Changing Role of General Counsel in Germanyeureka.sbs.ox.ac.uk/6870/1/GC in Germany report...

ChangingRoleofGeneralCounselinGermany

MariSako

2018

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SaïdBusinessSchoolUniversityofOxford

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ChangingRoleofGeneralCounselinGermany 2018

SaïdBusinessSchool|UniversityofOxford

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TableofContentsFOREWORD.............................................................................................................................................1

ExecutiveSummaryofKeyFindings..............................................................................................2Sizeandshapeofcorporatelegaldepartments...........................................................................................2Relationshipswithlegalserviceproviders...................................................................................................2Lawyersintopmanagementteams.............................................................................................................2

Chapter1:Introduction......................................................................................................................3

Chapter2:SizeandShapeofCorporateLegalDepartments.................................................4ShapeofLegalDepartments........................................................................................................................4RestructuringLegalDepartments................................................................................................................5Multinationals’PerspectivesonLegalDepartmentStructure.....................................................................5The‘MoreforLess’Challenge......................................................................................................................6PreferenceforInsourcing.............................................................................................................................8Summary......................................................................................................................................................8

Chapter3:RelationshipswithLawFirmsandOtherProviders...........................................9PanelsofLawFirms......................................................................................................................................9BillingArrangements..................................................................................................................................11DifferentTypesofLegalServiceProviders.................................................................................................11Summary....................................................................................................................................................12

Chapter5:LawyersinTopManagementTeams.....................................................................13WhatdoIn-houseLawyersdo?..................................................................................................................13TrendtoStrengthenRiskControlinGermanCompanies..........................................................................15BusinessPartneringPracticesVaryinGermanCompanies........................................................................15Legal&ComplianceatDAX30Companies.................................................................................................16Summary....................................................................................................................................................17

Chapter6:Conclusions....................................................................................................................18

Acknowledgement.............................................................................................................................20

AbouttheAuthor...............................................................................................................................20

Appendix:ResearchMethodology...............................................................................................20



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FOREWORD It is a fact that in the last couple of years the role of legal departments in Germany - and,consequently,theroleofGeneralCounsel-haschangedsignificantly.Tothebetter,bytheway.In the aftermath of the financial crisis back in 2007/2008 a lot of German companies haveredefinedthestrategicpositionoftheir in-houselegaldepartments.Afewyears lateronecanclearly seehow thishas influenced thebalanceofpower in theGerman legalmarket.Today,morethanever,legaldepartmentsandGeneralCounselinparticularplayadecisiverolewithinthe legal market. For instance it is entirely up to them to mandate external law firms (andthereforeorganizetheamountoflegalspendofthecompany),todecidewhichtoolsaretobeimplemented inorder tomakeuseof legal technologyand,aboveall, toavoidany legalandcomplianceriskforthecompany.In addition to this, legal departments are no longer to be seen as an inevitable cost centerwithinthecompany.Expectationshaverisen.Todaylegaldepartmentshavetoactasbusinessunits,whichshouldbebetterpreparedtosupporttheoverallsuccessofthecompany.Itisfairtosay that General Counsel are the masterminds who are in charge to lead and manage thischangeprocessinternallyandexternally.AgainstthisbackgrounditisoftremendousimportancethatProfessorMariSakohasconductedherstudyintothisprobablymostrelevantpartofthelegalmarket.Beaware:Thisiswherethelegalheartbeatsrightnow.MariSako’sfirst-classfindingsafterin-depthandhigh-levelinterviewswithleadingGermanIn-house lawyersareextremelyhelpful andup-to-date inorder tounderstand thedriving forcesbehindtheconstantandongoingchange.Of course, this study is not only excellentlywritten.Aboveall, it offers a purewealth of newthoughtsandinsightsforpractitionersinlegaldepartmentsandlawfirmsinthiscountry.

Therefore,IstronglyrecommendMariSako’sstudyonthechangingroleofGeneralCounselasadefinitemust-readforanyonewhowould like tounderstandthedynamicswithintheGermanlegalmarket.

Prof.Dr.ThomasWegerichGermanLawPublishers/DeutscherAnwaltSpiegelGroup,FrankfurtamMainAugust2018



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ExecutiveSummaryofKeyFindings

Sizeandshapeofcorporatelegaldepartments• In-house legal department structure reflects the corporate structure. Typical organizing

principlesarebylegalspecialisms,businesslines,andgeographies.Atensionexistsforthelegalfunctionbetweenbecomingtooclosetobusinessandbecomingisolatedinafunctionalsilo.

• Company-wide corporate restructuring is an occasion to restructure the legal department.Compliance challenges and efficiency drives have led to centralizing the legal function at thecorporateheadquarter,leadingtobetterriskcontrolandlegalresourceuse.

• Most, but not all, companies face the ‘more for less’ challenge in delivering legal services.Except at young companies experiencing rapid growth, German companies face the ‘more forless’challengeofincreasedworkloadwithoutanequivalentgrowthinlegalresources.Theyaremeetingthischallengebyseeingefficiencygainsviastandardization,andbyshiftinglow-risknon-strategicworktootherdepartments.

• In-house legal departments prefer to insource as much as possible. Many respondentsexpressed a preference for doing asmuch legal work as possible in-house, in order to bettercontrollegalspendingandrisks.

Relationshipswithlegalserviceproviders• Panels of law firms have been established at German and multinational corporations, to

systematize relationships with law firms, and to achieve an optimal balance betweencompetitionandcollaboration.

• Alternative billing arrangements are becoming prevalent in Germany. Respondents noted awind of change in Germany recently with greater cost sensitivity, leading to harder discountnegotiations and the use of alternative billing arrangements. Alternative billing arrangementsincludedtheuseoffixedfees,cappedfees,contingentfees,andretainerfeepayment.

• CorporatelegaldepartmentsarealsoaccessingnewertypesoflegalserviceprovidersincludingboutiquelawfirmsinGermany.Boutiquesarepreferredforbetterfocus,greaterflexibility,andlowerfees.

Lawyersintopmanagementteams• In-house lawyers generally play three distinctive roles: service support, risk control, and

businesspartnering.Balancingtheserolesisconsideredessentialinensuringthatthecompany’sexecutivesregardthelegalfunctioningoodlight.

• InGermany, themost important trigger for enhancing thepowerof in-house lawyers lies incompanies’needtopaygreaterattentiontoriskcontrolinthe2010s.Consequently,thelegalfunction,alongsidethecompliancefunction,hasbecomemorevisibleincorporateorganizations.

• A variety of expectations persist in relation to the other two roles of service support andbusinesspartnering.SomeGermancompanieshaveappointedachiefoperatingofficerforthelegaldepartmenttopromoteefficiency inservicesupport,butothershavenot. SomeGermancompanies have a CEO and top managers who expect the general counsel to be businesspartners,whileothersdonot.



