Business Globalization

For more and more US law departments, serving clients means serving clients based in foreign countries or handling matters outside the United States. For years, globalization has necessitated that larger law departments deal with international legal problems.

Altman Weil, Inc. and the American Corporate Counsel Association (ACCA) conducted a survey of the Chief Legal Officers attending the ACCA Annual Meeting in October 2000. The 77 Chief Legal Officers who responded answered a question dealing with the challenges of globalization. There is little reason to believe that responses from Canadian Legal Officers would differ significantly.

Managing the delivery of legal services and identifying and retaining counsel outside the US were identified as the two greatest challenges for law departments created by globalization.

While many practising lawyers of US companies are based outside the United States, many in-house lawyers in the United States practise "international law". As early as 1993, a study suggested that six per cent of the in-house lawyers were "international" specialists. Four years later, a study of larger law departments also found that six per cent of their lawyers were "international" specialists.

Advantages and Disadvantages

One advantage of exporting legal services from the US is that the law department can more easily monitor the quality of the work being done. It also benefits from being able to balance work loads more easily by shifting assignments among the lawyers.

Drawbacks of US-based international advice also come to mind. Time zones, distance and language barriers militate against the optimal provision of legal advice to overseas managers. Second, it usually proves difficult to keep up with the laws of many countries from afar, and the US-based lawyers may slide gradually into acting as mere conduits to lawyers in local law firms. Third, in a voracious market for international legal skills, it may be hard to hold on to experienced internationalists.

If a law department relies on law firms in local countries, it enjoys the freedom of obtaining legal services when and as needed. This simplifies concerns about staffing, personnel administration, facilities and like issues that arise when there are employee lawyers abroad. A department can also pick and choose, presumably, among the available law firms. Where local employment laws make it difficult to fire employees, it is an advantage.

High among the advantages of using outside counsel is the protection of the attorney-client privilege. In at least ten European companies, in-house counsel lack the privilege, which makes outside counsel even more favoured. (Carole Basri and Irving Kagan, Corporate Legal Departments 17-4 (PLI 1998)).

The cited text even advocates establishing captive law firms to serve the company. A further advantage to outside counsel inheres in the ability of a law department to negotiate different terms with them, although the experience of many law departments has shown that alternative billing arrangements are hard to obtain from foreign law firms.

The disadvantages of outside counsel representing a company in a foreign country include significant transaction costs, unfamiliarity, discordant billing practices, and higher costs on a per hour basis than inside counsel. Law firms may not develop the institutional knowledge that in-house lawyers accumulate and bring to bear. Firms may have conflicts of interest, they may charge exorbitant rates, they may render legal services that are not quite what the company wants, or other drawbacks may surface.

Local Lawyers and Expats

A model for serving a foreign region involves sending an expatriate lawyer (a US lawyer who moves overseas). The first foray of a company into truly international legal services is usually along the lines of this model. Possibly the expat is rotated through the position; possibly the expat intends to remain in the position for the remainder of his or her career.

Weighing in favour of an expat model is the confidence the law department has in the capabilities of the lawyer. Second, some lawyers view a foreign posting as an exciting opportunity and a favourable step on the career ladder.

In opposition to the expat model, however, lawyers from the US may resist being posted overseas, perhaps because relocation of their family is undesirable, or because they worry that being overseas is "out of sight, out of mind" in terms of career advancement, or because living in a foreign country is unappealing. From the client perspective, a foreigner-especially one who has not learned local language-poses problems of integration, confidence, and reliance. While it is initially desirable to have the experience and managerial savvy of an expat lawyer, insisting on maintaining one can cause a reaction that might be termed colonialist.

Cost, too, enters into the picture. By one estimate "costs for an international assignment can range from two to five times an employee's base salary." That same source adds that "an unhappy family is the number one reason [foreign] assignments fail." (Margaret Cocoran, "International Assignment Oui or Non?" World Traveler, February 1999).

At present, few companies operate overseas law departments that are staffed primarily with lawyers trained and admitted overseas (referred to here as "local lawyers"). Often, a company will acquire overseas lawyers when it acquires a foreign company with that company's law department becoming a branch office of the US acquiror's law department.

What speaks in favour of local lawyers, and what arguments can be lodged against them?

Local lawyers often have excellent contacts with government officials and other lawyers in their city or country. They speak the language fluently and fit comfortably with the mores of their country.

The contrary arguments run as follows. The approach to the practice of law of local lawyers may not conform to the practice of law stateside. Speed of response, practicality of advice, or use of outside counsel may differ. Differing in such ways, it is harder for a law department to maintain common standards of legal quality and to take common legal positions worldwide.

Another model for providing legal services outside the US looks primarily to overseas managers to hire lawyers or outside counsel as they see fit, rather than the general counsel doing so. On the horizon loom the legal arms of the accounting firms and, perhaps, other multi-disciplinary partnerships (MDPs), e.g. American Express will provide for legal support as part of product and services package. In other words, decentralized staffing of overseas legal services.

The decentralized model of overseas lawyering has several assets: the client and the lawyer serving the client are more closely aligned. Also, clients who decide on how they acquire legal services and what they pay are unlikely to complain about chargebacks and the cost of legal services.

The liabilities are also apparent. A general counsel cannot realistically be held accountable for the legal fitness of the company if some group of practising lawyers is outside the ambit of control. Critics of this model point out the risk that lawyers who report to and are paid for by a business executive may find it difficult to remain as objective as lawyers who report to a General Counsel. The quality of lawyers and the services they provide may be much more haphazard.

Further, decentralized retention and payment of outside counsel can cause the quality of legal services-and the cost-to be less well controlled than if the law department assumes centralized control. Finally, decentralization makes it more difficult to obtain volume discounts from law firms because more law firms are retained. The end result is that it becomes practically impossible to reduce the total number of law firms used.

Conclusion

International and domestic expansion, mergers, acquisitions and reorganizations create challenges for a law department to create an organizational structure that can successfully respond to rapidly shifting client organizations.

Organizational issues are of great concern for law departments of international corporations. Questions of how to efficiently and effectively delegate authority, structure reporting relationships and manage legal services can pose a significant challenge.


Daniel J. DiLucchio and Rees Morrison are principals of Altman Weil, Inc., an international legal management consulting firm headquartered in Newtown Square, Pennsylvania. Portions of this article are drawn from Law Department Benchmarks: Myths, Metrics and Management by Rees W. Morrison, Esq. (Glasser LegalWorks, 2nd edition, 2001).

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