In-house: managing like a business

I have had the privilege of being an in-house lawyer for over a quarter of a century, culminating in my appointment as legal director of Royal Dutch Shell plc in 2014. In-house practice is always evolving but, driven by major global trends, the pace of change has quickened in the last five years.

These trends have significantly increased the complexity of our business environment, leading to a higher level of risk exposure for our companies and a multitude of stakeholders to take into account.

Some of these trends involve globalisation. This has led to greater competition, as companies can access more international markets; greater connectivity that quickly transforms local issues into global ones, with potentially significant reputational impact; increased regulation and enforcement in reaction to major industry-changing events such as the global financial crisis; and the increasing influence of non-governmental organisations, which now play a key role informing society’s thinking, affecting government policies and challenging companies through direct action and litigation.

Change of mindset

These trends are driving a major shift in how in-house lawyers are regarded by clients. Many of us have recently moved or are moving from a world where legal departments have to be ‘pushed’ to the business (‘we’ll call you when we need you’) to one where we are being ‘pulled’ (‘where is my lawyer?’).

We now see many more general counsel reporting directly to the CEO, being included as members of the executive team and sitting in board meetings. This ‘pull’ by the business presents a challenge to legal departments, which have traditionally operated as a service provider, behind the scenes, and only coming to the frontline when legal issues are to be determined.

Being in demand is always flattering, but responding to the business call to be a partner requires us to examine how we think and operate as in-house lawyers, because the call to sit at the table with the business comes with certain expectations. The main one is that we move from being a group of individual contributors focusing on protecting value, to being an integrated team that adds value to the business.

Adding value to the business is a simple goal to declare and many in-house departments include this as an objective. It is, however, a goal that can be challenging to attain for lawyers. I have seen many in-house teams stepping up to meet the challenge but I suspect there are also a few still grappling with the steps that need to be taken to meet the new expectations of business colleagues.

To be successful, the in-house team must move from being an organisation that delivers expert services to one that manages itself as a business. This requires a change of mindset and, for many of us, new ways of working.

Managing (in-house) legal as a business

For some time now, law firms have managed themselves as a business with the clear objective of generating profits.

Managing an in-house team as a business does not mean that we must have the same focus on an economic outcome and start reinventing ourselves as a profit centre. It is about adopting the many business tools and processes with which we are already familiar in our work as business partners, then adapting and applying them to an in-house legal team.

There are a number of elements that need to be in place for legal to be managed as a business and, not surprisingly, a number of them are similar to those we see in the businesses we support. There are three of key importance:

Co-owning the business outcomes

As lawyers, we are trained to look at our work through a risk lens. As in-house lawyers, we are given the opportunity to look at our work through a much broader lens.

Yes, we have to ensure the right contracts and compliance programmes are in place to protect the company. However, having a seat at the table provides us with insights that enable us to deliver more than value protection. In fact, it requires us to co-own the business outcome so that we frame our counsel in a way that addresses not just the commercial results but also the right business outcome, taking into account the sustainability of the deal or matter; its strategic fit; and its impact on stakeholder relationships and the company’s reputation.

The pull from the business inevitably requires in-house lawyers to make judgement calls that go beyond legal boundaries, and rightly so. Our legal training has given us a broad range of skills, including the ability to digest large amounts of data, see through the complexity of the business environment with an impassioned view, and weigh up the different risks and opportunities, coming up with a suite of options that can be clearly articulated to and considered within the business.

As in-house lawyers we need to embrace this shift. Our skill-sets, when combined with a deep understanding of the business we support, result in an unbeatable combination that is much needed in today’s complex and volatile business world.

Our ability to co-own the business outcome is unique to our role as in-house lawyers and can rarely, if ever, be matched by an external law firm. Co-owning the business outcomes can sometimes be seen as over-stepping the mark, both by in-house lawyers and business colleagues. I see it as a natural evolution for lawyers who have decided to move in-house to be closer to, and more involved in, the business.