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Chapter1:Introduction

Globalizationanddigitaltechnologypresentsignificantopportunitiesandchallengesforlawyersaroundtheworld. In this broad context, in-house lawyers are tasked to balance their three roles: providingservicesupporttotheirinternalclients;controllingcompany-widerisks;andactingasbusinesspartners.Theservicesupportroleisaboutfacilitatingbusinesstransactions,forinstancebydraftingcontractsandadvising on country-specific laws and regulations. Risk control has both upside (i.e. risk-taking) anddownside(i.e.riskavoidance),butthe lattertendstobeemphasized.Businesspartnering is forseniorin-houselawyerswhodonotjustadvise,butparticipateinthecompany’sstrategicdecisions.Whileallthreerolesare important,theirrelative importancechangesovertime. Thisstudysheds lightonhowandwhythemixofin-houselawyerroleshaschangedinGermany.

Thisstudyisasequeltoanearlierstudy,GeneralCounselwithPower?(2011)1,withevidencefromtheUnitedKingdomandtheUnitedStates.Itsaimwastocaptureavarietyofexistingpracticesandthinking,rather than just identifyingwhat is typical or representative in Germany. Interviewswere conductedwithleadingin-houselawyersat33companiesinGermanyduringNovember2016–March2018.Theinterviews,eachlastingonehour,exploredthreekeyareas:(a)thesizeandshapeofthein-houselegaldepartment, (b) thechangingnatureof relationshipswith law firms, (c) the roleofgeneral counsel inrelation to the corporate top management team. We targeted companies across different sectors,varied nationalities of ownership (21 were German-owned, 12 were German subsidiaries ofmultinationalcorporations),andsizes(5wereDAX30companies,whileothersweremid-sized,includingfamily-ownedand start-up firms). Iwould like to thankall thosewhoparticipated in this study,whogavegenerouslyoftheirtimeinansweringmy,attimesprobing,questions.

Given that our sample includes not only German companies with global presence, but also Germansubsidiaries ofmultinational companies which hail from several different countries ((Finland, France,Japan, South Korea, Spain, Switzerland, and USA), this study identifies trends and issues which arehopefullyofinteresttoin-houselawyersoutsideGermany,indifferentpartsoftheworld.

Thereportisstructuredasfollows.Chapter2analyzesthesizeandshapeoflegaldepartmentsinrecentyears.Chapter3examinesthechangingnatureofrelationshipbetweenin-housedepartmentsandlawfirms. Chapter 4 discusses general counsel’s role in relation to the corporate executive team. Weconcludebyraisingkeyissuesforfurtherconsideration.

1M.Sako(2011)GeneralCounselwithPower?http://eureka.sbs.ox.ac.uk/4560/1/General_Counsel_with_Power.pdf2M.Sako(2011)GeneralCounselwithPower?http://eureka.sbs.ox.ac.uk/4560/1/General_Counsel_with_Power.pdf3GilsonRJ,MnookinRH.1995.Symposiumonbusinesslawyersandvaluecreationforclients.OregonLawReview75(1).4KurerP.2015.LegalandComplianceRisk.OxfordUniversityPress:Oxford.



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Chapter2:SizeandShapeofCorporateLegalDepartments

The size and shape of legal departments are changing inmajor business corporations in Germany aselsewhere. The timing for restructuring legal departments has been dictated by company-widecorporaterestructuringinsomecases.Triggersforrestructuringhavebeenattributedtoarealizationofgrowingrisk,dueinsomecasestocompliancebreaches.OthertriggerstocreateaneffectivemodernlegalfunctionareassociatedwiththearrivalofanewCEOand/oranewboardmember.Inexecutingchanges, in-house lawyers face competing logics (ororganizingprinciples)when they consider (a) theway the legal function reflects corporate structure, (b) thenatureof legalbudget control, and (c) theoptimizationoflegalresourcesinternallyandexternally.

ShapeofLegalDepartmentsThe internal legal department mirrors corporate structure. At its simplest, a single product firmoperating only in Germany requires a small legal department at its headquarter. The structureinevitablybecomesmore complexwithmultiplebusiness lines and/or international operations. Withcomplexitycomesacertaindegreeoffreedomtochooseamongalternativestructuresforthein-houselegalfunction.

There is clearly a trade-off in this choice. The advantage of a centralized legal function is that thegeneralcounselisinfullcontrolofoverseeingallin-houselawyers.However,in-houselawyersmaynotbeabletogivethebestadviceiftheyareremotefromthebusinessunitstheyservice.Bycontrast,theadvantageofadecentralizedlegalfunctionthatisembeddedinbusinessunitsorcountryoperationsisthat in-house lawyers acquire an intimate knowledge of the business they support. However, thisdevolved structure hinders the sharing of best practice and the optimal allocation of legal resourcesacrossbusinessunits.

Over time, corporate growth in Germany has led to the decentralization of the legal function. Inparticular,acorporationwitha focusedproductorservice linemayexpand internationally,creatingalegal department in each country-based or regional operation. In such a structure, only theheadquarter-based lawyers have a solid reporting line to the group general counsel; country-basedlawyershaveasolidreportinglinetothecountrygeneralmanagerandonlyadottedlinetothegroupgeneral counsel. When companies also diversify their product or service lines, they create businessdivisionsandsubsidiarieseachwithitsownlegaldepartment.Thus,itiseasytoseehowgrowthbiasesthelegalfunctiontobecomedecentralized.



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RestructuringLegalDepartmentsIt isagainstthisbackdropthatsomeGermancorporationshaveeffectedamajorrestructuringoftheirlegalfunction.Structurally,in-houselegaldepartmentsmusttakeaccountofthreeorganizingprinciples,firstaccordingtolegalspecialism(suchaslitigation,employment,corporatetransactions,etc.),secondaccordingtobusinesslines,andthirdaccordingtogeographies.Apredominantfeatureofrecentlegalfunction restructuring in Germany is towards centralization, and towards privileging legal specialismovertheothertwoorganizingprinciples.Forexample,atanumberofcompaniesinthisstudy,whereasinthepastafewhundredsubsidiarieshadtheirownlegaldepartmentswithlegalheadsreportingtothesubsidiary CEO, now all in-house lawyers in the corporate group report directly to the group generalcounsel. More likely thannot, such legal functionrestructuringwaspartandparcelofacorporation-widerestructuringtoconsolidatecorefunctionsatthegrouplevel.

Thebenefitsofcentralizingthelegalfunctionareclear.First,thelegalfunctionbecomesbetteratriskcontrol,asitnowhascentraloversightofwhatisgoingonindifferentbusinesslinesandgeographies.Second, the centralized structure enables greater sharing of legal resources, including learning fromeach other about best practice by building ‘centres of expertise’ or ‘centres of excellence’, thuspreventing legal departments at business units from ‘re-inventing the wheel’, as one GC put it.Nevertheless,changingreporting lines inamatrixstructure(legalfunction,product,andgeography) isonething.Changingmindsetsandhabitsisanother.Thetensionbetweenbeingtooclosetobusiness(whichcomeswithfocusingontheservicesupportfunction)andbecomingisolatedinafunctionalsilo(whichmay be the dangerwith focusing toomuch on the risk control function)would not go away.General Counsel interviewed are fully aware of the need to achieve a good balance between servicesupport and risk control, by devising not just an appropriate reporting structurebut alsoappropriateprocessesand informalcoordination. Implementationof legal function restructuring, therefore, takessometimetocomplete,requiringpersonnelturnoverinsomecases.

