To date, most of the discussion on the corporate legal services market in emerging economies has focused on the growth of domestic law firms, and the resulting competition between these new entrants and the global giants that are also seeking to serve these markets. However, if the US experience is any indication, the outcome of this competition and the shape of the corporate legal services market more generally will be greatly influenced by another factor: the power, prestige and influence of general counsel (GC).
The Harvard Law School Center on the Legal Profession (CLP) has been studying this question as part of our project on Globalization, Lawyers, and Emerging Economies (GLEE). Specifically, CLP has been conducting a major survey of GC operating in India, Brazil and China. This survey (2013-present) builds on a similar study that the Center conducted with respect to US GC and is designed to explore the economic, substantive and professional arguments put forward by those who have championed the rising, prestige and influence of inside lawyers.
In order to investigate these claims, the Center has examined six interrelated metrics which provide a window into the stature, effectiveness and influence of GC, and of internal legal departments generally: size; credentials and demographics; internal standing and reporting; control over outside counsel (and other legal services providers); professional standing; and role in public policy.
In this article and accompanying infographic, we report on some preliminary conclusions with respect to three of these metrics: internal standing, control over outside counsel and public policy roles.
One of the most visible markings of the growing importance of in-house counsel in the US had been the increasing power of GC within the hierarchies of corporate decision-making. Our prior research indicates that the overwhelming majority of US GC report directly to the CEO. We also know that they frequently participate in major business decisions and oversee corporate functions beyond legal (e.g., public relations, government affairs). Our research into the internal standing of GC in the emerging economies finds evidence that this general trend is also occurring in India, Brazil and China – albeit we also find that emerging economy GC have yet to achieve the same “C-suite” status as in the US. Take, for instance, India. Prior to 2000, the majority of GC reported to the CFO, confirming their subordinate status in a company’s central corporate function. In our survey, however, nearly half of all GCs indicated that they report directly to the CEO (with another 10 percent reporting directly to the board). Data from our Brazilian and Chinese samples mirrors this trend. Results also show that GC are playing more important business roles, with more than half of GC across all three countries reporting that they frequently counsel senior leadership and advise the board. Thus, there is evidence that emerging economy GC are increasingly reaching the upper echelons of corporate power.
At the same time, however, there are still significant differences between the GC offices in these jurisdictions and what we typically find in the US and other more developed legal markets. For example, only around a third of GC in the India, Brazil and China samples indicated that other departments report to them. Therefore, while the GC in these jurisdictions have become more important within their corporate structures in India, Brazil and China, it is also true that they remain behind the US in terms of overall power and prestige.
Arguably the key feature of the in-house counsel movement in the US was the effort to wrestle control over the core legal functions of the corporation away from outside counsel. The use of panels, preferred providers and general trends around convergence were all emblematic of an effort to control legal spend by exerting more control over external providers. Although these and other similar tactics are now widely used in the US and other Western legal markets, it is important to emphasize that this has not resulted in the kind of “spot contracting” model that some had predicted in which legal services are treated as just another commodity. To the contrary, as we documented in our study of GC from S&P 500 companies, outside counsel relationships still remain far “stickier” than a spot contracting model would predict.
One sees a very similar story in the emerging economies. On the one hand, the overwhelming majority of GC surveyed in India, Brazil and China reported using preferred provider lists. Similarly, a large number also reported that they are responsible for putting the list together. And, again consistent with the US story, respondents reported that a healthy majority – although not all – of the company’s legal work goes to firms on their lists. On the other hand, despite attempts to gain more control over external firms, respondents also underscored that their relationships with external legal departments for important work were even “stickier” than they are in the US. For instance, in India, the vast majority of companies rarely terminated important law firm relationships. In Brazil, terminations were only slightly more frequent. Our preliminary data reveals a similar trend in China. Given the relatively small number of high-quality domestic legal service providers in each of these markets – and the existing restrictions against the entry of foreign law firms – there is good reason to believe that the barriers to reducing this “stickiness” are likely to continue to be even greater in these jurisdictions than they have been in the US.
Role in public policy
One of the goals of the in-house counsel movement in the US was to empower GC to participate in the wider world of public policy. For many important policy issues facing global companies, relevant legal standards are likely to be ill-defined, under- or over-inclusive, or contradictory. In such cases, the GC has been increasingly charged with developing policies consistent with the company’s long-term economic interests and values. Our data suggests that this aspect of the GC role is much less developed in emerging economies than in the West. Thus, in our sample, GC reported very low levels of involvement in public policy advocacy. Only around a quarter of Indian and Chinese GC, and less than 10 percent of Brazilian GC, reported being asked to serve as the company’s spokesperson on public policy issues. GC in all three countries were more likely to comment on pending legislation, but even with respect to this basic public policy function, less than half of all GC in each country reported participating in this kind of activity on a regular basis.
The future of in-house counsel in emerging economies
As this brief summary underscores, there is substantial evidence that a version of the US model of in-house lawyering has spread to major emerging economies such as India, Brazil and China. In ways that were largely unthinkable as little as 25 years ago, our data demonstrates that GC and in-house legal departments in all three countries are becoming more powerful players within their corporate structures and vis-à-vis external counsel. On the other hand, it is also clear that these GC have not yet achieved the same power or prestige as they have in the US legal marketplace, particularly with respect to public policy roles. Moreover, the changes we see in GC may not be a story of simple diffusion. Data suggests certain country-specific differences exist, which may play a role in whether GC in these jurisdictions will be able to produce the same economic, substantive and professional benefits for their companies, for the legal profession and for society as the movement’s advocates have pushed for in the US. What is clear, however, is that those who seek to understand the evolving corporate legal services market in emerging economies need to pay more attention to these increasingly important actors.
Movement to reshape in-house counsel
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Meet the author
David B. Wilkins is the Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession at Harvard Law School. He is also a Fellow of the Harvard University Edmond J. Safra Foundation Center for Ethics, a Senior Research Fellow of the American Bar Foundation, and an International Research Fellow of the Novak Druce Centre for Professional Service Firms at Oxford University’s Saïd School of Business.
Read the full research report at thepractice.law.harvard.edu
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