Company lawyers in Portugal and Spain are increasingly working within pan-Iberian teams. Victor Tuborg reports on a legal community coming of age

As with neighbours everywhere, the warmth of feelings between Spain and Portugal has ebbed and flowed. Despite sharing one of Europe's longest borders, the economic, political and social integration of the two countries has been limited for much of their history. The two Iberian neighbours have been separate states since Portuguese independence was finally established through the Treaty of Lisbon in 1668. Since then they have coexisted, but Spain traditionally looked to France economically, while Portugal looked to the UK.

But in just the past 20 years, the two countries' entry into the European Community and then the European Union (EU) has managed to undo long-held mutual suspicions. Now, multinational companies are among those capitalising on Iberia's open borders and shared currency and they are increasingly combining their Spanish and Portuguese business operations and legal functions.

"Spain and Portugal have a complicated shared history, but they have traditionally had their backs to one another," says Paloma Valor, International Business Machine (IBM) Corporation's Madrid-based Iberian general counsel. "But they have now turned toward one another, and this is increasingly demonstrated in the way international businesses both perceive and operate across the Iberia Peninsula."

The two nations share more than geographic location. In the last 30 years, both countries have experienced tremendous social and economic change, including, most significantly, the collapse of both their ruling military regimes and subsequent joint entry into the EU in 1986. That entry and its subsequent impact, the adoption of the euro, and globalisation in general have led to the rapid integration of their traditionally distinct economies. Statistics tell much of the tale: Spain is now Portugal's largest commercial partner, accounting for 30% of both imports and exports (up from 20% in 2002), while Portugal is Spain's third-largest export market, after France and Germany.

"Spain and Portugal now realise that each presents a good potential market for the other's products. Manufacturers, retailers and services companies such as IBM now clearly see the benefits of treating Iberia as a single market -albeit with distinct cultural differences," says Valor.

What is behind the two markets' integration? In two words: business necessity. Take IBM. More than a decade ago, says Valor, who has been at IBM for 22 years and heads the 10-lawyer Iberian legal team, the company realised how similar the two countries' IT and service sectors were. So the computer services and software giant combined the business units in the two countries, as well as their legal departments, into one, all based in Madrid.

"Ahead of the merger, there were five corporate lawyers and nine contracts lawyers in Spain, and a single corporate lawyer in Portugal, alongside a team of three contracts lawyers," says Valor. "Portugal, as a country and as a market, when compared to Spain, is relatively small, and this was reflected in the size of the pre-existing local legal function." Valor adds that the Portuguese team was not initially thrilled about the move, but they had no choice but to go along with the decision of the regional general counsel.

Some in the department inevitably took a wait-and-see approach, she says. But, she adds, the move has proved successful: "Portugal is clearly a separate country with a distinct legal system, but it makes sense to manage all the group's Iberian operations from Madrid." As a result, she says, the Iberian legal team now comprises Spanish- and Portuguese-qualified lawyers – and with its larger numbers, enjoys more clout within the company.

What made integration easier was the relatively decentralised nature of Spain, where company legal departments already have to manage the nuances of doing business across 17 autonomous regions – each with varying degrees of legislative, regulatory and tax-raising powers. Adding Portugal simply brought the sum of those regions up to 18.

The same kind of approach is taken at American International Group (AIG), explains regional general counsel Cristina Juvier. "The country manager for AIG Europe in Spain oversees Portugal, and both are thought of in wider business planning terms as AIG Europe Iberia," she says.

Juvier was appointed to her job as regional general counsel for continental Europe in early 2008; she now oversees AIG Europe's legal issues in foreign general insurance. Her team is based in Paris, but she has lawyers within the business units in Scandinavia, Belgium and Germany. And now she is looking to hire some Iberian expertise.

"We are undertaking an effort globally to reduce our external legal spend," she says. "Iberian legal issues are currently handled from Paris but, in line with the expansion of AIG Europe's operations in Spain, the company is looking to make a local hire who would also manage Portuguese issues."