Thestructureofthelegalfunctiongivessome,butnotfull,insightintohowthegeneralcounselcontrolsthe legal budget. There ismuch variation in howmuch information the central legal function holdsaboutthelegalspendingofbusinessunitsandsubsidiaries.Somemulti-divisionalfirmsholdinformationabout legal spending of all divisions and subsidiaries centrally; others admit to not having a fullyfunctioningcentralrecordofthetotalcorporate legalspending. Moreover,althoughkeepingatightlycontrolled central legal budget might look simpler, some group-level general counsel thought thatdevolvinglegalbudgetstobusinessunitsmightgivebetterincentivesandleadtogreateraccountability.

Multinationals’PerspectivesonLegalDepartmentStructureBy focusing on the German subsidiaries of multinational corporations, this study obtained a uniqueinsightintotheimportanceofthegeographicdimensionofthelegalfunctionstructure.Afterall, lawsare local, applied within a geographic jurisdiction. For multinational corporations, the GermansubsidiaryistypicallypartoftheEMEAregion.ThereportinglinefortheGermanHeadofLegalmaybe



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totheCEOoftheGermansubsidiary,oritmaybetotheEMEAHeadofLegal,whointurnreportstotheGeneralCounselattheheadquarterlocation.

Multinationalsstrikeadifferentbalanceinhowmuchtheregionalorganizingprincipleisprivilegedoverthe business line organizing principle. In some cases, the Germany subsidiary has a team of Germanlawyersdedicatedtobeinggeneralistswithcountryknowledge.Theirroleistobe‘theeyesandearsforexternalstakeholders,includingpoliticians’,asoneGCstated,i.e.toearntrustofthegeneralpublicandthe politicians, for example over social concerns about privacy or cloud computing. And theGermanHeadofLegal is fullypartof the localmanagementteam. Thus,of thetwohats thatheorshecouldwear,thelocalcross-functionalhatismoreimportantthanthehatofbeingpartofthegloballegalteam.Accordingtoonein-houselawyer:‘We see a lot of stuff happening which is not legal-related… so we’re involved very closely with the business decision takers.’

In other cases,multinationals have restructured to centralize the legal function, and to give businesslinesgreaterresponsibilityforprofitandloss. Inthesesituations,regionalandcountryHeadsofLegalfacehighdemandontheirtime,astheynotonlygiveattentiontocountry-orregion-basedlegalaffairs,butalsojoinexecutivemanagementteamsforproductlines.OneregionalGCusedtoattendonecross-functionalmanagement leadership teammeeting for the EMBA region. After restructuring, she alsoattends two further gatherings of the product business line leadership teamand the legal leadershipteam.Greater coordination and communication cannotbeharmful, but they comeat the expenseoftime.Moreover,payingequalattentiontomultipleorganizingprinciplesmightleadtopotentiallylosingsight of the coherenceof themultinationals’ local presence. As oneGCputs it, ‘it’s very challengingbecausefromalegalperspective,thelawislocal,andbyseparatingthebusinessintodifferentunitsandmanagementteams,yousortoflosethefullpictureofwhatisgoingoninalegalentityinGermany’.

At one multinational company, restructuring was driven by the need for localization and localaccountability. This has meant an enhanced presence in Germany, with implications for the legalfunction.Inthepast,Germany-basedin-houselawyershadtwoequallyimportantreportinglines,onetothebusinessunitheadandtheothertothecountry-basedlegalhead;now,theformerisonlyadottedline. National differences continue tomatter, and countrypresence requires a country focus in legalservicedelivery.

The‘MoreforLess’ChallengeIn our sample, the absolute size of the legal department varies enormously, ranging from a smalldepartmentofeightin-houselawyerstoagloballydistributedlegalfunctionwitharound800in-houselawyers(seeTable1).Thisvariationisnotfullyexplainedbydifferencesinfirmsize,reflectingdifferentcompanygrowthtrajectoriesandmanagementpoliciesconcerningtheinsourcing–outsourcingbalance.

Withrespecttogrowthtrajectories,relativelyyoungcompanieswereexpandingtheirbusinessrapidly,enteringnewgeographicmarketsanddiversifyingintonewareasofbusiness.Theimplicationsofsuchexponentialgrowthonthe legal functionarethat: first, thegeneralcounsel interviewedforthisstudy



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wasthefirsttobehiredin-housetocreatealegaldepartmentfromscratch;andsecond,specificeffortsweremadetobuildalegalfunctionbyincreasingthein-houselawyerheadcount.Theso-called‘moreforless’challengeisthereforenotaconcernforsomeyounghighgrowthcompanies.

By contrast, in many larger established corporations, German or multinational, the general counselinterviewedwereoftheopinionthatwhilstin-houselawyerheadcountwasgrowing,itwasnotkeepingpacewith the growth in legal demand from internal clients. Legalworkhasbeen rising in volume inspecific areas, notably (a) competition law and anti-trust, (b) regulatory work, (c) compliance workparticularlyatcompaniesthatrecentlyfacedgovernmentinvestigationsaboutcompliancebreaches,(d)acquisitions, some involving access to new technologies such as cloud computing and artificialintelligence,(e)dataprotection,and(f)privacy. Somelawyersinterviewedconsideredthis increaseinlegalworktobeoftheirownmaking,duetothedesiretohavecloserinteractionwithbusiness:‘We’reinthekitchen, inanattempttodemonstratethat lawyersaddvalue’,accordingtooneGC.Somethingsimilarwashappeningatanothercompanythatrestructuredtobecomeclosetocustomers;forexample,lawyersarenowpresentinclientmeetingsforpublicprocurement.

Inresponse,legaldepartmentshavelookedforthetypesofworkthatthelegalfunctioncangetridofbecause they are low risk or not strategic. Shifting the task of reviewing licensing agreements andmarketingmaterialstothemarketingdepartmentisoneexample.Inothercases,contracts,suchasnon-disclosureagreements,maybestandardizedsothatinsteadofnegotiating,thecompanymayofferonlycertainkindsofcontractsanddigitizethesignatureandapprovalsprocess.

Table1:Sizeofin-houselegaldepartmentsin2017/8

Sector Numberofcompaniesinsample

Numberofin-houselawyers(range)

Automotive 2 100-350Electrical&electronic 7 11-800ICT 6 6-30Manufacturing(diversified) 4 8-10Logistics&transport 3 n.a.Healthcare 3 10-20Financialservices 5 15-55Othersectors* 3 12-85TOTAL 33 8-800

Source:Author’s interviews. *Thiscategory includesacollectionofcompanies, soasnot to identify individualcompanies;n.a.=notavailable.

Thus, the so-called ‘more for less’ challenge – i.e. legal resources not keeping pace with increasedworkload --was felt by some legal departments but not all (notably start-up and young firms). Evenamongmaturecorporations,responsestothechallengediffer.Forexample,thelawyerheadcountwascutby20%atonemajorGermancorporationthatimplementedlegalfunctionrestructuring.Atanother



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corporation, boosting the legal headcount substantially was considered essential to demonstrate itscommitmenttopreventingcompliancebreachesinthefuture.

