Beyond compliance: Why your law firm needs a general counsel

September 12, 2017

Law firms that have general counsel are better placed to succeed in the new legal market, says James Penn.

The law firm general counsel is a relatively new concept within UK law firms, having only evolved over the past 10 years. Most of the top 20 firms have appointed a GC, but the position is by no means entrenched; few firms outside this group have yet to make such an appointment.

While all firms are now required to appoint a compliance officer for legal practice (COLP) who has overall responsibility for the firm’s risk systems and controls, there is no formal requirement for law firms to appoint general counsel. Most firms will, however, have a number of staff covering elements of the general counsel’s role. They will share responsibility for areas as diverse as claims and complaints, data protection, conflicts management and anti-money laundering controls, as well as more commercial issues around client engagements.

There are myriad benefits of having a general counsel. These include freeing up fee-earner time, improving the firm’s business development processes and reducing the firm’s professional indemnity insurance (PII) premiums. Overall, a general counsel can have a positive impact on the firm’s competitiveness and help to shape the way that it does business.

Rise of the GC

The title ‘general counsel’ can often be ambiguous. In some firms, the general counsel might only have responsibility for legal risk, with a separate head of risk and compliance taking responsibility for operational risk and regulatory matters. In other firms, the head of risk and compliance might largely perform the same role as a general counsel in another firm. For the purposes of this article, ‘general counsel’ means the person who largely makes decisions on all legal, risk and compliance issues affecting the firm, separate from the managing partner.

Often, the decision to appoint a general counsel is driven by a merger or other structural change in the firm, or the retirement of a key partner.

Andrew Cheung, general counsel for the UKMEA region at Dentons, took on the role following the formation of SNR Denton in 2010.

“Growing firms reach a point where they have to manage such a level of complexity, that it makes sense to appoint a dedicated person to manage legal and enterprise risk issues, which are increasingly interlinked,” he says.

“The demands of that role, including the breadth of issues that need to be addressed, make it fairly challenging to undertake on a part-time basis. I think this helps to explain why we are seeing more and more UK-based firms appointing general counsel and why these roles have an increasingly broader remit and involvement in strategic decision-making.”

It makes sense, then, when a firm reaches that critical level, to consolidate the diverse collection of responsibilities which are often undertaken by various partners and senior staff under the responsibility of a single person.

Chris Perrin, general counsel and executive partner at Clifford Chance, was the UK’s first law firm general counsel, having been formally appointed to the role in 2004. Similar to the process in many other firms, his appointment was the result of a gradual evolution rather than a step-change in the firm’s governance, and met the firm’s need to consolidate a number of different internal responsibilities.

“We took the decision to create the position as we recognised that, unless one person had overall responsibility, there was a danger that something might slip through the gaps,” says Perrin of his appointment.

There are a number of other factors that influence the decision to appoint a law firm general counsel. One of the strongest arguments put forward is that it can free up partner time, thereby increasing the firm’s billable hours.

Amber Matthews, general counsel at DLA Piper, notes that “by appointing a specialist who can draw on past experience, and who is acutely aware of the firm’s stance on a range of matters, issues can be dealt with efficiently and in a consistent manner”.

It can often be a relief to managing partners to relinquish some of the responsibilities that may have previously fallen within their remit, freeing up valuable time to focus on improving profitability.

Role and remit

For many general counsel, their role and remit has continued to evolve and grow along with their firms. Whereas in the past a firm’s GC may have focused mainly on managing claims and complaints, the position is now more likely to require a lawyer to become a generalist. The GC needs to be able to collaborate with professionals from across the firm and to draw on their specialist expertise where necessary, to oversee external advisers and to manage relationships with insurers and regulators. As a trusted advisor, the GC can provide a helpful link between management and the risk function throughout the firm.

“It can be useful for a partner to have someone who can act as a sounding board on a particular issue,” comments Jonathan Westwell, general counsel and partnership secretary at Baker & McKenzie.

Partners may be reluctant to encroach on the time of the firm’s managing partner, so it is helpful for them to feel that there is someone internally who can provide an objective view from the firm’s perspective, adds Westwell. Similarly, the GC can act as a diplomat between competing views and help to influence an outcome that best suits the interests of the firm.

Collaborating with peers at other firms, as well as with peers within the firm, has also continued to evolve the role of the GC. It helps to reassure regulators that law firms are using a variety of methods to get to the same outcome. A general counsel can justify why the firm has taken a particular course of action on an ambiguous matter by demonstrating how other firms have taken an alternative route but reached the same conclusion.