A pan-Iberian approach is already taken at Tyco International, whose fire safety and flow control businesses across Portugal and Spain are largely the result of acquisitions, explains Maria Hernandez, senior regional counsel, southern Europe. Currently Tyco has two lawyers based in Madrid, including Hernandez, but again, no lawyers in Portugal. "We are very aware that Spain and Portugal are distinct and very different places. But, from a legal standpoint, there are many similarities so it makes sense to treat Iberia as part of a wider region and as a combined operational entity." Still, Hernandez concedes, she constantly has to be aware of the cultural differences between the two countries.

In-house counsel based in Madrid take pains to avoid a Spain-centric cultural view. "The language we operate in depends to a large extent on who we are doing business with," says Valor. "The corporate language of IBM is English, and that tends to dominate our international deals, but many of the issues we deal with inevitably require us to operate locally, and that is in Spanish and Portuguese."

Despite such commonalities between the neighbours, and the cultural sensitivity of lawyers practising in the area, Spain is the senior partner in Iberia LLP. Spain's economy is the world's eighth-largest, according to the International Monetary Fund, with a gross domestic product (GDP) last year of around $1,439bn (£799bn), the fifth-highest in Europe. It is also six times that of Portugal, which has an annual GDP close to $223bn (£124bn), the lowest per capita in western Europe and among the lowest in the EU.

IBM's European operations accounted for 36% of the corporation's total $98.8bn (£53.9bn) revenue in 2007, and Spain is among its fastest-growing markets – recording revenue growth of 11% over the same period.

"The entire process behind the change at an Iberian level was driven by a desire to create a flatter legal department across IBM and to extend lawyers' responsibilities beyond merely domestic issues. And from a business point of view, it made significantly more sense to concentrate activities in the biggest market," says Valor.

Still, Portugal and Spain's shared civil law base, combined with the impact of EU directives and jurisprudence, means that increasingly they have more in common than they have differences, suggests Valor. She points to similarities in the countries' legislation, some of it directed by EU rules, as well as how laws are enforced: "We believe our approach enables us to take advantage of what are often broadly similar commercial and regulatory concepts."

Practically, this means that both her Portuguese- and Spanish-qualified lawyers are able to offer varying levels of legal support to the operations, whether they are in Portugal or Spain, she says.

Still, the two are not identical, says Juvier at AIG. Spain has, for example, recently introduced enhanced data and consumer protection legislation, and while regulators across Europe are often looking at broadly similar issues, there remains the need, she believes, to have local in-house counsel to manage and guide the company's positions in the country. Hernandez says that much of the emphasis of her role is similarly to manage these differences and to provide a strategic oversight to legal issues.

Her lean in-house team is bolstered significantly, however, through Tyco's SMARTER legal model, which sees it partner with a single law firm across Europe. A significant proportion of Spanish legal services are, therefore, provided externally by Eversheds – which operates in Madrid as Lupicinio Eversheds – and in Portugal through its referral firms.

In fact, Iberia's law firms are themselves playing catch-up with the regional needs of their local and multinational clients.

While there are an estimated 3,000 Spanish companies now operating in Portugal and 400 Portuguese companies in Spain, only three of the leading Spanish law firms – Uria Menendez, Cuatrecasas and Garrigues – also have Portuguese offices and locally-qualified lawyers. And only one Portuguese firm, Raposo Bernardo & Asociados, has opened in Madrid. To date, only two major UK law firms have installed offices on both sides of the Spain-Portugal border, Linklaters and Simmons & Simmons.

For company legal departments, however, adopting a combined pan-Iberian approach yields benefits that do not show up on the bottom line, says Valor. Lawyers in smaller countries, like Portugal, would not have as many opportunities to advance, she says. Valor points to one of her reports as evidence of the advantage of working in a larger, combined department. "Our Portuguese lawyer, for example, now has a role far beyond that of some of his predecessors. His responsibilities now include all of our privacy issues, which means both thinking and operating on a pan-EMEA [Europe, Middle East and Asia] level."

Ultimately, despite any grudging resentment by junior Portuguese lawyers, the decision to merge the two countries' legal operations has proved itself, not only for IBM, but for most companies operating in Iberia, says Valor. "It is true that when we first embarked on a pan-Iberian approach, not everybody was sure about the outcome, but time has proved us to be right," she says. "A combined capability is now a consistent trend, and not only for multinationals, but also for the large domestic Spanish companies now operating across Iberia."

A version of this article originally appeared in Corporate Counsel, Legal Week's US sister title.