Working within a company`s organisational structure

It is a fact of life that all counsels must work within their company's organisational structure. Some counsel may have horizontal duties - that is, they will be responsible for all legal issues across a self-contained business unit. Others will have "vertical" responsibilities. Here, they may be responsible for a business division or product specialty, but one which operates through all layers of the company's hierarchy. A third option is a matrix structure, which includes elements of both. Invariably, a company's managerial framework will change over time, as new directors are appointed, and corporate divisions are bought and sold.

One counsel told the meeting how they been requires to switch between two very different organisational structures, following a corporate acquisition. The speaker admitted these change had made them feel uncomfortable - but also there was little they could realistically to influence this development. "It's like being on a see-saw," they said. Another speaker added: "During one time period, management will be devolved to a local level. Then, someone will mess up locally - and local control will be taken away." Realistically, the legal department simply had to adapt to these changes. "You can't solve this issue - you can only tweak your internal systems to respond to the changes," added the first speaker. "The most important consideration is whether your decision making-process remains efficient".

Perhaps the worse way in which local management - including its legal team - can respond to a new, "top down", style of management is to become "yes men" for head office initiatives. Instead, the legal department should prove its contribution to the decision making process in two ways. Firstly, if head office wishes to launch a project that simply won't "work" in a particular market for legal reasons, counsel should not be afraid of letting that fact be known. Secondly, local counsel should challenge operation decisions that are impossible to implement locally.  "I was once told to terminate a service agreement, and replace it with one approved by head office," said one in-house counsel. "I would have broken local bylaws if I done what they'd asked."

Counsel`s role in complex transactions

Multinational transactions place a particular burden on in-house counsel. Delivering them has the potential to become a logistical nightmare.

From the outset, counsel should be clear about their role in a particular transaction. Most obviously, they should ensure the deal is legally permissible in all jurisdictions. For most counsel that will be sufficient: "All I need to do is find a local guy who knows whether or not what is being proposed is actually legal," said one in-house speaker. "Managers should not ask me for permission to do the deal from a business case perspective - they have to make that call."  Having said that, counsels should certainly not be afraid to raise concerns over any unusual behaviour by potential partners or clients during transaction negotiations. "Do your homework - read the local press. If you start hearing things that don't ring true, it's time to think about protecting yourself," said Mark Fucci, a finance partner based in Bingham McCutchen's Tokyo office. "If a deal is heading in a wrong direction, it's time to stop," added one locally-based international counsel. James Robinson, a corporate partner in Herbert Smith's Tokyo office, also suggested the counsel should not be afraid of seeking the advice of litigation counsel in difficult deal negotiations, even before company interests were actually impacted.

Besides acting a "stop / start" gatekeeper, several speakers said that counsel can often help "shape" a deal. Essentially, they can advise on how an overall project plan can be adapted to suit local law requirements. For example, regional employment and data protection laws may make a global off shoring or outsourcing strategy more or less feasible. A specific regulator's approach to competition law approval may affect the viability of a larger alliance or merger.

Assuming a transaction is legally permissible, counsel's next challenge is to help devise a plan which delivers it. This plan should ensure all key legal issues are identified, decide realistic timescales for overcoming them, and assign the necessary personnel to achieve these objectives. Various methodologies and packages are available to manage such a plan, including "gaant charts" and "time ribbons", Microsoft Project and Excel. Whatever approach counsel selects, the most vital factor is that the plan is realistic. "There's no point having a project plan that's been put together by someone with no experience in how these things operate locally - it'll be breached within a week", said Herbert Smith's James Robinson. 

At the meeting, several approaches to running complex transactions were discussed. Some corporate counsel speakers said they employed dedicated project managers to assist them with the implementation of their plans. Law firm representatives also highlighted their own expertise in managing complex cross-border transactions. Commercial law firms have the advantage of using pre-prepared checklists and action plans. These tools - developed over the course of countless similar transactions - help minimise the risk that any legal issue will be overlooked.

 

Just as importantly, cross-border law firms can also manage the tedious and repetitive, but essential, role of co-ordinating information gathering. "We allow in-house counsel to focus on the transaction fundamentals, rather than dealing with information requests from multiple jurisdictions," said Herbert Smith's James Robinson. Mr Robinson then went on to describe how international law firms can operate across different time zones, systematically addressing the same local issues on a deal as they occur, region by region. "If you have a coordinated service, transactions get turned around much quicker," he said. "There's nothing worse for a general counsel than being woken up by the same information request they answered the previous day."

Dealing with multiple stakeholders

Many transactions - even large ones - are fairly straightforward: Two parties decide to work together, to achieve a set of common goals. But many transactions are far more complex than that. Counsel attending the meeting took the opportunity to discuss examples of transactions ran well - and also those that ran badly. 

During the event, one in-house speaker recalled how a different division within the same company has decided to impose itself on the transaction, just before the deal was about to complete. "They wanted to come in and renegotiate everything," the counsel recalled. Other speakers complained about having to pacify an ever-increasing number of stakeholders who wished to be become involved in a transaction - whether or not their involvement was strictly justified. Here, the use of email was singled out as a key cause of stakeholder inflation. "If you send an email to one person, they may forward it onto 20 others," said one in-house speaker. "Before you know it you have 26 stakeholders, and they're all trying to overthrow each other. It's that level of complexity that kills deals."

