The role of the GC is in a constant state of flux. In the past five years several factors have conspired to transform the role from a neutral legal adviser into an essential business partner. But that metamorphosis didn't end once companies sorted out the aftereffects of the Enron scandal and Sarbanes-Oxley. The legal department continues to evolve, and forces in play will now substantially increase the pressures GCs are under and further expand CEOs' expectations.

Technical legal skills are no longer enough. Today companies are functioning in an increasingly global market where intimate knowledge of international law and attention to diversity are essential components to a business' vitality. Now more than ever CEOs expect general counsel to have superior business acumen in addition to legal skills, and demand that the legal department function as a strategic business unit. CEOs also will expect GCs to help lead their companies into new markets, understand the constantly changing global marketplace and capture and leverage the knowledge of an aging legal workforce.

“Corporations will have to be able to not only survive but thrive in a global marketplace,” says Brian Eyres, the former vice president and assistant general counsel of Toyota Motor Sales and now a partner at Bowman and Brooke in Phoenix. “If the legal department fails to adapt to these changes and effectively protect its client, it ceases to have any usefulness.”

General counsel must prepare their departments now for the changes on the horizon or risk losing the gains they've made toward becoming trusted corporate insiders.

Global Challenges

To maintain their status as trusted advisers in the future, general counsel will need intimate knowledge of the legal and regulatory landscapes in burgeoning markets overseas. Just about every company on the planet wants to gain a footing in China and other countries in Asia. And companies are wasting no time.

Wal-Mart, for instance, was initially cautious about going into China when it considered the expansion in the mid-1990s. In 1996 the company entered into a joint-venture with Hong Kong-based financial group Citic Pacific Co. Through this agreement, Wal-Mart opened 22 East Asian stores and began to establish itself as a strong competitor for European rivals Carrefour and Metro, which dominate the Asian retail megastore market.

Today, the Chinese market is the priority among Wal-Mart's overseas ventures. The company currently has 49 stores throughout China and plans to open 13 more this year. But Wal-Mart is just one example. As companies continue to expand overseas, legal departments will become key players in maximizing the value of these investments.

“Globalization is altering the way businesses conduct their affairs, and therefore it is affecting the way legal departments function,” Eyres says. “Regardless of the type of company–be it consumer products or business services–almost every corporation will be impacted by globalization.”

That will affect the way companies litigate, choose outside counsel and build and protect their patent portfolios. The smart companies and their general counsel have already recognized the need to participate in shaping the legal rules of a global market. For instance, Microsoft has been lobbying the government for the past few years to harmonize the U.S. patent system with the systems of other key players in the global market.

“The multiplicity of national patent regimes–all sharing the same basic goals, but each imposing disparate administrative burdens on inventors–is something that we in the United States should care deeply about,” said Microsoft General Counsel Brad Smith during a 2005 speech to the American Enterprise Institute for Public Policy Research, a Washington, D.C.- based think tank. “This is the case not only because of the importance of foreign patent protection for U.S. inventors, but also because of the enormous importance of the U.S. patent system for inventors all over the word, both international and domestic.”

This means legal departments will need to flesh out their staffs with in-house lawyers who have a greater breadth of knowledge in international affairs, laws and regulations. Fortunately, law schools are beginning to respond to this need. Georgetown University law school, for instance, recently launched the Global Law Scholars Program, which is designed to prepare students to practice in an environment that involves more than one legal system. The school says its mission is to “combine language skills and cultural familiarity with rigorous and directed legal training to produce lawyers who are ready to practice in the global legal environment of the 21st century.”

Meanwhile, Cornell Law School offers the Clarke Program in East Asian Law and Culture. The program not only allows students to get hands-on experience abroad, but also teaches them that understanding differences in cultures makes for good business law.

