Changing Role of General Counsel in Germany

Author: Mari Sako
Source: Saïd Business School University of Oxford
Link: http://eureka.sbs.ox.ac.uk/6870/1/General Counsel in Germany July2018 for study participants.pdf
Abstract:

Size and shape of corporate legal departments

In-house legal department structure reflects the corporate structure. Typical organizing principles are by legal specialisms, business lines, and geographies. A tension exists for the legal function between becoming too close to business and becoming isolated in a functional silo.

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 the corporate headquarter, leading to better risk control and legal resource use.

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 for less’ challenge of increased workload without an equivalent growth in legal resources. They are meeting this challenge by seeing efficiency gains (e.g. via use of templates), and shifting low-risk non-strategic work to other departments.

In-house legal departments prefer to insource as much as possible. Many respondents expressed a preference for doing as much legal work as possible in-house, in order to better control legal spending and risks.

Relationships with legal service providers

Panels of law firms have been established at German and multinational corporations, to systematize relationships with law firms, and to achieve an optimal balance between competition and collaboration.

Alternative billing arrangements are becoming prevalent in Germany. Respondents noted a wind of change in Germany recently with greater cost sensitivity, leading to harder discount negotiations and the use of alternative billing arrangements. Alternative billing arrangements included the use of fixed fees, capped fees, contingent fee payment, and retainer fee payment.

Corporate legal departments are also accessing newer types of legal service providers including boutique law firms in Germany. Boutiques are preferred for better focus, greater flexibility, and lower fees.

Lawyers in top management teams

In-house lawyers generally play three distinctive roles: service support, risk control, and business partnering. Balancing these roles is considered essential in ensuring that the company’s executives regard the legal function in good light.

In Germany, the most important trigger for enhancing the power of in-house lawyers lies in companies’ need to pay greater attention to risk control in the 2010s. Consequently, the legal function, with or separately from the compliance function, has become more visible in corporate organizations.

There persist a variety of expectations in relation to the other two roles of service support and business partnering. Some German companies have appointed a chief operating officer for the legal department to promote efficiency in service support, but others have not. Some German companies have a CEO and top managers who expect the general counsel to be business partners, while others do not.