General counsel cashing in on compliance

At an early gathering of the Innovative GC Club in 2013, a forum for general counsel ranked in the FT Innovative Lawyer reports, one senior delegate made an offhand comment that the regulator had gone mad. She was referring to the plethora of regulations with which global corporations now need to comply and the burden they have generated.

One of the striking developments over the past five years for in-house lawyers is how compliance has become a large part of their remit. Massimo Mantovani, the group general counsel of Eni, the Italian energy company, estimates compliance went from representing 5 per cent of his workload to 70 per cent between 2012 and 2014. He says that the compliance team is still growing.

Martim Della Valle, European general counsel of Anheuser-Busch, the brewing company, was appointed to a new role as global head of compliance in January 2015 alongside his legal job. He now manages a team that increased from two compliance professionals to 34 in less than three months.

The office of the general counsel is an obvious destination for regulatory work, given their broad legal focus. As James Ormrod, the general counsel of outsourcing company Mitie, says: “In-house lawyers often play the role of the white blood [cells] in an organisation” — meaning they fight external threats, just as the cells fight infections.

However, it is an obligation that is getting worse. In-house legal departments, regardless of company type and nationality, have faced a common and persistent challenge since the financial crisis of 2008: the need to do more with the same or fewer resources. Adding to this burden is the fact that it is impossible for companies to be 100 per cent compliant with every country’s regulations if they operate in multiple jurisdictions, as rules are often contradictory.

The requirements for internal investigations, for example, vary across jurisdictions. In some, the authorities are happy for the company to carry out full forensic searches into potential regulatory breaches. In others, privacy and data laws mean authorities require the company to have no dealings with the breach.

Furthermore, the costs of compliance go beyond employing lawyers. Sarah Bower, chief legal counsel at KPMG China, says: “It is difficult to capture the overall cost of compliance for companies. Banks with an Asia-wide footprint may be submitting 50,000-60,000 regulatory and tax reports per year in Asia alone. The largest banks with broad Asia footprints may be submitting as many as 90,000,” she says.

Banks may be submitting 50,000 to 60,000 regulatory and tax reports per year in Asia

The volume and complexity of reporting, where often the reports are bespoke for different regulators, also means companies have to design, create and manage thousands of systems, notes Ms Bower.

This burden is affecting company results. According to a study published by Deloitte based on research by RSG Consulting (the company belonging to this article’s author and the FT’s research partner for this report), 56 per cent of 243 global general counsel and C-suite directors said that the area of legal spending experiencing the most rapid growth was regulatory compliance.

However, there is evidence that general counsel are turning regulation into a competitive advantage. Some take a simplifying approach. For example, Jos Sclater, general counsel of GKN, the British engineering company, says it had looked at compliance tools from the Big Four accountants, but felt they were over-engineered and decided to build its own.

Others have tried to turn compliance with ethical legislation and guidance, such as the UK’s Modern Slavery Act or the UN’s guiding principles on business and human rights, to their benefit by offering early statements and transparent reporting. Such thinking has led BT to formalise a robust human rights policy.

Peter Solmssen, the former general counsel of Siemens, attributes part of the company’s quick settlement and emergence from the cloud of bribery and corruption investigations in the mid-2000s to the constructive and co-operative relationship he had with various regulators. This meant the investigations were conducted in a less adversarial and punitive atmosphere than otherwise might have been the case and more in a spirit of resolution rather than blaming and shaming.

The regulatory and compliance problems of multinational corporations are turning into an opportunity for some firms to create new services. KPMG, for example, is aggregating vast amounts of regulatory data from all around the world. It is also monitoring the development of emerging regulations over a three to four-year time span. The purpose of all this is to help clients identify regulatory obligations likely to be imposed in the medium term.

Ms Bower, who leads the initiative, says this tool is helping companies turn their regulatory challenges into a strategic advantage.