“Oftentimes lawyers who hear about the program wonder what this 'and culture' thing means,” says Stewart Schwab, Dean of Cornell Law School. “But sometimes American lawyers come into other countries too arrogantly, thinking all that's in East Asia are archaic, Third World, no-concept types of countries. And it's just not so.”

Understanding other cultures, Schwab believes, allows lawyers to better function in the global environment. That idea also works here at home.

Diversity has been a hot topic in legal departments for several years, but most departments are only doing the bare minimum to avoid lawsuits and criticism in the media. However, the typical lip service soon will not be enough to keep a company afloat. Globalization and the “browning” of America should send diversity efforts to the top of every legal department's list of priorities.

In fact, the U.S. is changing more rapidly than most companies realize.

The U.S. Census Bureau estimates by 2050, 48 percent of the American population will be white, 27 percent will be Hispanic and 25 percent will be African-American and other minorities. Companies' staffs will need to mirror the changed demographics to remain competitive in the diverse marketplace.

Some departments are ahead of the game. Pfizer, for example, created a system to ensure the legal department recruits a diverse staff.

“I've learned in every organization I've worked in, the quality and effectiveness of the work is dramatically enhanced by having a diverse work force,” says Jeffrey Kindler, Pfizer's GC.

Under Kindler's supervision, the company's legal team created a committee to advance diversity in such areas as recruiting and hiring, development, retention, supplier diversity and communications. The program has been successful. Pfizer's legal department has increased the number of women and minorities by 10 percent in just two years (see “The Kindler Model,” Corporate Legal Times, March 2005).

And the benefits of becoming more diverse are profound, both to the company's productivity in the U.S. and its ability to successfully expand overseas.

“The quality of results and the problem-solving abilities of diverse teams are far better than any nondiverse group,” says Veta Richardson, executive director of the Minority Corporate Counsel Association. “That level of diversity will continue to become increasingly important as companies become more globally focused. And it's a trend that will continue into the indefinite future.”

Smart Business

While GCs begin to tackle the globalization and diversity challenges, they also will face increasing pressure to become much more aligned with the business objectives of the company.

According to the Corporate Legal Times/Dickstein Shapiro Morin & Oshinsky Survey of CEOs in 2005, many CEOs believe that the most important thing their GC could do to improve the legal department is communicate more with the business units. Seventy-one percent of CEOs want their GCs to spend more time learning the business; 43 percent disagree with the statement, “I want my GC to be a lawyer, not a businessperson;” and 74 percent believe it's important for their GCs to understand accounting and financial issues (see “The Bottom Line,” Corporate Legal Times, October 2005).

“Understanding those two important aspects of business are essential to perform your responsibilities as general counsel,” says Curtis “Hank” Barnette, former CEO and GC of Bethlehem Steel Corp. “Put simply, understanding finance and accounting is understanding the business.”

In a global marketplace, where in-house counsel are expected to decipher financial statements, take the lead in complex transactions and conduct due diligence on overseas acquisitions, it can be even trickier. Experts suggest legal departments arm themselves with lawyers with an aptitude for business.

“CEOs repeatedly tell me what is missing from their legal teams is the ability of the lawyers to serve as strategic thinkers, problem solvers and to see the business dynamics outside their narrow areas of expertise,” says Susan Sneider, president of New Vistas Consulting, a legal consulting firm in Chicago. “GCs will find it incumbent upon them to find people who will satisfy the needs of executives.”

But beyond business acumen, CEOs also want effective communicators.

“People skills are definitely important, but it's really about the ability to listen,” explains Hanna Hasl-Kelchner, associate general counsel at Lorillard Tobacco Co. “Lawyers are taught in law school to argue. Arguing doesn't get the same results in the business environment as it does in the legal environment.”

Good judgment and self-confidence also are key elements to a strong legal department. “But that can only come from many years of experience,” says Tom Russo, chief legal officer of New York-based investment banking company Lehman Brothers Inc.

“It's not about rules or regulations or taking this, that and the other thing into consideration,” he explains. “It's simply about developing a sense of right and wrong.”