PreferenceforInsourcingThisstudyexploredwithrespondentshowbesttoquantifythedegreeofrelianceoninsourcingversusoutsourcing in legal resources. Butcross-companycomparisonsaredifficult. First,a standardwayofaccounting for in-house legal costs is absent. Second, unanticipated litigation andM&A costs createspikesinactuallegalspendingfromyeartoyear.Theinterviews,however,identifiedonetrend,whichisapreferencefordoingasmuchlegalworkaspossiblein-house.Inreality,thispreferenceappliestofamiliar jurisdictions for which in-house legal resources already exist; in jurisdictions new to thecorporation,ithasnochoicebuttorelyonexternalcounsel.

This preference for insourcing legal work in Germany is due to a mix of reasons, including growingattentiontolegalbudgetcontrolandbetterriskmanagement,andin-houselawyers’greaterknowledgeabout the company compared to external lawyers. Within Germany, as elsewhere, preferences varyaccordingtothephilosophyofexecutivemanagersandthelegacyofthecompany.Forexample,atoneyoungcompany,theGCconsideredthecompanyattheextremeendofpreferringinsourcingcomparedtoitspeercompaniesofsimilarsizeandyouth,andattributedthispracticetothecompany’sphilosophy.

Tightcostcontrolisassociatedwithinsourcing,withexternalresourcesusedonlyifabsolutelynecessary.Themainoccasionforenforcingthisinsourcingpolicyisthelegalfunctionrestructuringdiscussedearlier.Greatercentraloversightisintendedtopreventlocalbusinessunitmanagersfrompayinglegalfeesforexternallawyerswhowereconsultedinformally,forexampleoverplayinggolf.Thisamountstohavinga central approval system for legal spending, so that in-house lawyers must think twice about thenecessityofputtingworkout toexternal lawyers. Theresultingpracticeofconsidering theuseof in-houseresourcesfirstbeforegoingout-of-househasthedualbenefitofcostefficiencyandriskcontrol.

SummaryThe 2008 financial crisiswas amajor event forUS andUK companieswhen an earlier studyGeneralCounselwithPower?2wasconducted.Backthen,soaringbillablehourschargedbylawfirmsledmajorcorporationstoinsourceasakeyresponsetocuttinglegalspending.Tenyearslaterinthelate2010s,majorGermancompaniesalsopreferinsourcingbutforadifferentreason,namelygreatertransparencyandriskcontrol. Apolicytoinsourceasmuchaspossiblegivesin-houselawyersnotjustgreaterlegalbudgetcontrolbutalsobetterriskcontrol,andthegeneralcounselvaluesthiscentralizedoversightatthe headquarter. However, no company does 100 per cent of its legalwork in-house. For reasons ofcapability(expertise)andcapacity(resources),companiesrelytoavaryingextentonexternal lawyers.Weturn,inthenextchapter,tothenatureofrelationshipsbetweenthecorporatelegaldepartmentandlawfirms,andhowithasbeenchanging.

2M.Sako(2011)GeneralCounselwithPower?http://eureka.sbs.ox.ac.uk/4560/1/General_Counsel_with_Power.pdf



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Chapter3:RelationshipswithLawFirmsandOtherProviders

ApreferenceforinsourcinglegalservicesinGermany,asdiscussedinthepreviouschapter,isdrivenjustas much by the need for greater transparency and internal risk control, as by the desire to avoidexpensiveexternallawyers.GermancompanieswithinternationalpresenceandGermansubsidiariesofmultinational corporations rely on external lawyers around the world. So this study attempted tocapture recent trends in relationships corporate clients develop with their law firms globally andspecificallywithinGermany. We focus on three areas: the development of panels; alternative billingarrangements,andtheemergenceofboutiquelawfirmsandalternativelegalserviceproviders.

Corporatelegaldepartmentsmakeuseoflawfirmsinordertoaccessexpertisethatisnotavailablein-houseandwhenthereisnotenoughcapacityin-house.Athirdreasonforusinglawfirms,mentionedbyahandfulofrespondents,istoseekexternalvalidationonspecificmattersforadditionalprotection,ortoseekasecondopiniononalegalquestionwhen‘weknowthelawbutthelawisunclear’.Againstthisbackdrop of generic reasons, the in-house lawyers interviewed for this study were in the midst ofsystematizing,orhadonlyrecentlysystematized,themanagementofexternallawyers.Thekeyaimisto achieve better visibility of external legal spending and better quality of legal services offered byexternal lawyers. The practice of business units going out to contact their external lawyers withoutcentralclearanceisbeingstampedout,andisquicklybecomingathingofthepast.

PanelsofLawFirmsAprominentfeatureofthesystematizationoflawfirmmanagementistheestablishmentofpanels.Tothequestion‘doesyourcompanyhaveapanel?’nearlyallrespondentssaidyes,whileafewsaidtheydidnothavepanelsbuthadpreferredlawfirmsorstrategicpartnersinstead.InGermanyaselsewhere,in-houselawyersseeaclearadvantageinretaininglawfirmsthat‘knowourbusiness’and‘gettoknowusbetter’overthelongterm.

Apanelisastablegroupofpreferredregularsuppliersoflegalservices,whichhas:

(a) arigorousprocessofselectionontothepanelwithspecificcriteriasuchasexpertiseandmarketreputation;and

(b) aperiodicreviewofpanelmembersusingmultiplecriteriasuchasthequalityofserviceprovided,responsivenesstorequests,respectfordeadlines,andcosttransparency,leadingtosometurnoverinthemembershipofthepanel.

Thereare,however,significantdifferencesamongcompaniesinthestructureofpanels.Inparticular,majorGermancompanieswithinternationalpresencestartedestablishing,orarethinkingof



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establishing,apaneltocovertheGermanjurisdictiononly.Othermid-sizedandsmallerGermancompanieshavelong-termrelationshipswithpreferredlawfirmsinspecificareas(suchasM&A,litigationandarbitration)andseenoneedforpanelsfornow.Bycontrast,multinationalcompanieshadmulti-tierpanels,i.e.panelsattheglobal,European,andGermanlevels.Multinationalswithaglobalpanelspecifiedasfewasthree,andasmanyasten,globallawfirmsthattheyuseworldwide,typicallyinchargeoflitigationandcross-bordercorporatetransactions.European-levelpanelsmakesensetodealwithmattersconcerningEUregulation,whilepanelsforGermanyhaveGermanlawfirmstodealwithlocalmatterssuchasinemploymentlaw,privacy,andcompliance.Thus,thereisahierarchyofglobaltolocallegalmattersforwhichpanelsareformedatcorrespondinglevels.

