Shaping the Future

Welcome to our third year of the InHouse View — an annual “look ahead” series of interviews in which we talk to leading corporate counsel about their current challenges and projects for the year.

In the following pages you will discover their top projects for the coming year, how they are using their external counsel, their views on fee arrangements, and legal department structures.

While two of this year’s in-house lawyers have increasingly global interests, the other two are squarely domestically focused. All four have big projects on the go that will, in some cases, extend beyond the next five years. They all share the desire to give their internal clients the best legal advice that reflects the goals of the business.

I think what you will find interesting about the four in-house lawyers we are profiling this year is that while they are juggling a multitude of tasks that include shifting concerns from the board level about threats like cyber security and data protection, they are also putting their mind to managing their legal departments differently.
This is a reflection of several things that include skill development but also structure that answers to today’s governance issues.

They want to bring more work in-house to develop expertise internally and some are changing the reporting structure of their current team to not only improve service to the business but in the case of WestJet and Metrolinx, Barbara Munroe and Mary Martin are looking to expand the career opportunities of the lawyers in their departments. In some cases that involves a lateral transfer into the business units.

Many of you will relate to the challenges faced by Roger Fulton of Linamar, a global auto parts manufacturing company based in Guelph, Ont. Linamar is a great Canadian success story of growth. Fulton finds himself in the position of handling international and domestic growth in a two person legal department. With a recent acquisition in Germany he is looking at potentially adding another in-house lawyer to his team overseas.

In Alberta, Robert Hemstock of energy company Enmax Corp. is wrestling with regulatory challenges and a major expansion project. In the following pages you can read how he was able to make the business case to add a lawyer in the last year even in an environment where it has been the preference to hold the line on shared service costs. As Hemstock explains, the revenue increase from bringing on the additional lawyer, as well as the avoided external cost, shows it will more than double on a positive relative to the salary.

We hope their views provide some ideas for your own departments.

Mary Martin:
executive vice president, general counsel, and corporate secretary
Metrolinx, Toronto
Years as GC: 7
Department: 17 lawyers

What major project will your team be focused on in 2015?
Our big project for 2015 and beyond is a regional express rail service using GO Transit, available on all seven of our rail corridors which will transform the way GO Transit operates its system and provide a lot of new travel choices.

It’s going to be a major focus for us in the next 10 years — we’re going to transform commuter rail service into a regional express rapid transit system with electrified service and 15 minute frequencies in core areas in both directions even on the evenings and weekends.

That will kick off an enormous amount of transactional legal work. We will have to build additional tracks, electrification infrastructure, and new stations. We will need to acquire new types of trains. We will support lots of environmental assessments and complete hundreds of real estate acquisitions.

It will require agreements with the municipalities in the region and we also hope to get involved in innovative agreements with developers so we can do transit-oriented development around our stations which will help raise additional monies for our programs but will also be very interesting and different.

It’s going to be very fast paced, complicated work and I think the lawyers are looking forward to it. One of the reasons people come here is they feel they’re doing important public work which makes a difference.

Of course whenever you’re building in a dense urban environment you do inconvenience people and it’s inevitable there will be unhappy people. That’s part of the challenge. It’s important to properly balance public good versus individual inconvenience. Legal works closely with Metrolinx’s communications to ensure we engage affected communities, understand their concerns and both accommodate and mitigate to the extent possible.
This not only helps contain any legal liability but it is the right thing to do.

How do you approach crisis management in the organization?
Derailments that have happened elsewhere have influenced what we are doing.

We carefully plan to avoid things like collisions and spills of dangerous goods. Rail safety has always been a priority but with recent rail incidents like Lac-Mégantic that was a pretty nasty reminder to all of us you have to always be focusing on it. Even though it’s low risk, it’s high impact.

We don’t carry dangerous goods over our seven corridors but we do allow CN and CP to do so. So that is something we think a lot about. We are regularly updating our emergency response policies. We also have a business continuity plan in place and we are always updating our crisis communications plan. Legal is really enmeshed in all of this and communications is a really big part of it all.

If there is an incident, in this world of 24-hour instant news there’s no room for signficant debate on response. You have to have a plan in place that tells who is going to communicate what to whom.

Typically, lawyers operate in an environment where what is said may hurt one’s position and silence is regarded as preferable to a communications mistake. In a crisis situation, the opposite is often true. In a crisis it’s what you don’t say that can be detrimental to your organization. If people are upset with you it won’t help you in a litigation situation.

During the flooding incident last summer water came up to second level of our bi-level trains in the Don Valley area. We drew on the Maple Leaf Foods Listeriosis incident — we accepted responsibility and focused on constantly getting the facts out using social media.

How do you handle the procurement of external legal services?
I increasingly try and use the internal team whenever possible. From a retention and a development point of view it’s important to keep as much of the good work in-house as possible.