Discussing how other firms are approaching certain issues, and what they are working on, has also given general counsel a stronger argument for extending the range of their responsibilities and, in turn, their influence within the firm. In some instances, that influence has extended to the boardroom.

“It is key for a general counsel to sit on the management board and be involved in, and able to influence, firm strategy,” says Angela Robertson, director of risk and general counsel at Taylor Wessing. “At the very least they should be involved in an effective senior-level forum to discuss the firm’s plans to help identify legal or risk issues from the outset”.

Not all general counsel currently enjoy this level of involvement in the firm’s management, but most agree that this is likely to change in the next few years as their role continues to organically evolve. At the very least, there will be a greater expectation for general counsel to be involved in thought leadership, even if they do not have a direct say in management decisions.

Business impact

While the general counsel’s role has been, in most cases, created to protect the firm, it can also have a positive impact on profitability. Aside from freeing up fee-earner time and providing greater efficiency, the general counsel can help to influence firmwide behaviour by instilling an open and transparent culture.

The role of the GC “is not just about being compliant,” notes Robertson. “It is about ensuring the effective delivery of client services, ensuring that matters are managed properly, with the goal of increasing client satisfaction.”

While it is very difficult to measure the impact of a general counsel on law firm profitability, there are several ways in which the appointment (and establishment of a supporting team) can help to make cost savings and increase efficiencies (see box).

Robertson believes a firm has a competitive advantage if it can clearly demonstrate how seriously it treats legal, risk and compliance issues. This becomes quite clear when you consider how law firm general counsel are becoming more engaged with the firm’s clients.

Whereas once a request for proposal (RFP) might include a single question regarding the firm’s risk processes, RFPs are increasingly demanding much greater detail on a range of different risk considerations, as clients become more sensitive about how their information is being treated. Speaking directly with the firm’s general counsel can give clients confidence that their concerns are appropriately understood and, conversely, give them a sense that there is a thorough vetting process for taking on new clients, rather than it being the decision of one person.

From an outside perspective, the presence of a general counsel can help clients to more readily understand the firm’s management and governance structures, by having a simplified decision-making process for legal, risk and compliance issues. It also presents them with someone who speaks their language and can empathise with their concerns. After all, very often the main point of contact at a client organisation is its own general counsel.

How general counsel can help to improve profitability

Freeing fee-earner time. When general counsel Chris Perrin established Clifford Chance’s conflicts team, which took away the conflict-checking process from fee earners, the firm undertook research to assess the team’s impact. “We worked out that it saved a considerable amount of fee earner (and in particular, partner) time, and more than justified the expense of hiring a dedicated team of conflicts lawyers,” he says.

Quick turnaround of new clients. The general counsel can be in a strong position to provide quick answers to client questions about its systems and controls. Jonathan Westwell, general counsel at Baker & McKenzie, says that “at a basic level this can mean the difference between whether the firm wins the instruction or not”.

Effective management of litigation. Often, one or more senior litigation partners will take responsibility for managing the firm’s claims, alongside their own practice. Having a single person in the firm with overall responsibility for claims and litigation can ensure that the firm takes a consistent approach to any claim and can manage the relationship with insurers and external counsel, providing an efficient claim management process. Aside from saving fee-earner time, the general counsel is arguably in the best position to identify risks that may have led to those claims and to bring about change to ensure that lessons can be learned.

Reduce claims and lower PII premiums. An effective risk management programme, overseen by a general counsel with overall responsibility for managing legal, risk and compliance matters, can help to reduce the risk that issues might arise or that matters are not handled appropriately. And, by improving the firm’s claims record, a firm can reduce its professional indemnity insurance premiums.

Competitive advantage. General counsel can positively influence their firm’s behaviour by instilling an open and transparent culture, with the goal of improving client care and increasing client satisfaction. Providing clients with a contact point who understands and can empathise with their concerns around risk, confidentiality and the handling of their data can provide firms with a competitive edge.

A vital role

The rise of the general counsel within law firms seems to have been an organic process, and every firm has reached a different stage of how to best utilise their general counsel’s expertise. Given the considerations for appointing one, and the general counsel’s growing scope of responsibilities and influence within the firm, it is very likely the role is here to stay and will become one that many more firms will create in future.

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