When companies have all the pieces in place–exceptional legal talent, a diverse staff, effective communicators and business savvy lawyers–they have the makings of the ideal legal department of the future. But it's a business imperative that they properly leverage the knowledge and talent they have.

Brain Drain

Perhaps the most daunting inevitability facing legal departments is the coming mass exodus of baby boomers. By 2030, nearly 76 million boomers–many of whom are skilled lawyers with decades of experience working in legal departments–will retire and take their years of accumulated knowledge with them. And only 44 million Generation Xers stand in waiting to replace them.

According to a recent study by the American Association of Retired Persons (AARP), 70 percent to 80 percent of Americans plan to work in some capacity after retirement. That's good news for companies that want to capitalize on the knowledge and experience of the boomers. But doing so requires legal departments to rethink their hiring and retention practices and become more amenable to part-time and flexible schedules. That includes creating phased-in retirement options, which allow employees to reduce working hours and begin collecting partial retirement benefits. But those plans come with a downside. Employers who offer these types of solutions have to be careful to not run afoul of the tax code and ERISA. Other options available to employers are hiring retirees from other organizations, reducing the normal retirement age, or hiring workers on a contract basis (see “Legal Questions Linger As Baby Boomers Prepare to Retire,” Corporate Legal Times, March 2004).

There also is one other option–capturing as much of that baby boomer knowledge as possible before it's gone.

“You as a legal department have already paid for that knowledge, and you should keep it,” says Jim Seidl, president of a Minneapolis-based company that offers legal research and compliance services. “Law departments need to realize–but very few do–that they have a buried treasure right there within their own departments.”

Implementing a knowledge management (KM) system can help. Using technology and other tools, companies can create programs and practices that enable their departments to capture, collect and disseminate the collective knowledge of the department. UBS' legal department spent a great deal of time and effort building a basic KM system in 2001. It included an intranet site, which offered click-and-point access to standard news sources, an internal workroom for collaborative projects and a central repository for internally generated forms and memoranda.

But few departments have the resources or the experience to implement a KM system. In addition, many departments find the initial process of setting up a system with a centralized work-product repository overly burdensome. It also can be a costly endeavor.

Seidl says a well-managed enterprisewide program of legal research management will conservatively deliver a 25 percent savings. But because KM programs cost about 4.7 percent of a company's total annual budget, many GCs are put off by the idea.

“It seems significant,” Seidl explains. “But when you factor in the ROI, it really pays off in the long run. It clearly can reduce costs and provide a better return on invested research dollars.”

Seidl says more companies are implementing KM systems today than ever before. And he predicts that every legal department in the future will consider it a best practice and will have some form of KM program in place.

“KM is here now,” he says. “And it will be a competitive advantage in the future.”

A Healthy Future

There's no denying that legal departments have some work to do now to prepare to serve their clients effectively in the future. Whether its implementing new technology systems to help capture existing knowledge, diversifying staffs to reflect the changing marketplace or meeting the needs of a demanding CEO, legal departments face a lot of challenges ahead. Confronted with this triple whammy, GCs will have no choice but to be innovative and creative as they adapt to the changing markets and workforces.

“Globalization is constantly placing new challenges on companies and their legal departments,” Sneider says. “In-house lawyers will have to develop greater skill sets in communication and a deeper sense of culture to survive in that environment.”

But for forward-thinking GCs, the challenges are welcomed.

“This is a great time to be in-house,” Hasl-Kelchner says. “And it will continue to get better as the business folks appreciate the role of the legal department, and the lawyers continue to evolve with the changing corporate environment.”

All the experts agree: Good technical legal skills will never be enough to thrive in the future corporate legal workplace.

“Corporate America will continue to go through changes as the economy globalizes and laws evolve,” Russo says. “And legal departments will need lawyers that can mirror the changing marketplace in intelligence, complexity and diversity.”?