The key benefits of having panels actually derive from balancing collaboration and competition (seeFigure 1). As a starting point, thepractice of law is basedonbuilding andmaintaining relationships.Personal rapport remains highly significant particularly for high-end bespoke work in litigation orcorporate transactions. Some in-house lawyers interviewedstated,not surprisingly, that instructingaspecificlawyerwasmoreimportantthan,orjustasimportantas,retainingspecificlawfirms.However,except innarrowlydefinedstrategicareas, thepanel institutionalizescorporate relationshipswith lawfirms. By reducing thenumberof law firms in thepanel,each law firm is in regular contactwith thecorporate client, and develops a deep understanding of the client’s business, products, andmanagement.Atthesametime,thepanelenablesthecorporationtodriveahardbargain,tonegotiatelower fees in return foreconomiesof scale,bybundling thecompany’s legaldemandacrossdifferentbusinessunits.

Figure1:BalancingCompetitionandCollaborationamongLawFirms

Balancing competitive forces and collaborative commitment to source legal services also requiresscanningthemarkettoensureaccesstolegalexpertisethatisrequiredonlyonceinawhile.Tosatisfysuch need, in at least one case, the company makes explicit three types of relationships, an activeregular relationship, an inactive relationshipwhich becomes active on a if andwhennecessary basis,and a dormant relationshipwhich is unlikely to be activated. In other cases, competitive forces are

Collaboration• Legalnetworkorcommunity• Cooperationamonglawfirms• Reducingthenumberoflawfirms

Competition• Buyers'market• Competitionamonglawfirms•  IncreasingthenumberoflawfirmsandALSPs



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sometimes provided by resorting to so-called ‘boutique law firms’ and in a minority of cases bysearchingforalternativelegalserviceproviders(ALSPs).

BillingArrangementsBillable hour – charging for legal service by the time spent by lawyers – remains the norm and thebenchmarkforexternallawyersinGermanyaselsewhere.Buttheinterviewrespondentsforthisstudynoted a recent wind of change in Germany with greater cost sensitivity, leading to harder discountnegotiations and the use of alternative billing arrangements. Large German and multinationalcorporationsareabletonegotiateharder,evenwithinternationallawfirms,byspecifyingthescopeofworkmoreclearly,settingmilestonesforlargeprojects,anddemandinggreatertransparencyfromlawfirmsaboutleverage(i.e.theuseofassociatesversuspartners)inspecificprojects.

Moreover, when asked about alternative billing arrangements, many respondents were quite vocalabout the use of fixed fees, capped fees, contingent payment with fees determined by the value ofclaims,andretainerpaymentifspecificlegalworkisanticipatedtolastalongtime.Secondment–i.e.law firms sending their lawyers to client corporations – was also considered by some to be part ofobtainingbetterrates.Ascomparedtolargecorporationsthatcanexercisebargainingpowervis-à-visinternational law firms,mid-sized and small corporations sought alternative billing arrangements andlowerfeesfromboutiquelawfirms.Inmostcases,corporationsthereforecombinedtheuseofbillablehourandalternativebillingarrangements,exceptinafewcaseswheretherespondentsstatedthatthey‘try to avoid billable hours’ asmuch as possible. AnotherGCmade a stronger assertion that ‘I don’tbelieve inhourly rates…fixed fee is thenormnow’, notinghow feesquotedby law firmsdifferwidelywhentheyrespondtoarequestforproposal(RFP)forthesameproject.

DifferentTypesofLegalServiceProvidersSeveralinterviewrespondentsmentionedtheriseofboutiquelawfirmsinGermany.Theyaretypicallyspecialized law firms set up by younger lawyers who used to work for international law firms.International law firms are full-service, but their fee structure is considered inflexible and too high;interviewrespondentswerecriticaloftheirpracticeofsendingapartnertodiscussamatterandmakingassociatestodothework.Bycontrast,atboutiquelawfirms,thefeeislowerandtheserviceisbetteras they focus on a narrow practice area, e.g. employment law. International law firms may treatemployment law as of secondary importance to litigation or corporate transactions. Over time, withaccumulatedexperienceofmultiple clients in that focusedpracticearea,boutique law firmsenhancetheir expertise and competence due to greater exposure, for instance, to employment litigation andworks council negotiations. Boutique law firms alsoexist in other areas including anti-trust, licensing,real estate, and public tendering, bringing valued inputs, according to quite a few in-house lawyersinterviewedforthisstudy.



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This study did not ask systematically about the use of new technology and alternative legal serviceproviders(ALSPs).Nevertheless,inthecourseoftheinterviews,somerespondentsmentionedinitiativestomakeastepchangeinlegaldepartmentefficiencybyinvestinginane-billingsystemtostandardizeprocesses;acorporate-widedecisiontouseALSPstodraftNDAandotheragreements;andcorporateinvolvement to sponsor legal tech start-ups based in amajor German citywith a view to using theirtechnologyinfuture.

SummaryWithout speaking directly with law firms involved, this study cannot claim full coverage and totalobjectivity in the account above. Nevertheless, this study has captured the perspectives of in-houselawyers inGermany. And there isa strongcurrent toward systematizingcorporate relationshipswithlawfirms,firstbyestablishingpanelswithformallawfirmperformancereviews,secondbyinsistingongreater cost transparency from law firms by practising alternative billing arrangements, and third byaccessing newer providers of legal services including boutique law firms and alternative legal serviceproviders.Boutiquesarepreferredforbetterfocus,greaterflexibility,andlowerfees.Consequently,in-house lawyers inGermanyare in a situation tobetter control theprocurementprocess,bybalancingcollaborationandcompetition.

Thenextchapteraddresseshowin-houselawyersgenerally,andthegeneralcounselinparticular,relatetothecompany’stopmanagementteam.



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Chapter5:LawyersinTopManagementTeams

In-house lawyerswearmultiplehats in theirday-to-daywork.Thischapteranalyzeshowandwhythemix of hats in-house lawyers are expected to wear has changed in the recent past, and drawsimplicationsfortheirroleinrelationtothecompany’stopmanagementteam.First,wespellouteachof the multiple roles for in-house lawyers led by the general counsel. Second, we garner from theinterviewsavarietyofthingsthatthecompany’stopmanagersinGermanyexpectofitslegalfunction.Topmanagersgenerallyexpectthegeneralcounseltoboosttheriskcontrolrole,buttheirexpectationson business partnering vary from company to company. Third, we examine the two-tier boards atDAX30companiesinordertonotesomeshiftsinthewaylegalknowledgeisrepresentedattheboardlevel.

WhatdoIn-houseLawyersdo?In-houselawyersprovideservicesupporttotheirinternalclients;theyarealsoexpectedtoleadincompany-wideriskcontrol;lastandnotleast,theyactasbusinesspartnerswhoadviseandsteerbusinessdecisions.Allthreerolesareimportantacrossdifferentcompaniesandsectors.

Theservicesupportroleappliestoall in-house lawyers,and isabout facilitatingbusinesstransactions,for instance by drafting contracts and agreements, structuringM&A deals, and advising on country-specific laws and regulations. Legal scholars have referred to a business lawyer as a ‘transaction costengineer’,3notingfirstandforemostthisservicesupportrole.