Two possible solutions to these problems were suggested at the meeting. Firstly, it was suggested that counsel should simply telephone rather than email more often - a record of a telephone conversation is much more difficult to circulate widely. Secondly, one in-house counsel recalled how she had a condition written into her employment contract, which states the company would pay for her trip backto head office twice per year. The rationale for this clause? Counsel with an extensive institutional network within the home office can leverage those relationships.  Credibility with the head office reduces the likelihood of head office second-guessing, and troublesome or unnecessary stakeholders to the deal might think twice about getting involved in issues that don't concern them, if they trusted the counsel involved in the deal, and knew that the counsel would be paying them a visit within the next few months.

Perhaps the worst-case scenario for any counsel is to find themselves negotiating with is a disparate group of individuals with no obviously leader. In this scenario, Bingham McCutchen's Mark Fucci recommended identifying the small number of individuals whom other parties respect and appear to defer to. If this is possible, counsel should attempt to build a working relationship with these individuals as quickly as possible. They should be asked for their opinions in advance of any group meeting or conference calls, and be briefed about the topics the meeting or call was expected to resolve. The intention is that the counsel and these key individuals would, together, help drive the negotiations in the proper direction, and also to build a consensus for approval.

Another key trick to ensuring a meeting's successful resolution relates to timing: A meeting called for 11:30am will usually be resolved quickly - because participants will be stating to think about lunch. "Predicting someone's blood sugar levels is an important group managment tactic," said Mr Fucci.

Legal risk associated with new ventures

On many occasions, a multinational company might decide to "dip its toe into the water" of a new jurisdiction, prior to committing more substantial resources. Here, one of the most common methods of doing so is to open a representative office. But, as one counsel revealed this, in itself, is fraught with difficulties. "When you open a representative office, some people think you can use it to buy and sell locally - you can't," said one in-house speaker. "You're not supposed to do any business on the ground, or make any money. That's the point of a representative office." 

Even after converting a rep office which cannot market into a branch office or stand-alone subsidiary, this is not the only challenge facing a company's new operations. "Our Korean office decided they needed helpdesk support from a local IT vendor," the counsel continued. "It turns out that Korean labour law requires that IT vendor companies who provide temporary staff on-site at a client office need a special temporary staff license. What's more, it's the duty of the client/purchasers of IT services to ensure the IT vendor has an appropriate licenced - both the vendor and the client can get fined if the vendor doesn't have the right license!" A different speaker then recalled that an outsourced computer supplier had attempted to install monitoring software of their PCs, as part of its own internal auditing process. The counsel was extremely unhappy that the company's privacy could be threatened in that way, and set about mandating far more restrictive access rights to their premises and tools for future third party suppliers.

Dealing with regulators

Even a small representative operation will, of course, be subject to local laws and regulations. One speaker recalled how many countries treated a company's local operations differently, depending on which regulator was responsible for them. For tax and liability purposes, some regulators treated the local business unit as part of a wider corporate vehicle - presumably to allow them to make a legal claim against "head office" if required. However, other regulators appeared to ignore the office's relationship with other parts of its corporate structure. For the purposes of regulatory oversight, the local office was the only legal entity such regulators were interested in working with. One counsel therefore recommended that any company opening a new operation in a new jurisdiction must aware of the many different ways a regulator can interpret legal status of a local office. "We have service contracts and agency agreements setting out the local office's relationship with corporate headquarters," said State Street's APAC Senior Regional Counsel, Royanne Doi.

Once a local operation is established, another key issue for corporate counsel is to decide which local regulator the company should build relationships with. In some countries, different branches of the same national regulator will have their own requirements and expectations. This, unfortunately, is a fact of life that counsel will have to live with.  "You can talk to Shanghai labour law office as much as you like - even have them sign off on your obligations. Once you open in Beijing, you'll have to start all over again," sommented one counsel.

 

More generally, several counsel expressed concern that different regulators increasingly share information between each other. One speaker said: "In Korea, the tax regulator may feed information they discover during an investigation to the financial regulator - and the labour department will turn up three weeks later. Or, they'll decide to telephone the regulator in your home country." The lesson of this experience is clear: compliance in one particular area of law or regulation is not enough - all relevant legal issues must be complied with.

In terms of information sharing, the meeting also briefly touched on how companies should handle information sharing within their organisational structure - especially in relation to compliance. As always, some counsels were responsible for compliance directly, whereas others deferred to a separate compliance department. Whatever approach companies followed, it was advised that both department - as far as possible - should work in tandem with each other.  One speaker also recommended that both compliance and legal must accompany any business manager who has a meeting with a regulator. "Some managers ask me why I need to know if they have a meeting with a regulator - they often say it's not important, because they're not talking about legal issues," said one in-house speaker. ""The problem is, some business managers are so 'siloed' in their own part of the company, they have no idea what's going on in another part of the business. They would have no idea if another part of the business is in discussion with the same regulator on another issue. That's why I need to know what they're doing."

Takeaways

•   Whatever your company's organisation structure, do not sacrifice your professional integrity. If company propose something that is not lawful or legally problematic, tell them immediately.
•  Be clear about your role in transactions, and have a realistic project plan and timeline to successfully deliver it. Outside counsel may be able to provide useful checklists and action plans.
• Transactions with multiple stakeholders can spiral out of control. To limit the possibility of this happening, consider minimising the use of internal email and focusing your efforts on those that really make a difference to the deal.
• All new ventures pose new legal risk. Be prepared to deal with obscure, left-field legal issues.
•  Be sure which regulators you must form a working relationship with, and get to know their priorities and level of interest in your venture. Try to ensure that your company co-ordinates its relationship with them, and speaks with a single voice.
• Keep abreast of developments in local jurisdictions.