At Metrolinx we have been fortunate in that virtually all of our hires come from major Toronto firms and they have the same kind of experience we would retain externally at much higher rates. Also, it is very difficult for an external lawyer to compete with the operations insights an intenal lawyer gains by working closely with our four operation divisions.

Even though legal services don’t, under the government directive, have to be procured competitively, as a public agency I feel there is a benefit to generating competition. We instituted a vendor-of -record list of law firms for all major areas of focus. That said, I am moving  more and more towards a consolidation made with three or four law firms who I feel understand the Metrolinx business operations. There is a lot of efficiency to be gained by working with people on that basis. I do believe in project budgets when possible and I have done them. I always ask for discounts on hourly rates and volume discounts — my excuse is we’re a government agency. But I think that with the volume of work and the opportunity to work on some of Canada’s largest and most interesting deals I would get them anyway.

How do you keep the lawyers in your department engaged? What is the structure you’ve created?
Previously all lawyers reported to me but when I got to the 16-lawyer mark I had to take a look at it. I did so reluctantly because I think I gain a lot through one-on-one exposure to each of the lawyers in terms of what they’re doing but I couldn’t do it all and do it well. I also work with talented and ambitious lawyers.

One of the problems with in-house departments that a lot of people talk about is that they are very flat. There is the general counsel and then everybody else. If the general counsel doesn’t look like she or he is approaching retirement there isn’t much place for anyone else to go.

So I formed a structure that tried to parallel the management level structure in the rest of the organization. I introduced the equivalent of vice presidents, directors, and manager levels in the legal department and I did that by appointing two associate general counsel. One of them is on the commercial side and one is on the real estate side. Those are the only two lawyers who now report to me other than the associate corporate secretary.

That changed my life a lot but below those lawyers I also have four director level lawyers now called senior counsel. They report to the associate general counsel.  Those director level-lawyers now see where they could move to, such as the associate general counsel position. Even though I have dramatically cut down my direct reports, I still believe in an open- door policy, and as per the recent General Motors case, the general counsel needs to know of any major, worrisome trend that’s developing. You have to get that balance — you can’t be in an ivory tower isolated from the real issues of the organization and nor do I wish to be.

Robert Hemstock:
executive vice president, regulatory and legal services
Enmax Corp., Calgary
Years as EVP: 9
Department: 15 lawyers

What projects are you working on for 2015?
Our group is going to be extremely busy in 2015. We’re commissioning a $1.4-billion power plant in Calgary.
Our focus is on completion of our large generation facility called Shepard, east of Calgary — a natural gas combined cycle generation plant. We entered into a joint venture with Capital Power, which involved a significant amount of legal work. We are also working on a similar sized plant with the same company on one of their sites
west of Edmonton with an existing coal fired generation site. That is Genesee 4 & 5 — expected to come online in the 2017-20 timeline.

There is also significant growth going on in our regulated wires business and that’s driven by the expansion of the City of Calgary and replacement of old assets.

Do you have increased concerns about data protection for the organization?
We have more than 800,000 customer sites and we have the normal obligations under privacy law but in addition there are specific regulations that apply to the electricity industry relating to the use of customer information.

We have privacy obligations but overlaying that we have unique rules to the electricity sector that apply to us given we’re in both regulated and competitive businesses. So we spend a lot of time on code-of-conduct compliance. It is rooted in a compliance plan that we are mandated to have by the electricity regulations in Alberta and by our regulator. That gives us a higher level of complication relative to most companies.

Are you exploring alternative fee arrangements with external counsel?
We have long-standing relationships with a group of law firms and we spread our work out over two or three with some others doing specialized work.

Generally our experience is that our hourly billing framework works fine for us.  Part of the responsibility of our in-house lawyers is to stay engaged in all the files going on and that includes monitoring legal bills. So the expectation of external counsel is the same as internal counsel — they are value adders and so we carefully monitor what our legal costs are and if there is an instance where we feel the fees are not in line with the value of service provided we will point that out.

We have some small retainer agreements that have worked reasonably well, but on major spends like large commercial transactions or large-scale litigation those matters are still being billed on an hourly basis by major firms.

Are you expanding your department to cut external budget?
We aren’t getting pressure to bring more work in-house, but I think it’s incumbent upon us to always be looking for opportunities to make the case why an in-house lawyer would be a good idea. We actually did that for 2015 — adding one more purely based on a financial business model. The revenue increase as well as the avoided external cost against the cost of the internal lawyer shows it will more than double on a positive relative to the salary. We made that decision in an environment where we’re seeking to hold the line on shared services costs. 
We had seven lawyers when I arrived nine years ago and now we have 15. We’ve grown our in-house legal department on the basis of justifying the expansion of it through doing a business case. So we’ve assessed our external legal costs and determined that for some of the areas of work we do it would be more cost effective and efficient to have in-house expertise. Now we have 15 people looking to expand their careers and move up. The reality is that we’ve had to try and approach it differently than just promotions and title. We see the lawyers become very engaged at Enmax because they too are part of the company as opposed to just an adviser. Our business is also continuing to grow.