Theriskcontrolfunctionofin-houselawyersispotentiallyextensive.Althoughriskhasbothupside(risk-taking)anddownside(i.e.riskavoidance),riskcontrolhasemphasizedthelatter,asisevidentfromthedefinitionoflegalriskas‘theriskthatabusinessfacesinconnectionwithanegativelegaleventsuchassittingonanunenforceablecontractorcollateral,payingdamagestoathirdparty,…or indictmentofthe company or its executives’.4Many legal departments have responsibilities, andwork with otherdepartments, to ensure legal compliance with respect to anti-trust, anti-corruption, data protection,exportcontrol,andtechnicalcompliance.Moreover,today,risk isnot justfinancialor legal,butalsoamatterofcorporatereputation.

Thebusinesspartnering roleapplies to thegeneralcounseland lawyer-directorsoncorporateboards.Astheterm‘partnering’implies,thesein-houselawyersatthetopdonotjustadvise,butparticipateindecisionsabout thestrategicdirectionof thecompany.5 In this role, thegeneralcounseland lawyer-

3GilsonRJ,MnookinRH.1995.Symposiumonbusinesslawyersandvaluecreationforclients.OregonLawReview75(1).4KurerP.2015.LegalandComplianceRisk.OxfordUniversityPress:Oxford.5VeaseyEN,GuglielmoCTD.2012.IndispensableCounsel:TheChiefLegalOfficerintheNewReality.OxfordUniversityPress:NewYork.



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directorsmustnavigateafinelinebetweenbeinglawyersfirstandforemostwithprofessionalethicsasguidefortheirconductontheonehand,andbeingbusinessmanagersendorsingandpursuingbusinessopportunitiesontheother.

Figure2:ThreeRolesPlayedbyIn-houseLawyers

In the United States and Britain, the power base of in-house lawyers has become more extensiverelativetoexternallawyers,slowlysincethe1970sandmoresurelysincethe2008financialcrisis.Costpressures led some companies to appoint a chief operatingofficer (COO) for the legal department inchargeofmoreefficientandeffectiveservicesupportdelivery.Thishasfacilitatedtheriseofbusinesspartneringforgeneralcounsel,someofwhomcarrythemanagerialtitlesofExecutiveVicePresidentorSeniorVicePresident.Corporateexecutivesat legallyastute firms look to thegeneralcounselas jointriskmanagers.6Not only does the general counsel front-load legal inputs to pre-empt disputes, thusreducing litigation costs significantly. They also alert CEOs to potential risks arising from likelygovernment investigations in a tougher regulatory environment.Moreover, CEOs look to the generalcounseltoendorseupsiderisk-takingwhentheymakedecisionsaboutnewmarketentryorlargeM&Adeals.Thegeneralcounsel’sintimateknowledgeofthebusinessisindispensable,andtheyconsiderthisanadvantage inofferingbetter legaladvice. In thewordsofoneUSgeneral counsel, ‘I’mabusinessperson who happens to be a lawyer, a business partner who brings legal background to businessproblems.’Thus,thepowerofgeneralcounselintheUnitedStatesandBritainroseasaresultofhigherexpectationsputupontheGCtobecomebusinesspartners.

There are similarities but also significant differences in Germany. Put simply, the 2010s created aclimateforgreateremphasisonriskcontrol,butbusinesspartneringremainsasomewhatlesspressingissueinsomeGermancompanies.

6Bagley,C.E.2008.Winninglegally:thevalueoflegalastuteness.AcademyofManagementReview,33(2):378-390.

BusinessPartnering

RiskControlServiceSupport



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TrendtoStrengthenRiskControlinGermanCompaniesIn thespecificcontextofGermancompanies,gentletransformationappearstobehappening insomequarters. Across the companies interviewed for this study, themost prominent general trend is anincrease in the riskcontrol functionof in-house lawyers. At thesame time,widevariationpersists intermsoftheextentandstyleofbusinesspartneringbyin-houselawyersindifferentcompanies.

Asiswellknown,the2010ssawsomeGermancompaniessuffermajorcompliancechallenges,includinggovernment investigations over anti-trust violations, bribery, and the emissions scandal. Thesecompliance challenges have led them to re-examine internal control systems with a view toimplementingazerotolerancepolicyagainstillegalactivities.Asaresultofsuchpolicy,theriskcontrolfunctionofin-houselawyersreceivedgreaterattention.Moreover,evenforprivatelyheldcompaniesinGermany,mediaattention (or ‘mediatization’asoneGCput it)oncorporate scandals raises concernsover damage to corporate reputation. Thus, the respondents for this study were clear about theheightened importance of the legal and compliance function. There is, however, no consensus onwhetherornotthelegaldepartmentshouldincorporate,orbeseparatefrom,thecompliancefunction.Proponentsoftheviewthatthetwo–legalandcompliance–shouldbeseparateemphasizetheneedtohaveaseparateinvestigativebodywhenin-houselawyersmayhavebeenpartytobusinesstransactionsanddecisionsunderinvestigation.Supportersofcombiningthetwofeelthatitmakessensebecauseofthenecessityfortightcoordinationandcommunicationinexecutingthelinesofdefence.

BusinessPartneringPracticesVaryinGermanCompaniesBusinesspartneringiswhereactualpracticeandphilosophydifferquitealotfromcompanytocompany.AsnotedinChapter2,in-houselawyersatsomecompaniesareincreasinglygettinginvolvedinbusinessdecisions.Thisappliedmosttothegeneralcounselwhowaspartofthecountryorregionalorganizationunitinamultinationalstructure.Ourfocusnowisatthegrouplevel,rightatthetopofthecorporatehierarchy, in relation to the two-tier boards (theManagement Board and the Supervisory Board) inGermany.Thestudyidentifiedthreepatternshere.

In the first pattern, the general counsel keeps an arms-length distance from the Management andSupervisoryBoards.OnlyiftheCEOrequeststhepresenceofthegeneralcounselonaspecificagendaitemwithalegalanglewouldthegeneralcounselbeaskedtobepresentattheBoardmeeting,butjustforthatitem.OneGCsaidthathehadnoloyaltytoanyspecificboardmember,andthemostimportantthingaboutboardsistransparency.Heattributedthisviewtohiscareerofhavingspentlongerthanhispredecessorasanexternallawyer.

Inthesecondpattern,thegeneralcounselistheCompanySecretarywhopreparestheagendaandtakesminutes of the board meetings. This provides an opportunity for the general counsel to know thenatureofboarddiscussionintimately. Buttheboardmembersdonotexpecthim/hertospeakmuch,unless asked by the CEO for comments primarily from a legal angle. The intimate knowledge of thebusiness of the company is the basis for one GC asserting that ‘we are becoming more and moreadvisorstotheboard,andtothemanagementofthecompany.’



