Knowledge
The Growing Power of In-house Counsel
Two separate reports this month, one of Deloitte and one of Eversheds, confirm what players in the legal market already know: in-house counsel gain power, both internally, within their companies and externally, in their relationship with legal advisors.
From operational to strategic: in-house counsel follow the status of legal risks.
Cynics will say that in-house counsel are just taking advantage of the crisis and the intensified competition between law firms to increase their bargaining power. While the crisis has certainly pushed in-house counsel to negotiate discounts and alternative pricing schemes more firmly than they were used to before , this is only part of the explanation why in-house counsel are moving up the ladder.
The driver behind this trend is the status of the primal fuel in-house counsel manage: legal risks. For companies, legal risks have developed, over the last decade, from operational risks to strategic risks. Astronomic competition fines, brand destroying litigation, regulations and directives closing down product lines, patent wars, shareholder rebellion, penal and criminal prosecution… For the first time in economic history, legal risks have become a permanent and fundamental threat to shareholder value and to the careers of executives and directors.
The janitor of legal risks, the legal department, suddenly became the guardian of one of the company’s strategic interests. It enjoyed increased attention from CEO and Board with all the benefits this entailed: higher budgets, better remuneration, higher calibre people, direct reporting lines. Downstream, law firms had a ball: rates soared, leverage escalated, profits per partner reached all-time highs.
But, as ancient tragedies abundantly demonstrate, operating close to the Sun-God does not only bring pleasure. It also brings bigger challenges, more competition, greater expectations and a tougher business environment. With the changing status of legal risks, the responsibilities of the legal department grew more important and the role of the General Counsel changed quite profoundly.
Our FrahanBlondé General Counsel Survey 2009 clearly showed that General Counsel key priorities are not about solving legal problems, but about pursuing strategic, organisational, and managerial goals. One of the most important and complex challenges for General Counsel is to find the right balance between being a guardian of the corporation and a business facilitator (see Antoine’s cartoon: The Homo Legalus Matrix). Another one is to define the role of the General Counsel in emerging business trends such as compliance, CSR, risk management, the Code of Conduct, diversity etc. (see our article: "Compliance : quels contours pour une nouvelle fonction stratégique?")
In 2008, crisis struck the financial markets and, a few months later, the rest of the economic fabric. Financial pressure hit the legal budgets and, consequently, law firms’ profits. But, again, the situation is not the same as in earlier crisis: legal departments, while suffering budget cuts as any department in the company, resist, across the board, remarkably well. The attitude of legal departments toward law firms is even more striking: not only do they put pressure on fees, but for the first time, they dare to question law firms’ business models. Some law firms have taken notice and are already responding (See our article “Legal departments and law firms: a widening gap?”). Change is in the air. We witnessed this again last week during the annual intellectual legal profession party at the
The Belgian
Ten years ago, the Belgian Institute of In-House Counsel (IBJ-IJE) was established. We see a clear link between the evolution of the role of in-house counsel and the increasingly compelling presence of the IBJ-IJE on the Belgian legal scene. Few people could predict the impact the IBJ-IJE would have: over the last decade it has become an intellectual meeting place for attorneys and in-house counsel, it has spun networking and word-of-mouth and it has inspired in-house counsel with innovative ideas on legal management.
Antoine Henry de Frahan & Barend Blondé | 29 March 2010 |
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