Continuous improvement

Over the last few years GC surveys have consistently revealed that the most common challenge facing in-house lawyers is having to ‘do more with less’, as legal budgets are frozen or reduced in response to the economic climate since the global financial crisis. This has been the catalyst for many in-house teams to seriously examine both what they do and how they do it.

Some have adopted an approach of refocusing on core legal work and turned away work that should be done by the business, gradually withdrawing from the business frontline because of fewer resources. Others have taken a more business-like approach and adopted a continuous improvement mindset that challenged how their lawyers were working and found more efficiency. Rather than withdrawing from the business, the best in-house teams have pushed to develop stronger partnerships with the business to identify and execute opportunities to systematically improve their way of working together, and consequently take costs out of both the business and legal budgets.

The latter approach is likely to deliver sustainable improvements over the long-term and generate more value for the business while strengthening in-house lawyers’ role as business partners. However, this does not happen without a mindset change that has to be driven by the top of the in-house legal organisation. GCs have to be open to adopting some of the business tools available to drive continuous improvement, such as Lean, Six Sigma and Kaizen.

They then need to articulate and communicate the expected behaviours in this new state of continuous improvement, provide examples, sponsor pilots and projects, reward the right behaviours and role model the behaviours.

Finally, they need to be bold and set targets that will challenge the organisation to deliver improvements (for example, in the form of cost or time savings, resource efficiency and client feedback), monitoring progress constantly and asking questions when the targets are not delivered. This requires the same approach and discipline as one would find in the business when delivering an outcome.

Strategy and a business plan

It goes without saying that all businesses need a strategy and a business plan. Most in-house legal teams I know have a vision and an annual budget or plan, but few have a strategy and a long-term business plan. The legal strategy and business plan have to be informed by and be consistent with the company’s strategy and business plan, and it is this alignment that provides clarity of purpose and objectives to guide the legal organisation in terms of what to focus on in the short-, medium- and long-term.

The business plan should also include the key risks – current and emerging – faced by the company. Together, the strategy and business plan provide the granularity required for the legal leadership to plan and prioritise in terms of budget, manpower, footprint, competencies and experience over a period of years, not months.

The process of sharing and agreeing the legal strategy and business plan with the company’s senior management gives profile and credibility to the in-house team. It also encourages a conversation that enables senior management to understand and appreciate the objectives, priorities and challenges of the in-house team and makes any discussion about costs a more informed and objective one.

Sharing the same with the legal organisation gives them clarity on their deliverables and opportunities, and a greater appreciation of the decisions taken by the organisation’s leadership team that may, in the past, have seemed somewhat arbitrary without the context of the strategy and business plan. It also encourages the organisation to sign up to the deliverables of the plan, thereby improving the likelihood of success.

Natural next step

Managing legal as a business is not a radical concept. Nor is it a difficult one. It is a natural next step for in-house lawyers who are now being pulled by the business to sit at the table. As knowledgeable and integrated business lawyers, we can adopt and adapt many of the business practices and tools and apply them in our teams. The key challenge is not how we should be moving to this new mindset but how quickly we can do so.

To be successful, an energy company such as Shell has to understand everything from national and international politics right down to the fundamental chemistry and physics of wells and many other technological and commercial challenges. But success also depends on having an agile organisation that can adapt to change efficiently and effectively. In-house lawyers make companies more agile and successful.

Shell’s legal department, with a thousand professionals, may be bigger than many others, but the issues we face as business partners are the same regardless of the size of the department or sector. The global trends presenting a myriad of risks and challenges to our companies are not only growing in number, but also materialising at a faster pace.

Some in-house teams have had the benefit of being able to evolve over time to this new mindset and deliver value to their companies, but for others your company needs you to run faster and change faster. The competitive pressures facing your companies require them to stay ahead of the curve. They also need their in-house legal teams to have kept pace and be there as well.

• This is the latest in a series of thought leadership articles on the in-house sector. It is an edited version of a chapter in The Future of the In-House Lawyer: The General Counsel Revolution, published by The Law Society (£79).