Where do we begin? Do we talk about the various stages through which the evolution of in-house counsel has been? Or, do we first look at the corporates who thought of hiring legal staff, and what made them do it?
We adopted the latter approach — simply because business is required to operate in a legal environment and each aspect of business has a legal dimension to it, whether it be documentation or compliance, among others.
Business houses traditionally went to law firms and were outsourcing all legal work. In India, during the post-independence era and up until 1991, business was subjected to enormous restrictions, and control by the bureaucracy was at its peak. The freedom to contract was significantly circumscribed by the rigours of the prevalent laws and the license-raj (a reign of permits). Given the preponderant influence of laws and regulations, which kept changing from time to time, business houses felt it safer and comforting to get all the documents drafted and reviewed by law firms. This also gave a sense of relief to the Board of Directors.
Over a period of time, legal professionals were hired by government and governmentowned establishments as a means of ensuring a certain degree of confidentiality and with a view to reducing the cost of outsourcing legal work. These salaried legal professionals became the back-end legal resource, but seldom did they have any front-end role. They were typically called ‘Law Officers’ and their growth trajectory was quite preset. Some considered job security as a reason for working for the Government.
Pras is reminded of his first job with a government-controlled insurance company in Mumbai. It was in the year 1977 and he was designated as Administrative Officer. Though he was a trained lawyer by then, with 6 years of practice under his belt, he was not even designated as a ‘Law Officer’. The reason given was that he was simply administering insurance claims. If any claim was repudiated, he would then identify a lawyer from the panel maintained by the Company and keep track of the case if it ended up in court. A few months into that job, he became restless and bored with the sheer monotony of it. He moved on to a Swedish MNC in Pune where he got his first title ‘Manager-Law’.
The role of GC as understood in the Western and the Indian Context Who is a GC?
Are they defined by mere designation? Is this concept imported from the West? The very first time Pras became Head of Legal was in the year 1982 when he worked for Brooke Bond India Ltd, a company that was not exactly an MNC, but its parent was headquartered in the UK. He had not heard of the acronym GC. Fast-forward to 1991 when he became the Chief Legal Officer of an engineering conglomerate Larsen & Toubro in Mumbai.
The concept of GC, or for that matter corporate counsel, was still widely unknown. Subsequently, when he became the head of the legal function of the Aditya Birla Group(ABG), he was designated Group Executive President (Legal). However, as the Indian Economy opened up for foreign investment, it gave him the opportunity to travel abroad and interact with the GCs of companies with which we were exploring a collaboration.
By default, people referred to me as GC, though he had no such designation. Interestingly, the designation in ABG has changed to Group General Counsel & Chief Legal Officer. The duality of the role is quite interesting in the sense that the overarching advisory role of a GC is differentiated from the role of the CLO providing legal services.
We got a ringside view of the international in-house legal teams and the diverse competencies each of them possessed. During our initial interactions, we were very surprised that they knew so much about the business. They were able to discuss and negotiate complex business issues embedded in the contract which, back home, we would not have been able to do without assistance from the business guys.
Over a period of time, we developed the art of negotiating contractual provisions that had a business slant. For example, negotiating a Power Purchase Agreement or Fuel Supply/Linkage Agreement or an IT Services Agreement required a good understanding of the underlying concepts. The authors would like to believe that they are dinosaurs compared to the current young crop of GC who have a flair for navigating business issues, drafting, and negotiating. They do, however, believe that benchmarking to international GCs does help if done with a passion for measuring up to international standards of inhouse legal service delivery.
This takes us to the first principles.
i. Who can be called a GC? Does that designation matter? Would a person be less of a GC if he is designated any other way? We suppose not. But we do believe that, in the true sense, the role of a GC transcends legal advisory and encompasses a whole lot of other responsibilities. Pras spoke to both Indian and American GCs to get some insights into their functioning and the range of issues and challenges they deal with around the year. This was important from the point of this article, given that Pras retired in the year 2010 and had to come up to speed with the role as it had evolved. Indeed since 2010 the GC tribe has flourished and is often confronted with a host of problems that they must deal with either on their own or with help of an external counsel.
ii. In order to be effective, a GC should have a clear understanding of the Company’s history and evolution. They need to know:
•When it was incorporated, when it became a public company, and when it was listed.
•If there were any shares allotted for consideration other than cash, and that consideration is represented in the company's financial books.
• The company's historical mergers, amalgamations, and demergers, as well as acquisitions and divestments including the context in which these were made.
• Who owns the intellectual property be it trademarks, patents, designs, copyright, etc. that the company uses for its business? If not owned by the company, what are the underlying arrangements for the use, including royalty, etc.?
• Major litigations in the past and how these were resolved.
• Crisis situations faced in the past - what caused them - what lessons can be learned to prevent recurrence and how these were resolved.
