Is your legal function prepared for a global expansion?

As companies expand their operations into the global marketplace, they rely on their in-house law departments to structure cross-border transactions and comply with local law. To provide these legal services on a global scale, many law departments have legal staff in different jurisdictions and must find ways to efficiently and effectively manage their legal teams and resources.

Many companies add or inherit legal staff in different jurisdictions following a cross-border merger or acquisition or during other expansion periods and reorganizations. The legal team may be integrated into a centralized global law department or may operate in decentralized pockets within their regions or business units. The company and its general counsel (GC) should understand the scope of work covered and the quality of services generated by these existing legal functions to determine whether the composition and structure of the legal team meet the needs of the global enterprise.

In particular, the GC should:

• Assess the global legal team
• Evaluate service alignment
• Select a reporting structure

Global legal team

The first step a GC should take is to assess the global legal team. This includes identifying all staff that provides legal services or support the legal function, mapping out their geographical locations, and determining staff roles and their scope. A GC should also evaluate the qualifications, skills, strengths, and weaknesses of each legal staff member.

Service alignment

Next, the GC should determine if the company’s current legal staffing is effective and efficient in handling the broad range of cross-border and local transactions and navigating the vast array of regulatory requirements that apply to a multinational company.

To make this determination, the GC should:

• Identify the company’s overall legal needs.
• Recognize the specific legal needs of each business location.
• Determine if legal staffing and service are aligned to business needs.
• Consider different legal staffing models. The GC may need to reorganize legal staffing to serve the business better.

Reporting structure

There is no one-size-fits-all approach to organizing a global law department and its reporting relationships. The reporting structure should optimize the global law department’s performance but may vary depending on factors such as the company’s size, industry sector, geographic locations, and organizational structure.

The GC may have the authority to implement widespread changes to the law department’s reporting structure or may be limited to negotiating incremental changes with internal stakeholders. In either case, the GC should consider if the current reporting structure helps the law department deliver better, faster results at a lower cost, which in turn helps the company achieve its financial and strategic goals.

The most common reporting structures for global law departments are:

• Centralized reporting. Whether located at headquarters or geographically dispersed, legal staff in a centralized reporting structure have solid line reporting relationships to the global GC at the parent company level. This is the most common structure and often cited by law departments as a best practice.
• Decentralized reporting. In addition to a central legal function at headquarters, legal staff in a decentralized reporting structure are embedded within branch offices, subsidiary and affiliate companies, operating divisions, or other business units. Legal staff have solid line reporting relationships to their respective business leaders. They function relatively independently from headquarters but may coordinate with the global GC on an informal basis. Some companies with large regional offices or diverse business lines find a decentralized law department to be an effective structure.
• Dual reporting. Legal staff may have solid line reporting relationships to their respective business leaders for operational and workflow priorities. For operational matters, such as legal budgets and outside counsel, legal staff may have dotted line reporting relationships to the global GC. This type of hybrid or matrixed structure involving multiple reporting lines has become increasingly popular.

In selecting an appropriate reporting structure for the global law department, the GC should consider involving a cross-functional advisory team with human resources department members, senior attorneys from different regions, and key business managers. They should benchmark against other global organizations and peer companies to determine industry and best practices. Finally, a GC should weigh the potential advantages and disadvantages of each reporting structure.

This article is provided by Practical Law The Journal. The printed bi-monthly publication of The Journal is included with Practical Law subscriptions.