We cover a lot of ground — from commercial matters to energy trading to litigation and HR, advertising and pension law, regulatory law, and real estate. So we do try and continually challenge the lawyers with new areas of work as their tenure goes on to make the job more interesting and retain them. We monitor compensation and adjust as necessary.

Have you seen the role of general counsel change significantly?
What has changed is that clearly there is a need to continually focus on understanding the business and providing advice that helps us get business done at Enmax.

The job of my team is to give advice but always come up with an alternative that is focused on the business unit while still being able to achieve the objectives set out.

It isn’t enough to simply give advice that it won’t be compliant or can’t work — it’s incumbent upon us to come up with alternatives based on an understanding of what the business objectives are, working in concert with the business units themselves.

The role has evolved as being one where certainly we’re called shared service providers, and we support all the businesses through shared service organization.

My role is to set the proper tone for compliance, support the compliance program, and constantly assess the legal advice at the root of the compliance program.

Roger Fulton:
executive vice president — human resources, general counsel, and corporate secretary
Linamar Corp.,
Guelph, Ont.
Years as GC: 11
Department: 2 lawyers

What will be your major challenges for 2015?
In terms of where we are headed, we’ve got tremendous growth happening in North America and Asia and Europe. We have $2.6 billion in work that hasn’t even launched yet. We’re busting at the seams in Mexico and we’ve got a lot of areas firing on all cylinders.

In India, we opened a new plant and we are starting our third plant in China. India’s new prime minister won on a pro-business platform but the bureaucracy is phenomenal — worse than China. I was involved in China from day one and India is more of a challenge to deal with. We will be building a new plant in India and because India is so difficult to deal in we have to start the process of building now to make sure it will be ready in a couple of years.

Bureaucracy is a four-letter word for us and that does free up energy that might otherwise be put into other administrative activities. What we do is more directly related to the business itself.

Our chairman Frank Hasenfratz is 80 now and his daughter Linda is the CEO. He founded the company and the family is very committed to this as their business and they want it for the long term.

Our compound annual growth rate is 15 per cent and we are going to be hiring more employees in Guelph, Ont.

What are the top areas of risk management you are focused on for 2015?
Anti-corruption and product liability. Anti-corruption is an area we have devoted a lot more time to over the last year or so. With the change in the Canadian legislation 18 months ago [Corruption of Foreign Public Officials Act], it really spurred us to take a hard look at that again. We came up with a robust policy and process and rolled it out throughout the company globally over the last year.

We have operations in 10 countries so it’s important we do that especially since we operate in sensitive countries. We’re in China, India, Hungary, Mexico, and others and it was important to us that we have a robust policy in place. We’ve had no issues but you can’t rest on the fact nothing has happened. We’ve implemented an anti-corruption policy and closely monitor that and we’ve had full support from our CEO and senior managers, who have taken it quite seriously.

We have spent a lot of time on product liability as well. In the past we have done “build to print” where the OEM does all the design work but we have moved to a lot more design work and full module and assembly production, so clearly some of that risk shifts to us and product liability becomes more important. We have worked extensively with operations, for example, to put model language into all of our contractual documents. We’ve educated our sales, engineering, and operational people around the issues and what the terms mean in those agreements. Then we work with them on a case-by-case basis when they are negotiating and the customer wants to change the language.

How do you handle growth with just two lawyers in-house, including yourself?
Linamar is a great growth story. We now have more than 18,000 employees, over half of which are outside Canada. Language and time zones are issues we need to handle as well as having to work under many different legal regimes so we’re approaching a size where we are asking ourselves what is the best way to provide legal services globally? Is it centralized, is it regional, or by business unit? Clearly we’re driven by service, flexibility, standardization, and knowledge. We have to look at what’s the best mix for us and we are definitely wrestling with that.

We announced a recent acquisition in Germany in November — Seissenschmidt — which is a forging company.
That will add about 1,000 employees in Germany in three locations. They have an in-house lawyer, which should help. We have more than 3,000 people in Germany already and will have 4,000 by the time we close.

When it comes to the measurement of total legal spend as a percentage of company revenue, ours is far below industry average. That’s been a positive for us and in that sense the CFO is happy. At budget time we’re treated no differently than any other part of the company. We’re expected to always be looking to do things better, faster, cheaper, and we have internal processes to look for ways to shave time and money off the process.

Over the last several years, we’ve developed a lot of proactive agreements and checklists for important transactions and provided training on those for personnel using them.

