law firms,’ remarks Kate Danson, group GC at chemicals company Johnson Matthey.

However, Anglo American’s Price adds: ‘We’re pretty big consumers of legal services and we don’t have a strategy to use less external counsel. We recognise that firms play an integral part in how we deliver legal services to the organisation.’

Nevertheless, GCs are becoming more attuned to what they get out of the fee structures they enter into with firms. Regular use of the hourly rate has stayed broadly the same as last year at 51%, and has only come down marginally from 55% in 2015. Regular use of fixed fees per project has declined 15 percentage points compared with 2018 to reach 52%, while capped fees came in at 46%, down from the 55% of respondents who said they regularly used them last year.

GCs continue to push for flexibility in billing methods for different types of legal work but the much-touted demise of the billable hour has been much overstated. ‘I use fixed fees if I am worried about doing the hourly rate but If I trust a law firm I’ll do hourly – but even then I’ll try to get a blended rate,’ says ComplyAdvantage GC Sam Ross. Adds Halma GC and company secretary Ruwan de Soyza: ‘I’ve moved us away from fixed fees to discounted hourly rates because the cap just blows you out of the water [on fixed fees]. You get so far down a transaction and the cap doubles and that doesn’t do anybody any favours.’

GCs are not shy to seek out alternative legal providers for work either, with key players such as Axiom and Lawyers On Demand being deployed or used in the past by just over a third of GCs interviewed. What is more striking is that levels of optimism around alternative legal providers have risen sharply since last year: 38% of respondents say they are positive about the value alternative legal services can have, compared to 27% in 2018.

Kay is complimentary: ‘It would be remiss of GCs not to consider [alternative legal providers]. If we need labour-intensive support or to do project work, we would use them.’ But alternative legal suppliers do not hit the mark for everybody, including those with small budgets: a common criticism of them is that they are expensive. Says Ross: ‘We would look at alternative providers but it’s really expensive and I don’t have the budget for it.’

Views on the legal arms of the Big Four accounting firms are also mixed, with many GCs believing they are still in their infancy: ‘At the moment they’re not hugely resourced and are focused on discrete areas,’ says Amsden.

‘GCs need to find ways of automating work, because if you have 30 lawyers doing commercial work and you ask the chief executive for an extra five lawyers, the answer would be no.’
Chris Newby, AIG

Law firms are slowly waking up to the need to offer new and distinctive services to clients to try to secure repeat business. The last few years have seen law firms invest in technology to deepen their offerings to clients, and make significant strides in building New Law operations: Allen & Overy, Herbert Smith Freehills, Pinsent Masons and Eversheds Sutherland most notably. Moreover, GCs such as Price and Danson suggest there will always be a place and need for law firms and its bedrock of specialist, expert legal advice.

Uber’s Wilson is complimentary of law firms’ progress, albeit from the perspective of a company that has gained considerable buying power recently: ‘There has been a lot of change in the last few years with firms’ desires to really understand [businesses] and go deep on them. The amount law firms are willing to invest in getting that understanding, without charging us, has never been greater.’

What to do

In the last year, lawyers from Specsavers global legal director Stretch Kontelj’s 60-strong team have joined a cross-functional sustainability group at the company. Their remit is to help shape the company’s policy on climate change and the circular economy. ‘There is greater focus from boards in this area and it’s being led from the top,’ he comments. ‘The leadership of it has filtered down the business.’

Harris’s sustainability role at WPP helps set strong environmental targets focused on the company’s direct impact as well as looking at supply chains: ‘We have a responsibility and an opportunity to tackle issues like climate change or negative stereotypes through the work we produce.’ It is just one area where companies face increasing scrutiny. Uber’s Wilson says that as he has grown out his EMEA legal function, his role as a lawyer has become blurred with being a leader of the business.

‘The role is naturally evolving beyond legal to risk management and where the legal advice is a subset of that job, but by no means a majority anymore,’ he comments. ‘We’re factoring in ethics, reputation, business imperatives and I need a good understanding of all those different facets that go into decision making. We’re being asked to make more judgements about what we should do, not just what the legal position is.’

Nobody sees the rising tide of regulation abating anytime soon. What is just as clear is that GCs of the future are spreading themselves further over a range of challenges within their businesses. As Kay concludes: ‘What will change is what happens to a GC afterwards. We’ve not seen many of them go into wider business roles but that’ll become more common. We need to see more GCs ending up on boards and being non-executive directors. It’s really hard to make that jump.’ LB

anna.cole-bailey@legalease.co.uk

By what percentage has your legal services budget changed in the last year?

What percentage of your budget is spent on external legal advisers?

By roughly how much has your in-house legal team grown in the last five years?

In the last year, has demand for external legal services within your organisation:

What billing arrangements do you currently use?

Why does your firm send work to external law firms?

How do you assess your preferred law firms in terms of value for money?

How positive are you about the value offered to clients by alternative, non-law firm providers of legal services?

How important are each of these factors in choosing a law firm?