Most importantly, they need to understand the full particulars of any antitrust actions by or against the Company and their outcome. These often have huge learnings for the future as well.
iii. GCs in most Indian corporates are primarily seen as in-house legal professionals for ready and cost-effective advice, as well as regulatory gatekeepers, often referred to as "the person who keeps company officials and directors out of jail. However, in the last few decades, there has been a significant shift and competent GCs are as much business enablers and troubleshooters as they are as gatekeepers. GCs can indeed be a source of competitive advantage for their organization. While gatekeeping is a basic and critical role of a GC and his team, it is more of an opportunity-seeking position in Corporates where this role is more evolved, particularly in a given regulatory framework where business enabling, risk prevention, and risk mitigation have assumed a significant proportion of the task.
The GC’s first basket of responsibility comprises talent acquisition, skill development, filling knowledge gaps, evaluating performance, deciding on incentives, budgeting, dealing with attrition, and marketing the in-house capabilities to internal clients engaged in diverse businesses. All of these tasks make the GC a legal resources manager. Should she then be equated to a managing partner of a law firm who does not deal with too many clients, but focuses on running the firm efficiently? Unfortunately, the GC is required to provide legal services and also have complete oversight of legal service delivery by her team, besides dealing with all the aspirational issues of the team.
The second basket comprises the advisory service. The GC is not only expected to advise businesses but may also be required to express an opinion in writing. Some of the GCs I spoke to were of the view that the opinion is more in the form of a memorandum rather than an opinion that a Barrister or a law firm would express. Here again, some opinions are oral and some are memorialized for posterity. If, however, the opinion is intended to be treated as ‘privileged’ then it has to be in writing and addressed to the internal client. Will this suffice to claim ‘client-attorney’ privilege? Well, the jury is out on this. In some jurisdictions, the privilege may extend to in-house communications provided it is so intended. The question of whether the GC is an attorney or not is moot. If the GC is also a Board member, the advice that he gives to the Board is better served if it comes from an external counsel. Pras remembers an instance when he gave my opinion and the Board was quite comfortable with it, yet he was advised to have it vetted and get it issued by an external counsel. The opinion given was not at variance with what he had said, but it seemed to have greater credence. In general, corporate advisory is integral to the duties of a GC.
The third basket comprises the entire gamut of corporate transactions which include M&A, corporate restructuring, and creating SPVs, JVs and divestments. The GC frontends all these activities, backed by a competent team put together by him, including external advisors. The GC is expected to drive the entire due diligence process, whether it be the sell side or the buy side. The skill sets and competencies of his team are generally adequate if the transaction is of organic nature. If it is inorganic, namely a new business, the GC has to strengthen his team by roping in the legal resources required to ensure that the unfamiliar terrain of an inorganic transaction is navigated safely. In this area of transactions that propelled me to the world stage and the GCs of today who are already exposed to crossborder transactions stay on the learning curve given the significant influence of technology which is advancing with each passing day. For example, for the love of God, the authors have no great understanding of smart contracts using block chain technology and digital contracting. The younger crop of GCs is on top of this game, which is heartening.
The fourth basket that the GC has to deal with involves his or her interface with various committees of the Board, particularly the Risk Management Committee and Audit Committee. Quite frankly, as legal heads of L&T Construction and ABG we had no such interaction with these committees. However, in recent times the GC has an interface with these committees and the chairperson often reaches out for information and clarifications.
Pras experienced this personally. When he was the Audit Committee Chair of Mind Tree Ltd, the GC of Mind Tree attended the meetings, and she used to provide information and updates on many matters not just limited to compliance but extending to irregular trading in securities, whistle-blower complaints, and sexual harassment matters.
Having written about the important attributes of a GC, we wondered if the designation of GC is being freely used more as a matter of form than content. We had the opportunity to speak to a couple of first-generation GCs and one of them Mr. M. K Sharma (MK), the erstwhile GC and Vice-Chairman of Hindustan Unilever, gave his own perceptions of when a person ought to be called a GC. He is of the view that the title GC does not connote merely the seniority of a legal professional in a company or his being the head of the legal function. There is indeed more to it being a GC both in terms of role, personality, skill sets, etc.
MK says that, as the designation suggests, a GC is a generalist and not a specialist. The wide spectrum of matters that he is expected to handle reinforces that belief. He goes on to say that the GC’s role and responsibility extend to providing direction, information, recommendations, suggestions, and guidelines, and, wherever appropriate, warning and cautionary advice to the company, its Board, and other functionaries. His role is extensive — covering ‘Corporate Governance and ‘Opportunity seeking’ to ‘risk mitigation. It can span from ‘compliance’ to ‘remedying breaches’, that may have occurred at the operating level either through inadvertence or ignorance. He is also expected to ensure that corrective measures are put in place to avoid recurrence. Dissemination of compliance requirements, creating awareness within the company and its supplier/customer network, and maintaining a record of these activities is also a critical part of his role as these are mitigation measures. He is also expected to be the conscience keeper of the company and its Board, a watchdog for adherence to ethical standards, and, in some measure, the custodian of corporate reputation. He has a significant role in ensuring that the company he serves conducts itself as a good and responsible corporate citizen and acts consistently with its obligations to the community and society.
