Companies: two-speed evolution

The role of a legal department is witnessing profound change. For head general counsel, it is no longer about optimizing their internal standing. Now, they are legal risk managers and therefore part of their employer’s strategic development. Their teams and external advisors still have to adapt to this.

Often it is only smaller details that suggest greater change. When Rewe and RWE optimize their antitrust teams, when Bayer puts its litigation team under the common management of its US head of litigation and centralizes its data protection function, or when Siemens merges its customs and trade department with its compliance team, it ultimately means that teams are being shaped in sync with the company’s risk profile.

Restructuring measures like those taken by BASF and Bosch are also heading in this direction. But the task for the head general counsel here (who have only been in office for a few years) is manageable compared to what Volkswagen is facing: reforming central functions will be a lengthy and expensive process.

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The Volkswagen case is also creating new risks: the creativity of plaintiff lawyers is resulting in scenarios resembling class actions and making this lawsuit model politically acceptable again.

In recent years, it was often the uncontrolled growth in the companies themselves that caused the legal risks to change. The Siemens case brought US investigative methods to Germany; the bank scandals intensified regulation. A failure of the law and compliance always was and still is a factor. Several head general counsel and chief compliance officers resigned, most recently from VW. Many observers consider this failure the result of departments adapting too slowly. Too busy shaking off their reputations as naysayers, many were afraid to give audible warnings, were too far removed from the operational activities or management. Only rarely was there a suspicion of active involvement by in-house lawyers.

Many crises have brought a younger generation to the helm, like at Bilfinger.

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The fact that the generation change in legal departments really got going in parallel to the changing requirements even without any external cause is a happy coincidence. This new generation is not weighed down by the historical battle for position within the company and can tackle the new challenges immediately – while encountering a more aware management.

Read about staff development in in-house departments

Legal and compliance departments are growing

These developments are causing a growing need for manpower in companies. Deutsche Bank is still searching for employees for its already much larger compliance teams, and the European Central Bank is also looking to fill further positions.

In the real economy, legal departments are being established or expanded, or independent compliance teams created. The latter are also gradually catching on in the Mittelstand. Although it is generally the head general counsel who have to develop a compliance structure, this is why the HR market in compliance has been far more dynamic than in the legal field for some time.

The changing risk profile means that those very companies that used to believe legal teams were unnecessary are now building them up. Attractive jobs for young lawyers from transaction firms are thus arising in investment companies. That it is this of all sectors making preventive investments because of the rising reputational risk is perhaps the most obvious sign of change. On top of this, ever more legal risks are arising. Nowadays it is not only companies like the Norwegian sovereign wealth fund that want to have their target companies vetted for human rights and ecological issues. Finding external advisors who are prepared for these is tricky. Few commercial law firms see much business in this yet – they view it as a nice add-on.

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Hiring strategies only changing gradually

While the in-house world is changing rapidly and is giving general counsel reason to readjust their setups, strategies for hiring external law firms are only changing gradually and generally not as a result of new requirements. BASF added two new firms to its operational panel because they are highly involved in legal tech, but this is the exception. The focus, as always, is on price, but few like to talk about this openly. The idea that companies are no longer paying for junior lawyers is mostly only talked about off the record, while Uniper and its vigorous saving strategy was met with only quiet criticism, even from other legal departments. Global corporates like GlaxoSmithKline or Microsoft are more aggressive: both announced they are eliminating fees from their legal bills entirely.

Costs are also behind the ongoing trend towards a more precise hiring of advisors in line with needs. Accordingly, the distribution of external costs varies.

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Midsized firms are called on as operational advisors in particular, whereas large international firms are hired for cross-border work and restructuring. But according to the JUVE in-house survey, the international giants are by no means established when it comes to high-priced compliance work. This is where specialist firms – primarily those in criminal law and antitrust – have the edge. The more professional the compliance departments become, the more the demand for advice will be limited to specialist material.

The globally much-discussed disruption in the legal market has thus yet to make a real impact on clients in practice. More than half of the in-house lawyers surveyed by JUVE do not mind how their lawyers arrive at their results. Perhaps another generation change is needed for a bit more of a revolution.

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