From São Paulo to London

São Paulo: Detecting and preventing fraud

 

This past May, legal directors from several of Brazil’s largest companies, including representatives from the energy, consumer, banking and technology sectors came together in São Paulo to discuss “In-house counsel and corporate governance: detecting and preventing fraud.” LexisNexis Martindale-Hubbell sponsored the Counsel to Counsel session, which was hosted by Joseph L. Brand, John L. Oberdorfer, and Mary Santos of Patton Boggs LLP.

 

Cláudio Vianna, session co-chair and legal director of Robert Bosch Limitada, opened the session by comparing the approach to corporate governance in the U.S., Germany, Japan, and Brazil. He noted that in Brazil, the recent focus of corporate governance legislation is the enhancement of the rights of minority shareholders. Said Dr Vianna, “In Brazil, the concept of corporate governance is still evolving. We are trying to protect business stakeholders, and reconcile common differences of interest.”

 

Session co-chair Dr Bruno Ferla, legal director of Camargo Correa, said private companies should also embrace this concept. He suggested that good corporate governance encourages the development of professional management, internal controls and transparency. Several other speakers provided examples of effective corporate governance initiatives implemented by their employers.

 

The role of in-house counsel

 

Turning to the role of counsel generally, there was a consensus that in-house (and external) counsel should take a proactive approach when offering their services, not simply react to external events, nor be the person who always says “No” to new ideas. 

 

To achieve this shift in emphasis, the chief legal officer must prove his or her business-friendly credentials with both the company’s board and its chief operating officer. It was suggested that by increasing one’s visibility within the company, one would be more likely to be invited to sit on key committees, or to receive advance notice of initiatives that may require legal input. “If you take this approach, you will never be asked to review a document without having previously received all relevant information.”

 

São Paulo Takeaways

 

■ The concept of corporate governance is still evolving, in Brazil and around the world. This evolution depends on the cultural, institutional and legal environment in specific countries and companies.

 

■ Corporate governance is important to both public and private companies, because it implies the establishment of clear procedures, surveillance and enforcement mechanisms, and helps guarantee the transparency of company operations to shareholders, employees, suppliers and the general public.

 

■ Today in-house lawyers are required to demonstrate in-depth understanding of many aspects of their business.  This understanding is essential, if counsel are to be competent to ask pertinent questions. However, when investigating corporate fraud, counsel should not expect to replace the role of the internal auditor.

 

■ In-house lawyers must win the confidence of all levels of the business by ensuring they act as facilitators rather than roadblocks to innovation. To ensure they are kept abreast of issues requiring a legal perspective they must take an interest in the activities of many different departments.

 

London: Optimising the in-house counsel/law firm relationship

 

Building a solid working relationship is the Holy Grail for both general counsel and their external legal advisors. In the second London-based Counsel to Counsel forum of 2006, co-chaired by Dan Fitz, general counsel of Misys, plc, and Guiseppe Sanna, senior vice president and general counsel, Europe, CHEP Pty Ltd., and cohosted by DLA Piper and Howrey LLP, representatives from both sides of the divide discussed how they could best manage their relationships and overcome common problems.

 

Asserting your authority

 

In an era where good corporate governance requires companies to follow defined procedures when making key decisions, several speakers suggested that general counsel should take advantage of this new culture. In particular, they argued that heads of legal should use corporate governance principles to insist on playing a central role in the selection of all external law firms.

 

However, as those round the table made clear, implementing this objective can be fraught with difficulties—particularly where local managers have historically selected and instructed their own local counsel. One former in-house counsel recalled it had taken months to assert authority over local business managers. Another complained that the “local firms don’t respond to our questions.”

 

The use of law firm “panels”

 

In a lively discussion, participants debated the relative benefits of creating a panel of trusted legal advisers. For some, the creation of an approved panel was an important landmark in their department’s attempt to control the purchasing of legal services. Panels were also felt to be useful in crisis situations.

 

For panel enthusiasts, such arrangements offer increased efficiency and quality of service. But in order for a panel to work effectively, one participant observed, it is essential that firms be appointed in a manner that is “scientific, meritocratic and objective.”

 

Yet others questioned the value of the panel system. Most importantly, they complained about the administrative burden of maintaining a list. It was agreed that, ideally, a panel should be reviewed every six months, in order to ensure the list comprises the most appropriate legal advisers.

 

In addition, some speakers felt panels diminish the importance of long-standing personal relationships and discourage the development of ‘institutional knowledge’ of a business. “I want someone to be able to tell me ‘hang on, we tried that three years ago and it didn’t work’,” commented one corporate counsel. Worse, having a panel could result in corporate counsel reflexively selecting an approved adviser, irrespective of the quality of work they provide.

 

Defining roles and managing matters

 

Outside law firms are often needed to overcome gaps in capacity or expertise. But sometimes counsel have less obvious reasons to instruct external lawyers, such as to “piggy back” off a firm’s reputation, or to share risk, particularly in high-stakes litigation.  For some companies, the provision of “deal rooms” or e-discovery systems are increasingly seen as a prerequisite for instructing law firms on major matters.

 

It was further suggested that counsel instruct external advisors on precisely what tasks they were expected to perform, and in what manner. One private practice lawyer suggested that in addition to a straightforward retention letter, counsel should insist on having a face-to-face ‘retention’ meeting with their law firm on every significant matter—“which they should attend at their own expense.” Follow up the retention meeting with an early case assessment.

 

Managing expectations

 

In circumstances regarding external law firms, there may be a huge gulf between the expectations of in-house lawyers and those of their senior managers. Whereas in-house lawyers tend to value the technical competence of outside counsel, the key criterion for non-legal clients is often “responsiveness”— can advice be provided quickly? The challenge for in-house counsel is to communicate realistic goals when balancing the time required for external advisors to provide high-quality advice against the expectations of senior management.

 

Appraising outside counsel

 

It was agreed that feedback between the in-house function and external counsel is vital, in order to maintain a productive relationship. However, opinion was divided on the best way to achieve this objective.

 

Several speakers thought appraisals should involve an informal, ongoing process, perhaps bolstered by a more formal review after a major piece of work. Others preferred a more formal approach, perhaps by surveying the in-house legal team and key internal stakeholders on how their chosen legal advisers had performed on a particular matter. It is not always necessary to provide firms with a detailed analysis of how they had performed—or indeed, to share any results at all. One counsel suggested that telling firms that they had been rated “X of Y” was sufficient.

 

Avoiding pet hates

 

Throughout the discussion, counsel indicated a wide range of “pet hates” when dealing with external advisors, from law firm cross-selling to associate attrition.  The number one pet hate? Lack of billing transparency. At a time when many firms now offer on-line, real-time billing information to their clients, a lack of financial transparency was virtually guaranteed to damage any relationship between a law firms and their in-house counsel.

 

To find out how to participate in upcoming sessions visit http://c2c.martindale.com.

 

London Takeaways

 

■ Good corporate governance demands transparency in corporate decision-making. Make use of this principle in promoting the role of the legal function in selecting and instructing external law firms.

 

■ Law firm panels can be useful, but also burdensome to maintain.  Remember that a good panel is a living entity—it needs constant attention.

 

■ Explain your requirements to your law firm. Begin with a detailed ‘retention meeting’ and follow with early case assessment.

 

■ Expert legal advice can take time to prepare, and the best advisers are not always available. Manage the expectations of your internal clients, particularly in relation to urgent matters.

 

■ For their internal credibility, in-house counsel depend on their law firms to stick to their allocated budgets. Law firms should provide timely and accurate estimates of the cost of their services.