How Do In House Counsel in China and Asia Select Law Firms?

Part of this post is excerpted from my new book: Developing a Profitable Practice in Asia

There is a growing base of in house counsel within Asia and the greater influence of this group in the purchasing of legal services is certainly growing as the key role they play as a business partner is more widely accepted by organizations of Asian origin. In China recently, the profession has gained considerably more credibility through the instigation of formal associations and training programs. An increasing number of companies have more in-house counsel as part of their senior management teams, and some companies have promoted senior in-house counsel to lead their business units. For example, former head of legal at Haier Group, Su Xiaoxi, is now a vice president and taking a lead role in the group's global operation department; and Sinochem International's legal manager Liu Wenzhao has recently been elected to be deputy general manager of the company's logistics business unit.

For the many multinational firms in Asia, a large number of in house counsel are located in either China, Hong Kong, or Singapore. An increasing number of these are of Asian descent and play an expanding role in the choice of legal provider, often in collaboration with the chief legal officer from the home market HQ. Both in house counsel of MNCs as well as local firms are gaining greater responsibility for the operations of their organizations across Asia as corporations continue to expand their geographic coverage.

According to a 2009 General Counsel Forum (and subsequent report) held by Korn/Ferry International with GCs across Asia, they are facing a number of key issues:

• Balancing act between accountability and integrity – GCs will need to adapt to the growing complexity of the business and legal environment on top of pressure to deal with risk management and governance practices. This will lead to a higher profile in the board room and a need for wide ranging skills.
• Corporate responsibility going beyond compliance – CSR and culture as important facets as firms think about responsible investment and business practices.
• Influencing responsible business practices – GCs are now expected to add value through pro active management. This goes beyond litigation and takes into account risk and reputation management. The role of the GC depends upon the CEO and is influenced by both country and firm culture. Firms are recognizing the need for early legal input into strategic decisions and GCs must have a more commercial mind set.
• Enablers of business outcomes – GCs will become a key member of the team setting the firm's strategic direction and having a business mind set and solid leadership skills is crucial.
• Top challenges – the forum identified changing business cycles, leadership development and talent shortage, as well as regulatory and compliance issues as either critical or challenging issues to be dealt with over the next five years.

It is interesting to note the differences in the key factors that in house counsel in the west and Asia consider when choosing a law firm. For example, Inside Counsel's annual survey of GCs in 2008 (US based) showed the following factors to be most important:

• Responsiveness
• Industry expertise
• Creative solutions
• Billing rates
• Reputation

In a survey sent to over 15,000 in house counsel throughout Asia (including Hong Kong, China, Singapore) in 2009, Asian Counsel magazine found the following factors to be most important:

• Expertise in a specific area
• Responsiveness
• Fees
• Reputation of firm
• Relationship between company and firm (personal relationship with lawyer came in at number 7).

The fact that relationships score highly in the Asian survey is not surprising given the collectivist nature of Asian cultures and the importance of relationships (Guanxi in China). There is a general consensus that an increasing number of in house counsel in Asia local, with a number of these coming back from work experiences in the west. With the growing emphasis on external counsel to become business partners to their clients, law firms who can add value by helping in house counsel fulfill their expanding role as internal strategic business partner can certainly get a leg up on the competition. In a culture where social bonding and reciprocity are so important in building marketing relationships, this can be a key differentiator between one firm and another. The problem for many international firms is the often the lack of patience partners show in building these relationships and firms lack of willingness to engage in client research to better understand how they are perceived and what clients really value.

While in Europe and North America there is constant talk about in house legal departments reducing their budgets and moving more work in house, that doesn't seem to be the trend in Asia. In the 2010 Asian Legal Business study of China's in house lawyers, less than 20% of respondents said their external legal spend had reduced over the preceding 12 months whilst nearly 50% stated their legal budgets had increased when compared to the previous year. The troubling statistic for international law firms is that nearly 70% of the respondents said they will increase their use of domestic firms. This is not altogether surprising given the growing competitiveness of local firms and their ability to attract foreign lawyers of considerable repute.

Another survey by Lexis Nexis of in house counsel in China (2010) also presents some interesting results. Surveying over 100 corporate counsel (mostly from large publicly traded companies), the research found that foreign firms were seen to have expertise that local firms did not although Chinese law firms were thought to have better local market knowledge and contacts. Organizations preferred boutique firms for complex, high profile, or non recurring matters and full service firms for routine and commodity matters. For matters which were recurring and complex, there was less of a distinction. In terms of pricing, the research suggested that Chinese in house counsel prefer to instruct law firms on either a fixed fee basis, or on an hourly rate basis with a fee cap. Of great interest was the fact that most survey respondents had never been asked to participate in formal client satisfaction surveys, 95% would welcome the opportunity. This is noteworthy as recent research that identifies the difference in market oriented behaviours between high and low performing professional service firms shows that higher performing firms are much more likely to engage in formal client research.

As the Asian legal markets continue to burgeon, foreign firms will increasingly have to take notice of the value that clients seek and no longer rely on the fact that since activity levels are high, they can get work no matter what approach they use. Competition is fierce and the need to be truly differentiated is growing every day. The fact that local law firms were preferred by in house counsel in China (as identified in the Lexis Nexis research cited above) for most matters demonstrates the growing competitiveness of the sector.

Comments

[Kirsten Hodgson]

Hi Robert, really interesting post. As per your Asian findings, in reviews we've conducted we've noticed a strong trend towards appointing horses for courses here in New Zealand - demonstrating expertise in a particular area really is key - see our most recent post at www.kscopemarketing.wordpress.com

[Robert Sawhney]

Thanks Kirsten. I read your piece and wherever the research is done, it seems that expertise is the number one cited reason. I would also say that responsiveness and proactiveness are becoming increasingly important.

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[PRollins]

Going 'in-house' is widely frowned upon among associates in big-law, which is where associates usually develop the skill-sets companies want for their legal dept. See here for instance: Going in-house: Like a plate of lentils – http://hligroup.wordpress.com/2011/12/01/69/ I wonder how this tension affects recruitment?