We also have a good roster of outside counsel in the countries we’re in. They’re very practical and efficient and cost competitive and that combination is why we’re still at two lawyers — if you look at industry surveys on manufacturing the average number of lawyers per billion of revenue is about 3-3.5. Frankly, we should have 12 lawyers if that was the case and we have two. Our total spend-to- company-revenue ratio is far below average.

What about alternative fee arrangements?
I get it when banks, for example, have routine transactions and you can drive it down to a lowest cost provider but the rest of it I see as a bit of a black box because no one seems to want to say what they do for that alternative arrangement. My sense is that it’s just old-fashioned discounts. What I have done is said: you’re getting a bunch of work and I need 10 per cent off your rates and they do it. Frankly I think there isn’t that many ways to skin the cat. So I think in some variation that is what everyone is doing. You can also do things like manage better with project management. Our work is primarily transactional. We have some on the immigration side because we have people moving around the globe and we have an outside immigration firm that does that.

Barbara Munroe:
vice president, general counsel, and corporate secretary
WestJet Airlines, Calgary
Years as GC: 3
Department: 5 lawyers

What are the top challenges for the WestJet legal department in 2015?
Our business is at a point in time where we’re growing but we are asked to take on that growth with the same level of resources. While it’s not doing more with less, it’s doing more with the same. That’s the mindset we have coming into 2015 and it’s all about watching costs religiously and assisting the business to be as nimble as possible and taking advantage of the growth in revenue opportunities.  

Last year, we launched into Dublin and we’ve now announced we’re going into Glasgow so we’re now into the European Union and that brings with it a whole new realm of regulatory and privacy issues. It’s a new world from that perspective. There are a lot of new components to consider.

We’re also bringing on wide-body aircraft, replacing the arrangement we’ve had with Thomas Cook.

What about perceived risks around things like projection of data?
Is that a major issue for you?
I think it’s on everyone’s agenda. Our board members are asking about it and wanting to understand it not only from a legal perspective, with respect to compliance, but really zeroing in on our IT professionals in and around the area of cyber security.

It’s interesting because in other areas such as anti-corruption everyone understands that so it’s about getting after everyone about the training and everyone understands what the ramifications are.  It’s a way of thinking everybody easily understands.

In the area of cyber risk, with respect to protecting not only employee data but the systems that house our guest data, it’s a different language. You need to try and understand whether or not we are deploying all of the appropriate due diligence and security measures. It really takes some time to understand the language of IT professionals. They can give you the representation that everything is fine but it’s the ability to ask the good questions that is more challenging in that area. We struggle with that as lawyers and we see our board members wanting to know more in that area.

What’s your approach to forming a strategy for the legal department?
It’s such a compressed world, if you have a strategy much beyond three years in our business you are kind of wasting your time. Your competitors today may not be your competitors 18 months from now depending on many factors including the regulatory environment. The ability to be nimble and tuned in to where the organization is going is critical. We also need to be relevant to the organization, ensuring what we ultimately deliver up to the board is meaningful. Are the materials we give them prepared with the right lens? Are we giving the board enough, but not too much?

You hold the compliance role in addition to that of general counsel. Do you ever see it as a conflict?
At this time in our evolution I’m taking on both functions and I am more in the camp that says until it’s actually proven that the role should be split it’s OK this way. There are a lot of things that I do in my role that is part of business and part of it is advisory. So I’m not waving the big flag that this has to be split.

Our model pulls in different professionals contributing their areas of expertise such as internal audit, our vice president of safety, quality as well as our chief risk officer. Effectively they roll everything up to me and I’m the one that makes sure there are no gaps. I see the slate of appropriate people involved to enable me to report to the CEO who in turn can report up to the board.  

Are you looking to change the relationship you have with your external counsel in terms of fee arrangements?
We’ve had the good fortune of having long- standing external counsel and I haven’t felt the need to press counsel because when we need them we need them for their expertise. More of the pressure is striking the balance between building some of that expertise internally and at the same time giving enough interesting work to lawyers in-house as opposed to sending it out. We try and help the business units be more self-serve in the areas of contests and promotions so we’re not inundated to review terms and conditions. We work to make sure that they know the law in this area.

What’s your approach to managing your legal team’s career development?
My department is full of lawyers in the five- to 10-year mark and they are very interested in what their career trajectory is. Being so lean there is always that question of:  How do I make a career of it here? What I’m trying to encourage is to get my lawyers to take a step out of their legal role. We have one lawyer who has taken a step into operations. He’s going to go learn about the business for a couple of years on the condition he can come back and practise law again if he wants. We think it will make him better informed and a better contributor to the overall direction of WestJet. The other way is we rotate portfolios. I think ultimately the idea is giving them enough visibility into what management is about, and what is important to their development.