Independence of in - house counsel : The dilemma of when to act and when to outsource George Mutendadzamera 6 November 2015 Law Society of Zimbabwe Annual Summer School - Troutbeck Inn Nyanga

Independence of in - house counsel AGENDA 1. Pure legal advisor – traditional role 2. Outsourcing – key considerations 3. Moving from legal advisor to business advisor - evolving role 4. Managing complexity - legal advisor, business advisor and team player 5. Conclusions. 2

Independence of in – house counsel : Traditional role 3 Most companies prefer that all core legal work be done in – house and only selectively refer highly specialised legal work or legal matters to outside counsel. In house counsel expected to be familiar with a variety of areas of the law including company law, contracts, intellectual property, litigation, competition law, M&A’s, labour/employment, property law - “Jack of all trades !” (family law – heaven forbid!!) Deal with routine legal matters a company confronts. Providing legal advise when requested. Negotiation, drafting, execution and reviewing of contracts – an integral part of in house counsel function Depending on size and complexity of industry labour issues can be a central part of the corporate legal function.

Independence of in – house counsel : Outsourcing What to keep in house and what to outsource - balance may change depending on company and environment. Dilemma of “proving worth” versus “what’s in the best interests of the business” In house counsel must demonstrate value for money to the internal client, including through reporting to management on quantified results achieved - KPI’s. In house counsel must manage spend, track matters and “show cost savings” Cost containment a key focus area for most companies hence in house counsel expected to contribute “to the cause”. Resolving disagreements with suppliers, customers and other business partners is best done through negotiation and in house counsel tend to take a flexible approach to dispute resolution 4

Independence of in – house counsel : Outsourcing Apart from costs, the complexity of a matter is an important consideration in the decision to outsource. In house counsel’s workload is also a critical consideration Expertise not available in house - need to use expert external counsel in some cases ‘Tactical Insurance policy’ – cases where in house counsel knows the answer but answer contains a level of risk in house counsel’s interpretation so external counsel become the insurance policy. They can stand behind the opinion and give comfort to in house counsel Evaluation – important to continuously evaluate performance of external counsel Exceed expectations, met expectations, poor - in the same way other service providers of the company are measured. 5

Independence of in – house counsel : Outsourcing Research – in house counsel must research the topic they are retaining external counsel for in order to be able to track the lawyer’s progress and keep tabs on the work. Financial crisis forced corporate legal departments to be more cost conscious and efficiency driven. The result ? New models of legal provision are emerging. For example company’s like Axiom (launched in the USA ) offer experienced lawyers to companies as and when required, generally undercutting the rates charged by large law firms. Claim to ‘offer 50% savings vs outside counsel’. They offer integrated legal and business services LPO’s – Legal Process Outsourcing. Corporates are increasingly realising that work previously considered to be highly complex is becoming routine and can be handled more cost effectively by smaller or new model firms who do the mundane, day to day work such as document review and contract administration. India a major player in this industry. Forrester Research predicted that US$4bn worth of legal work would be outsourced to India in

Independence of in – house counsel : Outsourcing Risk mitigation : the role of consultants – corporations increasingly employing the services of third – party consultants to carry out due diligence, background investigations, a range of business services including reputational due diligence investigations Often engaged by companies during a crisis – a major fraud, an allegation of wrong- doing, theft of key intellectual property or an urgent need for critical information to evaluate a business opportunity. Convince client companies to undertake proactive risk mitigation measures to minimize risk of reaching crisis. Consultants, although they employ lawyers, are not direct competition for law firms. 7

Independence of in - house counsel : evolving role  In house counsel increasingly viewed as an essential component of any corporation aiming to successfully navigate the dynamic legal landscape of the global economy  In house counsel increasingly required to possess a level of business acumen  By using knowledge of a company’s business and its corporate culture in house counsel operate at a lower cost than outside counsel  Changing role of in house counsel is evolving and has broadened far beyond narrowly defined legal matters to encompass such things as risk, compliance, finance, regulation, HR and business issues.  IT - delivering real value for in house counsel ‘IT a facilitator rather than a solution in itself’.  Privilege – communication between an attorney and client, including a corporation, is privileged when the purpose of the communication is to seek or receive legal advice. Not EVERY communication is privileged – area of confusion 8

Independence of in – house counsel : Managing complexity Companies around the world have to comply with a growing array of new regulations and more intrusive supervisory agencies (WHO, ACTION AID – work against poverty and injustice, Transparency International) Managing companies increasingly becoming more complex – Enterprise risk, which by definition can challenge the company in multifarious ways is growing in breadth and complexity VUCA – Volatility, Uncertainty, Complexity, Ambiguity “Hey! It’s crazy out there!” In house counsel moving from pure legal advisor to a business advisor In this environment in house counsel can be the nerve centre of an organisation. Their role is to anticipate, advise, control and communicate to different parts of the organisation 9

Independence of in - house counsel : Managing complexity If the growing complexity of decision making is handled adeptly, in house counsel can leverage his/her position into playing an important, even critical, role in corporate decision making A growing proportion of in house counsel’s work is not strictly involved in legal matters but in commercial decision making especially in the area of risk management. It is the responsibility of in house counsel to guide the company to it’s objectives whilst following a legal and ethical route bearing in mind that management is always driven by a quest for results In house counsel, unlike external counsel, is part of the TEAM – chasing the same goals as the other team members Gain confidence of the team by presenting your knowledge in commercial terms. 10

Independence of in – house counsel : Conclusions 11 The role of in house counsel will continue to evolve in line with new developments in the legal space. There will be an increased demand by companies to derive greater value from in house counsel. At the same time the drive by companies for lower costs, including legal costs, without compromising quality will also continue to grow. Companies will demand greater transparency and accountability from external counsel. In house counsel will increasingly assign legal work to providers best suited to a particular task, rather than paying a premium for one – stop- shops.

Independence of in – house counsel THANK YOU 12