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In the third pattern, the general counsel is fully part of the Executive Board (Vorstand), or else anexecutivecommittee(normallyconsistingoftheCEO,theCFO,andoneortwootherfunctionalheadsinsomecases). In this situation, thegeneral counsel is a full-blownbusinesspartner, and is consideredpartoftheexecutivemanagementteam.Therationaleforthegeneralcounselbecomingclosertotheexecutivemanagement teammay arise from the need to prevent the company from running foul ofcompliance, so theGCdoes ‘nothave topreach the importanceof legal to thecompany.’However,aseat at the tablehasopenedup anopportunity to gobeyond this. According tooneGC, ‘weareallmanagers,…legalmanagers inthebusiness’.Thegeneralcounsel interviewedinthiscategoryrubbedshoulderswiththeCEOregularlynotjustbecausetheyreporttotheCEO,butbydintofhavingaseatonthecorporateexecutivecommittee.

Thus, a variety of roles were identified for the general counsel in relation to the company’s topmanagement team. Themost involvedwere fully part of the executive team and saw themselves asbusinessmanagersentitledtospeakuponalltypesofbusinessissueswhichtheyconsiderimportantforthe company; by contrast, the least involved adopting the role of a lawyer who focused on dealingprimarilywithlegalissues.Thisvarietyintheinvolvementofgeneralcounselintopmanagementteamsis likelytopersist. This isbecauseinGermany, legalbecameatopmanagement issueviatheneedtocontrolrisksbetter,andnotnecessarilyviathebusinesspartneringroute.

Legal&ComplianceatDAX30CompaniesWemustrememberthatInGermanyuntilrecently,quiteafewprominentCEOsthemselveswerelegallytrainedinGermany,apracticethatmightbefading.7AbriefanalysisoftheExecutiveBoards(Vorstand)ofDAX30 companies gives amore recentpicture. Specifically, only twoof theDAX30 companies areheaded by a lawyer-CEO in 2017, namely E.ON and HeidelbergCement. There are also two othercompaniesheadedbyanon-lawyerCEO,whoalsohasLegal&Complianceaspartofhisresponsibilities.BytheCEOsoncompanywebsiteasinchargeofthisfunction,thesecompaniesevidentlywishtosignaltheimportanceoftheLegal&Compliancefunction.

More broadly, ifwe define ‘lawyers’ as thosewho passed at least the first state exam (somewith adoctorateinlaw,andotherswithexperienceofpracticinglaw),14(47%)oftheDAX30companieshavelawyers on their Executive Boards, and 22 (73%) of the DAX30 companies have lawyers on theirSupervisoryBoards.

Ifwe focus on the Executive Boards, a third (11) of theDAX30 companies nameonemember of theExecutive Board as being responsible for Legal & Compliance. Beside the four aforementionedcompanies at which the CEO is responsible for this function, a general counsel is in charge at

7AccordingtoNeuscheler,T.2018.JederfuenfteDAX-ChefbegannseineKarrierealsUnternehmensberater[EveryfifthDAX-CEOhadacareerstartasmanagementconsultant],FrankfurterAllgemeineZeitung,7June,almosteverythirdCEOofthelargestGermancompanieswasalawyerintheearly1990s.Seehttp://www.faz.net/aktuell/beruf-chance/beruf/jeder-fuenfte-dax-chef-startete-seine-karriere-als-unternehmensberater-15624400.html



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ProSiebenSat, and a lawyer-director is in charge at five companies (Commerzbank, Daimler, DeutcheBank, Fresenius, and ThyssenKrupp) (see Figure 3). In this last category, some, of not all, lawyer-directors are labour directors (Arbeitsdirektor) in charge of Human Resources. Varied assignments ofLegal & Compliance give some flavour to company-by-company variations, not withstanding the factthat the Executive Board as a whole has the fiduciary duty to stay on top of all corporate matters,includingLegal&Compliance.

Figure3:Legal&ComplianceResponsibilityinExecutiveBoardsatDAX30Companies

Source:Author’sanalysisbasedoncompanywebsitesaccessedinNovember2017.“WithoutLegal&Compliance”refers the fact that the company website did not name any specificmember as being responsible for Legal &Compliance.Thisdoesnot,ofcourse,meantheabsenceofadirectorincharge.

SummaryIn-houselawyershavethreerolestoplay,namelyservicesupport,riskcontrol,andbusinesspartnering.InGermany,thisstudyfoundthatriskcontrolhasbecomemoreimportantamongthethreerolesinthe2010s. It is arguably themost important trigger that has enhanced the power of the in-house legalfunctioninGermany.Bycontrast,theothertworolesarebeingplayedoutinavarietyofways.SomeGerman companies have appointed a chief operating officer for the legal department to promoteefficiency inservicesupport function,butothershavenot. SomeGermancompanieshaveaCEOandtopmanagementteamsthatexpectthegeneralcounseltoplayabusinesspartneringrole,whileothersdonot.Thisvarietyislikelytopersist.AbriefoverviewofDAX30companies’ExecutiveBoardssupportsthisviewofpersistentvariety,asdifferenttypesofdirectors (CEOs insomecases,directorswith legalexpertisebuttypicallynotageneralcounselinothercases)areheldtoaccountforLegal&Compliance.



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Chapter6:Conclusions

This report discussed what general counsel in particular and in-house lawyers more generally do tostructuretheirlegaldepartment(Chapter2),managerelationshipswithlawfirms(Chapter3),andrelatetotopmanagementteamsatthecorporationtheyworkfor(Chapter4).InGermany,aselsewhere,thein-house lawyer roleused tobenarrowlydefined,and the statusofbeing in-househadbeen inferiorand subsidiary to working in law firms or the judiciary. However, over time, the power of in-houselawyershas risen,as theybecamemorecloselyalignedtobusinessandcontributedmoretobusinessstrategy.Thepowerofin-houselawyersderivesfrombalancingthemixofrolesthattheyareexpectedtoplayinservicesupport,riskcontrol,andbusinesspartnering.ThisstudyrevealsthatinGermany,itistheneedforbetterriskcontrolthathastriggeredtheenhancementoftheroleofthegeneralcounsel.

Whilstmuchof thepracticesgleaned fromthe interviews in thisstudyare inastateof flux, Iwish toconclude by highlighting some key issues (summarized in Figure 4) that are worthy of furtherconsiderationbyin-houselawyerswhoareinpositionsofinfluencetodrivefuturechanges.

Figure4:ClusterofIssuesforIn-houseLawyersinGermany

Thefirstclusterofissuesconcernsthestructureofin-houselegaldepartments.AsnotedinChapter2,matureGermancompaniesarecentralizingtheirlegalfunctiontoobtainabettertractioninriskcontroland legal budget control. However, the perspective fromGerman subsidiaries of somemultinationalcompaniesremindsusoftheimportanceofpreservingacountryorregionalfocusinlegalwork.Thus,whilethereportinglinesforin-houselawyersmayprivilegepreservingtheintegrityofthelegalfunction,there remains a real challenge in creating the right mindset and processes to navigate the tension

• Boutiquelawfirms• Legaleducation• Legalcareers

• Legalriskcontrol• Opportunity(upsiderisk)management

• Makevsbuy• Panels• Whonegotiatesfees?• Wholeadsinnovationinlegalservicedelivery?

• Degreeofcentralization

• Reportiinglinesforin-houselawyers

• Legalvscompliance

Structuringthein-houselegal

function

Relationshipswithlawfirms

Germanlawyers:

convergenceordivergence?

