Many lawyers chose to transition from firm to in-house practice for the wrong reasons. Often, private practitioners are enticed to go in-house because of the misconception that company lawyers earn more with less work. However, the role of legal departments is expanding as companies try to take on more legal work internally in order to reduce cost. With this expanded role come varied and recurring challenges. Some of the notable challenges can be summarized as follows:
Limited Budget – every year a general counsel deals with the problem of managing the legal department’s limited resources and budget. The challenge becomes even more pressing when industry-specific laws, regulatory requirements, or a high volume of caseloads requires hiring additional team members or enlisting the help of external counsels. The current trend in technological advancement also forces legal departments to implement technological solutions to generate meaningful legal and management information, such as setting up a document information system that utilizes a usually expensive database management software, regularly updating the department’s online legal research resources, and synchronizing its internal system with the data processing system of the company and its relevant subsidiaries. However, a general counsel must work within the budget because efficient use of the budget may be used by companies as a key performance indicator for their compensation and bonus systems. It is common knowledge that a company’s management is skeptical of providing additional funding for its legal department, which is ordinarily treated as a cost center.
Evolving Scope – in-house counsels are often responsible for a wider range of legal areas than private practitioners in law firms. These responsibilities may extend even outside of legal areas. Company executives at times expect, if not pressure, in-house counsels to also think like businessmen and to provide both legal and commercial strategic advice. With this increased input comes increased accountability.
Risks and Compliance – as gatekeepers, legal departments are expected to implement measures to mitigate, if not eliminate, legal risks arising from regulatory compliance, which is typically viewed by in-house counsels as one of the highest legal risk areas. Regulatory demands and requirements are becoming increasingly intrusive and are more stringent and complex, especially when the company is publicly-listed and/or required to comply with corporate governance standards set by regulatory agencies. In most cases, legal departments work with other business units, such as the company’s risk enterprise management and internal audit, in assessing the impact of these risks and in formulating risk management programs. The conundrum for the in-house attorney lies in conflicting views between the legal department and the non-legal business units, lack of management support, and the amount of regulatory change and compliance.
Contract Management – the area of contract management requires strong involvement of all business units who are part of a project, transaction, or process. However, in an attempt to meet their own key performance indicators and in order to meet the expectations of top management, non-legal business units may avoid referring matters to and seeking assistance from the legal department. They also do not furnish in-house counsels with copies of documents and agreements beforehand. Instead, these non-legal business units treat in-house counsels as cause of delay, or obstacles to the prompt implementation of the project and completion of the process. As a result, the signed documents may be poorly drafted, lack sufficient protections for the company, and contain items which are adverse and disadvantageous to the company. On the other hand, if pre-clearance with the legal department is done, in-house counsels are often not given enough lead time to enable them to properly review the documents and give sound legal advice or suggest necessary revisions. In the worst case scenario, legal departments are unaware of the existence of these documents until problems arise.
Ethical Issues – yes, in-house corporate counsels face ethical challenges too. These challenges are evident in areas involving conflicts of interest, confidentiality, and trading stocks. An in-house counsel may be placed in a conflicted situation when she has given advice to the company in the normal course of her duty and has also counseled certain executives or employees of the company, and a legal dispute arises between the company, and the executives or employees. They will also be placed in a potentially compromising situation when they have bound themselves in writing to keep company information confidential at all times, but are later compelled by judicial or quasi-judicial bodies to disclose such confidential information. Finally, in-house counsels may be tempted to take advantage of inside information by purchasing stocks of the company in anticipation of a price increase. These are just a few of the many situations that may occur and test the ethical integrity of in-house counsels on a recurring basis.
Certainly, there are no hard and fast rules to properly address each of these recurring challenges. But knowing a potential employer’s operating procedures is an important initial step. Understanding the company’s procedures is critical to a better understanding of the legal department’s role in assessing risk, giving sound legal advice and the chain of command to which the counsel reports. It is also important that in-house counsels properly define their role in the company, clearly set parameters for reforms and for the compliance of regulatory requirements (including those for internal control purposes) by the various business units by setting sound guiding principles, and adopt best practices in the performance of their duties.
Contrary to the misconception about in-house attorneys, internal legal departments will continually be under pressure to do more with less. The nature of in-house counsels’ role will tremendously expand as the company’s business evolves, and so will the challenges that legal departments will have to deal with on a recurring basis.
Al-Shwaid de Leon Ismael is currently a candidate for an LLM in Corporation Law at NYU School of Law and an Advanced Professional Certificate in Law and Business at NYU Leonard N. Stern School of Business. He is expected to graduate in May 2017. He is a licensed lawyer from the Philippines and had worked in a Manila-based law firm for approximately two years before becoming a corporate in-house counsel for the past eight years. His most recent stint was as a regional legal manager for Europe, the Middle East, Africa, and South Asia with a multinational company that acquires, develops, operates and manages container ports and terminals in more than 20 countries.