High Expectations for General Counsel; The Resurgence of Convergence

From The Practice May/June 2016
Highlighting key stories about the profession you may have missed

High expectations for general counsel

NYSE Governance Services recently released a report forecasting continued growth for the role of general counsel within corporate governance structures. Conducted in collaboration with the executive search firm, BarkerGilmore, the report draws from a survey of U.S. corporate directors and executive officers regarding their expectations for the roles and responsibilities of their in-house legal teams. The survey included topics such as the value of in-house counsel to company leadership, the prevalence of GC board membership, and the most valued character traits for GCs.

Corporate leadership most valued “sound judgement” and “high integrity” when evaluating their general counsel.

The survey offers some striking, if not surprising, data regarding the future of general counsel within corporate governance:

  • 97 percent of the respondents expected the GC to be a part of the executive management team by 2020
  • 79 percent of directors and officers polled believe that general counsel will play an important role in advising the board and the CEO by 2020.

Perhaps most interesting, the poll found that “legal expertise” was not the most prized competency in GCs. Rather, corporate leadership most valued “sound judgement” and “high integrity” when evaluating their general counsel. This might be due to the fact that legal expertise is considered to be a given among GCs, but it nonetheless suggests the position is transitioning from a role of technical expert to trusted advisor.

The authors of the report also claim that the in-house counsel movement is far from over:

Even after decades of transformation, it appears the role of general counsel hasn’t yet reached the pinnacle of its evolutionary ascent within the organization. In-house counsel’s functions have evolved from reactive to proactive, and boards are reaping the fruits of this transition with more robust strategic discussions. In an increasingly litigious corporate environment, it is no longer acceptable to have GCs wait on the sidelines in the event an incident occurs; rather, it is now critical to utilize their full business and legal acumen to propel the organization forward, make risk-aware decision, and help management build strategies for success.

While the report does not include information regarding the sample size or composition of the organizations surveyed, it nonetheless corroborates the current opinion of the day: the in-house counsel movement is real, and it is gaining momentum.

The resurgence of convergence

In recent years, there has been much scrutiny over the relationship between companies and the law firms they hire. Beginning in the 1990s, there appeared to be a trend toward convergence, with companies limiting the number of outside firms as a means to reduce inefficiencies and improve the quality of the work. Research by the Harvard Law School Center on the Legal Profession confirmed this trend during its Corporate Purchasing Project, finding that nearly 60 percent of responding companies spent 80 percent of their budget for outside counsel costs on fewer than 25 firms. However, the research also indicated that the convergence process seemed to level off in the first decade of the 21st century, with the vast majority of respondents reporting little to no change in the number of preferred providers.

Shell recently announced that it would be cutting down its list of preferred providers from 250 to six.

Perhaps signaling a resurgence in convergence, Shell recently announced that it would be cutting down its list of preferred providers from 250 to six. Announcing the massive reduction at the end of April, company leaders explained that the move was intended to both deepen relationships with outside counsel and cut cost. Speaking with The Lawyer magazine, associate general counsel Gordon McCue clarified the company’s rationale.

“We want to deepen the relationship with the panel but we’re conscious of not increasing the cost for local operating units around the world,” McCue said. “We want to make sure we’re getting the best value for Shell. The goal of the new panel is to align our interests better with our law firms and put in place a partnership with them that adds value both ways.