Some lawyers live for the sting of battle they find in litigation. Some find their true worth in helping clients overcome legal challenges in their business or personal lives. And some find the pull of business stronger than the potential rewards of law-firm partnership. And though there’s not a great likelihood they’ll go on to become CEOs, they are often at the right hand of chief executives, advising on virtually every aspect of business operations that carries a legal consequence.
They’re the general counsel to corporations, a legal niche that is both growing and changing, experts in business law say. Two factors, in particular, have contributed to those changes in recent years: One is a difficult economy that has compelled many companies to cut back (read: layoffs, health benefits or pension-plan changes and the legal consequences thereof). Another is the increasingly complex regulatory environment that compels executives in some business sectors to rethink their legal strategies and consider bringing those functions in-house, rather than out-sourcing them.
And, of course, there’s an increasingly global aspect to business, which means companies must interface with legal systems that don’t always mesh neatly with U.S. business law.
“As international trade continues to grow, the skill set for in-house counsel has to grow, as well,” said Reid Schultz, general counsel and chief administrative officer for MIQ Logistics. “It’s one thing to understand U.S. law, but we’re in 20 countries, going on 21, with an agent network in another 50 countries. So we’ve got to deal with the regulations in every country. We work with very good outside counsel in all these countries, but like many divisions in other companies, we’re being asked to do more with less.”
Schultz and other general counsel say one of the most attractive aspects of their work is being able to see the results of their work. In his case, both a law degree and an MBA give him an understanding of how effective legal strategies can position an organization for success, something MIQ has enjoyed in spades—over the past year, revenues have soared to $650 million.
Cost Pressures
Dan Devers of Shook, Hardy & Bacon, who formerly worked in the general counsel’s office for Cerner Corp., said the intense focus on cost savings at companies had put additional pressures on corporate legal staffs. “Spending for outside counsel is under extreme scrutiny,” Devers said. “At the same time, the current legal market has depressed the cost for lawyers.” As companies look to internalize their work, he said, “naturally, the volume and variety of issues increases as does the need for experienced management of internal lawyers performing these services.
But not all companies feel that same pain. “I wouldn’t say the nature of the work has changed for internal counsel as a result of a contracting economy,” said Kevin Connor, general counsel for AMC Entertainment. “The lawyers in-house tend to work on the higher-profile matters within their company, and the more mundane matters still tend to get outsourced to outside counsel. The more important issues are the ones you work on because your clients are the department leaders within your company. They want your attention focused on their matters that are key to the success of respective departments.”
Connor did note a change in the type of work throughout the downturn. “It slows down the deal flow for our companies,” he said. “It has increased the amount of disputes and dispute-resolution requirements, so it’s changed the mix slightly. I come to my in-house job with more of a corporate and business background, so that’s a bias of mine, but I like deal flow and corporate and real estate and transactional work better than dispute resolution.”
Perhaps more than the sluggish economy, regulatory changes have forced changed in the workload for general counsel, and not just since the congressional balance of power tipped back to the Democrats in 2006. The Republicans controlled both White House and the Capitol when the Sarbannes-Oxley legislation was enacted in 2002, ushering in a new wave of compliance requirements.
“We are seeing significant attention paid to data privacy regulations and risks,” said Devers. “The Dodd-Frank Act created new reporting requirements for public companies, in addition to those stemming from Sarbannes-Oxley.” And in his area of specialization, intellectual property, “the America Invents Act has led many clients to consider new strategies and tactics regarding patent validity challenges in the U.S. Patent and Trademark Office,” he said.
Schultz said he believes more general counsel work these days is tied up in training and regulatory guidance for employees, as well as internal audit support. And foreign regulatory changes, such as the United Kingdom’s new bribery act, can be particularly onerous. As a consequence, he said, “given the regulatory breadth of these restrictions attaches to cultural nuances at a much more intimate level than most, we spend quite a bit of time training and offering guidance, that often times blends in those cultural nuances to help set the right tone at the top for a global enterprise.
“General counsels are responsible for the health of the U.S. entity, including foreign subsidiaries, so it’s critical for a third-party provider like us to be actively involved in training as well as supporting or conducting due diligence efforts on our own third party agents. We have to be able to conduct that training so it’s relevant and creates a culture of compliance that’s embedded in a company’s DNA.”
The shifting regulatory landscape has altered the calculus that business executives must master to determine when, or whether, to adopt a general-counsel structure within their own organizations. The key, though, isn’t how big a company is; the sector it’s in is the most critical piece of that equation.
Devers said that other “factors include the risk profile of the industry and the company’s products and services, whether the company is public, the number and complexity of international operations, the intellectual property landscape, the size of the company and historical legal spend, and the extent to which the company is entering new markets.”
“I think it’s size and sector combined,” said Connor. “To me, it’s really a neat thing that there are outsourced general counsel services available.” A $50 million company that’s not heavily regulated, he said, could take a step in that direction with groups that will serve in the capacity for a monthly retainer. “Maybe you don’t want to hire someone full time at $100,000 or $150,000,” he said, but for half that, an outsourced GC can learn your business, do corporate minutes and minor contracts, and allow the leadership to determine if that’s a better legal model for operations. “It can be a nice segue into a relationship with a fully immersed GC,” he said.
Schultz, as well, said the sector was a primary concern. “It really depends on how heavily regulated that industry is,” he said. “If you’re heavily regulated, it may be more economical to bring more legal resources in-house, even for smaller companies. The old rule of thumb is two attorneys per billion in revenue; however, given the nature of your business or how heavily regulated it is, that rule of thumb may not apply.”
At some point, economic recovery will set in, and that will trigger demand for more corporate counsel, legal ex-perts say. When that happens, the candidates best positioned for success, and the companies that will be able to take advantage of their skills, will be those who are business-minded, with skill sets that go beyond specialization in legal issues, and the ability to manage projects and budgets alike.
Devers said his experience at Cerner had proved invaluable not just in understanding that rapid-growth, modern business, but in being able to bring that understanding back into a law-firm setting.
“After this experience, I am significantly more effective because I understand the lawyer’s role in achieving the best business results for the business,” Devers said. “Senior leadership cares more about outcomes and efficiency rather than winning every battle or creating an elegant legal solution.”