Balancingservicesupport,riskcontrol,businesspartnering



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betweenmaintainingacentralizedlegalfunctionandensuringcloseinteractionofin-houselawyerswithbusinessandgeographicunits.Separately,itseemsworthwhilegivingmorethoughttohowcomplianceandlegalrelatetoeachother.

The second cluster of issues concerns corporate legal departments’ relationships with law firms. Insystematizingtherelationships,panelsof lawfirmsare likelytospread. However,thereremainsomeyet-to-be-settledissues.First,whilethecorporatelegaldepartmenthaswonthebattleagainstbusinessunitstomanagetheprocurementoflegalservicesfromlawfirms,in-houselawyershaveyettoendorsetheinvolvementofprocurementprofessionals,astheybelievethat‘wearelawyers,soweknowhowtobuy legal servicesbest’. If the finance functiondoesnothave the soleauthority to select audit firms,why should the legal function not share its authority to appoint law firms with the board or theprocurementdepartment? Second,who– in-house lawyersor external lawyers–woulddrive futurechangesinhowlegalservicesaredelivered?AsoneGCstatedconfidently:‘Inthepast,externallawyersdidinterestingworkandin-housedidstandardwork;now,it’sthereversewithin-housedoingstrategicwork.’Willcorporatelegaldepartmentsalsoleadintheprovisionoflegalservicesinalternativeways,orwilltheysharesuchinitiativeswithlawfirmsandalternativelegalserviceproviders(ALSPs)?

Thethirdclusterofissuesconcernsbalancingthethreerolesthatin-houselawyersareexpectedtoplay.The three roles of service support, risk control, and business partnering are intricately intertwined inreality. For instance,even in service support,efficiency indeliverymustbematchedbyeffectiveness,whichineffectimpliesthatin-houselawyers‘don'tactaspolicemenbutmoreasapartner’tofacilitatebusiness transactions. Thismorphs intowhat is essential in risk control, which should be about themanagementofbothupsiderisksanddownsiderisks.AsoneGCstated:‘wemustberiskmanagersofcourse,butalsoopportunitymanagers’.Inotherwords,inconsideringhowin-houselawyersaddvaluetothecorporationtheyworkfor,theymayconsiderwaysinwhichtheyidentifynewopportunitiesandendorseupsiderisktaking,aswellasanticipatingandpreventingdownsidelegalrisks.Riskcontrolandbusinesspartneringarecloselyintertwinedwhenbothupsideanddownsiderisksaretakenintoaccount.

ThefourthclusterofissuesmaybeinhighlightingGerman-specifictrendsandquestioninginwhatwaystheymayrelatetoglobal(albeitprimarilyUSorBritish)trends.WillGermanin-houselawyersconvergetowardstheUS-UKnorm,orwouldtheyremaindistinctiveinsomerespects?Here,theemergenceofboutique law firms appears to be specific to Germany, counter to the US/UK trend of boutiquesdisbandingormergingwithfull-servicelawfirms.Moreover,careerpatternsofGermanlawyersmay,ormaynotbe,convergingtotheUS-UKnorm.Doctoratesinlawseenosignofabating;legaleducationinGermanycontinuestofocusontrainingforthejudiciary;andmajorGermancorporationsandfinancialinstitutionscontinuetolookforamixoflegalrecruits,somestraightfromlawschoolsandothersfromlawfirms.

Thisstudyattemptedtoprovideasystematicanalysisofcurrenttrendsandpossiblefuturedirectionsinthe role of general counsel and in-house lawyers inGermany. There is clear evidence that corporateclients ledby the general counsel arebecominga force for change in legal services. It is hoped thatsomeoftheissuesraisedabovegivefoodforthought,ifnotconcreteguidanceforaction,inturningthisforceforchangeintoasustainableonebeyondreactingtoafinancialcrisisoracorporatescandal.



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AcknowledgementTheauthorwouldliketothankProf.Dr.ThomasWegerichformakingthisstudypossible,andtohimandDr.MarcSzepanforprovidinghelpfulcommentsonthedraftreport.FundingsupportfromSaïdBusinessSchool’sProfessionalServiceFirmsHubisgratefullyacknowledged.

AbouttheAuthorMariSakoisProfessorofManagementStudiesatSaïdBusinessSchool,andaProfessorialFellowofNewCollege,UniversityofOxford.Her areasof expertise includeglobal strategy, comparative institutionalanalysis, outsourcing andoffshoring, andprofessional services. These interests have led to consultingandresearchengagements inEurope,UnitedStates, India,andBrazilwithavarietyofcompaniesandinstitutions, including English law firms. She is alsomember of theUK Legal Services Board ResearchStrategyGroup,andmemberof theadvisoryboardofThomsonReutersLegalExecutive Institute.SheteachesGlobalStrategyfortheExecutiveMBAanddirectstheOxfordDiplomainGlobalBusiness.Professor Sako made a significant contribution to the understanding of the Japanese economy andJapanesefirms. Inthe1990sand2000s,shewasaresearcherfortheMITInternationalMotorVehicleProgram (IMVP), which gave her a valuable opportunity to be out in the field, observing andinterviewingmanagers andworkers at automakers and their suppliers in Japan, Europe and theUSA.Insights from the fieldwork to understand lean production and quality control are also informing hermore recentworkonwhatprofessionals suchas lawyersdo.Her researchhasbeenpublished in theform of journal articles and five books:How the Japanese Learn toWork (with Ronald Dore) (1989),Prices, Quality and Trust (1992), Japanese Labour and Management in Transition (with Hiroki Sato)(1997),AreSkillstheAnswer?(withColinCrouchandDavidFinegold)(1999),andShiftingBoundariesoftheFirm(2006).

ProfessorSakoreadPhilosophy,Politics,andEconomicsatUniversityofOxford.ShealsoholdsanMScinEconomicsfromLondonSchoolofEconomics,anMAinEconomicsfromtheJohnsHopkinsUniversity,USA, and a PhD in Economics from London University. Previously, she worked as a researcher in aprivateresearchinstitute,andtaughtatLondonSchoolofEconomics.ShealsoheldvisitingpositionsatKyoto University Department of Economics, Tokyo University Institute of Social Research, RIETI(Research Institute of the Ministry of Economics, Trade and Industry in Tokyo), Waseda University,Tokyo,EcolePolytechnique,Paris,andMITSloanSchoolofManagement,USA.

Appendix:ResearchMethodologyDuring November 2016 and February 2018, Mari Sako interviewed in-house lawyers at thirty-threecompanies, of which 21 were German companies (including five DAX30 companies) and 12 wereGermansubsidiariesofmultinationalcorporationsheadquarteredinsevendifferentcountries(Finland,France, Japan,SouthKorea, Spain, Switzerland,andUSA).Nearlyall the in-house lawyers interviewedwere group General Counsel or regional General Counsel, some also carrying the title of ChiefComplianceOfficer. Interviewsweretypicallyonthephone(afewtookplaceface-to-face),and lastedone hour. In some cases, interviewees also provided further data and information by email.

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