Furthermore, he is expected to be an integral part of the core team of the company on matters of corporate restructuring, M&A, divestments, capital raising, etc. He also has a key role in drafting and conveyancing documents such as standardized employment contracts, Supplier/Vendor Agreements, Distributor/Customer Agreements, JV documentation, property transactions, etc. In most organizations, he is also the ultimate custodian of title deeds of immovable properties of the company. Lastly, he is expected to be a key member of the company’s crisis-management team as and when a crisis occurs. A GC role is thus well beyond that of a head of legal function in a company – it is indeed far more extensive.
For the effective discharge of his duties and obligations, the following aspects are important and need to be concurrently present in the person to be appointed to perform a GC’s role.
(i) A clear recognition that he is "in-house" and, therefore, needs to apply his legal skills and competence, not as an external legal counsel will do, but well beyond. An external counsel may be justified and entitled to act on facts as presented in the brief, but a GC needs to ascertain and verify correct facts and circumstances in respect of issues on which he needs to advise.
(ii) In addition to knowledge of relevant laws, a contemporary understanding of the judicial, regulatory, political, social, and economic environment, and a good understanding of existing and emerging trends in the geographies where he holds the role and responsibility, which could impact the company, its suppliers, employees, customers, consumers, etc. A forward-looking thought process rather than merely based on past precedents.
(iii) A good understanding of the competitive landscape.
(iv) Skills in areas of advocacy and public policy.
(v) Comfort in dealing with issues on first principles, rather than feeling handicapped in situations where there are no judicial or regulatory precedents.This is all the more relevant as and when new laws get enacted.
(vi) Ability to give unambiguous advice which is actionable - while he may weigh the pros and cons of a given approach or decision on his part, he should shun the approach of "on the one hand this is the position and on the other hand that is the position"
(vii) Ability to present a contra point of view with conviction. While seeking to build consensus should be the objective - it will be a big failure if dissent is not expressed and recorded when it is imperative to do so for the larger good of the organization.
Speaking of the personality traits of a GC:
i. Possesses good interpersonal skills, and company personnel should be comfortable in reaching out to him.
i. Completely apolitical, non-aligned, and free from bias of any kind regarding the company, its top team, and its diverse functions.
iii. A keen listener and able to call a spade a spade - he should not allow his message to be lost in excessive politeness.
iv. Should not shoot the messenger who brings unwelcome news or information, and instead treat it as an opportunity for self-correction or improvement for the organization.
V. Courage and wisdom to deal with and handle a crisis, fully inspiring confidence - even when aware of any weakness in the company's position (that can be discussed later).
vi. Firm belief in the principle of disclose' on your own any defaults or deficiencies as they become known, rather than have them be 'discovered' no attempted cover-ups.
vii. Honesty, integrity, truthfulness.
viii. Good judge of people - who can be taken at face value, who needs to be probed, and who cannot be trusted!
ix. Capable of ascertaining complete and full facts before offering advice.
GC as a member of the Board | GC as Company Secretary | GC as Compliance Officer: Is there a conflict of interest if the GC wears three hats?
In his job with an MNC in Pune, Pras was part of the secretarial department and was reporting to the company secretary. Those were the days of strangulating regulations. If he was asked to express an opinion or help secure a permit, he had to prepare the note and give it to the company secretary who would then communicate it to the business head under his signature, but not before re-writing some portions the way he thought fit. Similar is the case of a GC who reports to the CFO. We have not come across instances of the GC being the CFO, but there are many cases of a secretary doubling up as the GC or the GC reporting to him. In our view, there is a degree of conflict that would manifest given the compliance obligations of the secretary, who is also the compliance officer in most cases. The structure compromises the GC’s position as the defender of charges of non-compliance.
GC being a Board member is not a widespread phenomenon. MK, who was perhaps the first-generation GC who was also a Board member, was of the view that as the role, responsibilities, and obligations of ‘director’ or Board evolved as codified in the Companies act, 2013 — distinct from the historical perspective of last century (where the primary task of the Board was seen to be profit maximization for shareholders), possibility of such conflict between the role as a Board member and as GC has been considerably narrowed, if not eliminated altogether. In fact, in a fairly hierarchical society like India, the GC being a Board member enables him to perform his role far more effectively, as he is seen as an equal by other Board members. Needless to add that in such a situation, the GC also needs to widen his horizons by having an understanding of core elements of corporate or business strategy and financial management, more than mere financial literacy, etc., to elevate himself to be an effective director rather than merely being a GC who is on the Board.
