The changing game for corporate counsel

Daily compliance work, in addition to big projects like M&As, requires corporate counsel to integrate resources beyond the legal department and take a more comprehensive approach, said Catherine Wang, director and general counsel of DSM (China).

“The role of in-house counsel no longer involves just reading and writing contracts behind closed doors,” said Wang, who set up the global science and health-based company's legal department in Shanghai in 2005. She added that “Over the past 10 years, it has shifted from a purely legal staff position to an executive role, with some counsel even becoming board members.”

Wang and Sun were speaking at the U.S.-China Legal Summit in Shanghai, hosted by The American Lawyer and The Asian Lawyer on November 25 2015. The annual event drew more than 160 in-house lawyers from domestic and multinational companies.

Wang said she encourages her team to participate in sales meetings to understand the business. The corporate environment now demands lawyers to have a full set of skills to be able to guide different departments through major projects.

'This is China'

Jane Huang, general counsel and VP of legal at Eli Lilly China, also speaking at the Summit, said that bridging gaps in understanding is essential to the in-house role, especially when working with headquarters.

“There are always risks in a highly regulated industry like ours, but nobody wants to hear that something is a risk every day,” she said. Huang heads the legal team in Shanghai, where the pharmaceutical company's first representative office outside the U.S. is located.

“On conference calls I often hear the Chinese party use the argument 'This is China' or 'It's just how it is here'. But that's not helpful to anyone,” said Huang. “We need to jump in and help management understand how these risks can be mitigated and handled in the country's unique business environment, as well as explain what `This is China' exactly means,” she said.

One example she highlighted was that increasing transparency may be a positive development from a foreign or U.S. perspective, but it is not a panacea in China. More often than not, it has underlying implications, and counsel need to clarify regulatory intentions.

Changing game

China's social environment and business culture and ethics have evolved significantly since 2006-2007, when foreign direct investment rocketed and multinationals brought good practices into the country. These changes have led to the growing responsibilities of corporate counsel.

“Management focused much more on numbers and expansion than compliance back then, especially during the peak years of the banking industry's development,” said State Street Bank's Sun.

Rules often lack clarity amid fast-paced growth. Navigating these challenges is vital to surviving in an environment with increasing competition – as well as punishments for violations.

Hiring external counsel: best value

In this high compliance and regulatory environment, companies in China need to be just as cautious – and selective – when engaging external counsel.

DSM's Wang noted the changing scope of work done by both internal and external counsel. She hires private practice lawyers for litigation as well as for training and deeper research on laws that heavily impact the company's operations such as the PRC Anti-monopoly Law (AML).

“Our company has a broad scope with 20 or so plants in China,” she said. “Each lawyer we appoint must understand the AML and its specific effects on all relevant features of the business.”

Eli Lilly's Huang said that selecting lawyers who have the specific knowledge and experience is crucial when working in a tightly-regulated and specialized industry.

“External counsel must know the client and the business,” said Wang. She spoke of instances where she had to learn this the hard way, including one where her team engaged an expensive lawyer whose understanding of specific features of the business and industry was lacking.

Wang said she has generally received better services from international firms than local firms.

“If you are a long-term client, a foreign firm will spend a large amount of time understanding your business, and always act as if they are in-house during big projects like M&A,” she said. “One international firm even sent us a young counsel on secondment for free. We really appreciated this value-added service.”

By Katherine Jo

More from the 2015 U.S.-China Legal Summit – Shanghai:

Decoded: The nuances of anti-corruption in China

Handling disputes, trade secrets as data rules tighten