For quite some time, at least from 1979 until about 1990, the external lawyers held sway, and invariably the legal functionaries ended up sitting in the reception area of a law firm waiting to be called. The tables have turned. Law firms and their partners are now more than willing to adopt a collaborative approach, and it is no longer of any consequence who goes where and to see whom. In those days, and even for many years after that, it was customary to have a partner of a law firm as a director on the Board who would express his views on any matter that required legal analysis. This limited the scope for the legal function to express opinions on matters that the Board was concerned with, and the legal function remained oblivious of what transpired at the Board. With a widely regarded GC sitting on the Board, the reliance on external counsel is diminished if not dispensed with altogether
GC’s role in corporate governance: Pras had the opportunity of speaking with a GC of a $17 billion North American Company. Whilst many of his roles and responsibilities had parallels with the Indian GC, some of the other responsibilities that he shouldered were quite interesting. He had an interface with the Chairman of the Audit and Risk Management Committees. He was part of the Governance & Compliance Committee that dealt with the whistle-blower policy, sexual harassment policy, diversity, and various other policies. This committee was also a convergence of Compliance, Human Resources function, and Internal Audit.
The GC being the top legal executive, has to stand up and advise the internal client. If his oral opinion is not being taken seriously, he should, at the risk of being unpopular, put it down in writing. This may even extend to the CXO, to whom the GC might well be reporting. In matters like antitrust filings and dealing with the Department of Justice, he might need external support. The GC has to strike the right balance between using internal and external legal resources. Apparently in the US (like in most other countries) a change in regime brings about a change in the thinking of the Government and there is no way of ensuring that the rulings will be consistent. Policy bias clouds the legal position. Decisions may be impacted politically. Sometimes, the law does not matter, but politics and changing policies do. Basically, wherever there is a government intersection, the GC is better advised to seek assistance from people who have an ear to the ground.
Similarly, when it comes to tax matters whilst the GC works closely with the CFO, he does not claim to be an expert in tax matters and so has to engage tax experts while overseeing the conduct of the case. Sanctions are another area, in the wake of the Ukrainian conflict, that will require close tracking. One wrong move and the business suffers losses and penalties.
Ben Heineman Jr, the erstwhile GC of GE, says “Inside lawyers have broken up monopolies that particular private firms had previously enjoyed. They now manage major matters facing the corporation by striking a strategic alliance by mixing the in-house and external teams and leveraging their respective competencies.”
The other area of concern for the GC in the USA is the implementation of the FCPA provisions, particularly when the US corporation has subsidiaries or business units operating in foreign jurisdictions. The GC has now an added responsibility of ensuring that the corporation lives up to its commitment to ESG, putting in place systems and practices that would further the cause of ESG. To this intent, the GC must carefully review the Director’s Report. Vetting certain sections of the annual report also fall within the GC’s oversight.
The narrative about the roles and responsibilities cannot end here, as it is a role that is everevolving. The Indian GC has consistently strived to benchmark herself to international standards of responsible and ethical corporate legal service delivery. Not all GCs who call themselves as such measure up to the multidimensional role of a true GC, but each of those GCs has enriched that role with each passing year.
The Journey of an aspiring GC begins with his or her first appointment as a junior legal officer of a corporate. How that junior legal officer chooses to chart the path for growth leads him or her to the position of a GC. There are many junior legal officers, and only a few end up as a GC, similar to any other profession or trade, where only a few are seen at the top.
The primary requirement for a junior legal officer of a corporation is to counsel his clients (his employer’s many business teams who seek consultation) to choose the right path for conducting a business operation, while at the same time, educating them about the legal risks involved, and the possible remedies. He should not, unless it is really essential and absolutely necessary, provide a view that thwarts a business opportunity. This is possible when the junior legal officer is also aware of the business and its complexities. The more and more decisions/guidance provided by the junior legal officer to the business within the framework of law will make the management take notice of this individual, which can chart the growth trajectory. The ability to manage disputes without taking them the route of a complex and costly dispute resolution process is also one of the sought-after traits of a GC.
Like everything else. Knowledge too may become outdated. Periodical training, and keeping abreast of developments in law and jurisprudence is a must and the GC has to lead from the front in this endeavour to promote a culture of learning and innovation.
We end this article with an aspirational statement. Given the role and responsibilities of the Indian GC, it is high time the Head of Legal function, by whatever name called, is made a key managerial person (KMP) under the Companies Act given the overarching need to comply with laws, and regulations besides other statutory and contractual obligations. This gives the impetus that the in-house legal community needs, just as the Company Secretaries have