Corporate Social Responsibility: The Evolution of the General Counsel in Asia by Korn Ferry

Corporate Social Responsibility: The Evolution of the General Counsel in Asia

Key Takeaways: n A General Counsel’s influence

in Asia varies greatly from corporation to corporation and depends largely on the needs of the board and management as well as the perceived role of the in-house legal capability. n Company culture comes into play to a certain degree, with U.S. and European multinationals placing a greater importance and emphasis on their General Counsel versus family or state-run enterprises. n Creativity and strategic problem-solving are absolutely critical. More than anything, businesses today need an advisor who can offer solutions. n General Counsels have to “earn” their place at the Boardroom table. Their value directly correlates to their own experiences and the skills they bring from a business perspective.

shering in 2009, Korn/Ferry International held a series of Executive Forums to discuss the evolution of the General Counsel in Asia; the role they play in influencing responsible business prac-

tices and corporate social responsibility (CSR). This paper summarises the key discussion points and views from forum participants comprising counsels from local and multinational organisations around Asia Pacific as well as legal practitioners. The discussions were facilitated by Ms. LeliaLim Loges, Client Partner, Global Industrial Markets, Korn/Ferry International.

A Fine Balancing Act: Achieving Accountability and Integrity The few months leading up to the Executive Forums saw financial and economic turmoil explode into public consciousness. Venerable institutions collapsed overnight, billion dollar ‘ponzi’ schemes unravelled and accounting scandals were exposed, causing calamitous effects on the global economy that all but a few of the most prescient could have foreseen. Greed, lack of oversight, complex financial processes and careless or predatory lending practices have each shouldered a fair share of

“Corporate Responsibility is the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for the business, the sustainable development agenda and society at large.” – World Bank 2007

blame. What is certain is that the consequences will be far-reaching, with significant implications for corporate legal departments and issues like governance and transparency. Many will still remember how the Internet bubble and excesses of the 90s wiped out Enron and gave rise to the Sarbanes-Oxley Act that had repercussions throughout the world of corporate law and beyond. So, what will the current crisis bring about for General Counsels, especially those in Asia? Asia’s General Counsels face a myriad of challenges to adapt to an increasingly complex legal and business environment coupled with intense pressure to mitigate risk through transparent and sound governance practices. Whenever new regulations are imposed, senior executives will turn to legal departments for guidance; placing greater demands on the General Counsel and elevating their profile and voice in the board room and executive suite. The role requires a greater combination of skills than before; assuming multiple managerial and government liaison roles and has even expanded into departments beyond the executive suite as aspects of daily operations are re-routed through or reviewed by legal departments. General Counsel’s involvement in crafting, implementing and monitoring policies, processes and rules is essential to ensuring not only the long-term success of a company, but its accountability and integrity as well.

Corporate Responsibility: Going Beyond Compliance

If there is one bright spark amidst the global woes, it has been an increased focus on corporate culture and corporate responsibility. CSR remains a broad subject covering a wide range of issues affecting the way businesses operate; from community relations to sustainable development. It has evolved from the recognition that businesses must recognise their obligations to society and seek not only to serve shareholders but acknowledge the interests of all stakeholders; employees, suppliers, customers and the environment. In recent years, there has been a growth in public sensitivity – particularly among the sophisticated investor community – towards CSR as a strategic initiative. There is a distinct connection between the trust and goodwill generated by socially responsible behaviour and the economic benefits to the company. It is one of the ways in which the company attracts key executives and a strong workforce, builds relationships with business partners, encourages customer loyalty and in general, builds positive brand awareness. 2

Participants at the Korn/Ferry forums all agreed that CSR has always existed, albeit in different forms. In the manufacturing, resources and industrial sector, participants felt that CSR was very much ingrained in the corporate culture as the industry is highly regulated from an environmental, quality, health and safety perspective and has a broader community and economic impact. Timothy Goh, Vice President and General Counsel of PowerSeraya Ltd noted, “The business we’re in necessitates an active CSR campaign.” “We think about the CSR element when we think about how our products are manufactured,” said Terence Teo, Asia Pacific General Counsel, for Edwards Technologies. “We ask how we can do this more responsibly both internally and externally. We place emphasis on safety... and the social impact is an important consideration.” In other industries such as banking and services, the role of CSR and compliance is similarly heightened, driven by the advent of Sarbanes-Oxley and its progeny. Regardless of industry, compliance, ethics, labour and multinational employment practices impose extraordinary challenges on companies. General Counsels thus often find themselves involved not only in providing functional expertise but also acting as the conscience of the company, taking into account policies that serve the public good as well as private interests.

“Family-run businesses often have their own ethical viewpoint. In line with Chinese Asian values, they see the company as their extended family…it doesn’t always gel with the US multinational viewpoint where a company may simply be seen as a vehicle to make money.” – Timothy Goh, Vice President and General Counsel of PowerSeraya Ltd

While the financial crisis may have provided the impetus for many companies to begin incorporating greater social responsibility into their businesses, one trend is clear: the tone and importance placed on CSR has to be driven and articulated from the top. Participants said the emphasis is largely driven through culture, the CEOs’ own agenda and the employees’ own initiatives. In Edwards Technologies for example, managers are expected to demonstrate ‘visible leadership.’ As an ‘Edwards enabler,’ Teo engages people on safety issues once a day and also “continuously reinforces the company’s view on how it is applied.” Says Kelvin Wong, Partner Corporate and Commercial at Allen & Gledhill, “The whole concept of CSR requires people to believe in it. Companies themselves must have tenets driving their investments in CSR and a code of ethics that they subscribe to.” 3

Perhaps it is then easiest to think of CSR as a call to the conscience of the corporate world. Corporations have to move away from obsessing over short-term gains and instead begin focusing on responsible investment and business practices - linking long-term success to the integration of economic, social, environmental and governance issues into corporate management and operations.

Influencing Responsible Business Practices: General Counsel as Partner and Guardian in Asia

Operating in today’s complex business environment, the General Counsel and legal department face new responsibilities, heightened expectations and unprecedented challenges. They are no longer expected to manage litigation, but also add value to the organisation as business advisors and risk managers; and take on a more proactive role in reputation management. In addition, the increasing importance of corporate governance and managing corporate crisis has heightened the General Counsel’s role as the conscience of the organisation. While the General Counsel of today wears different hats, it is clear that the role and responsibilities of that position is still evolving. It is highly dependent on not only legal knowledge and experience, but personal strengths as well.

CSR – Filling a void or cost of doing business? No where else is CSR most closely linked to sustainability and sustainable development than in the resources or ‘extractive’ industries such as mining and oil & gas. Indonesia has probably taken the lead in this area by being the first country in the world to stipulate that companies in the resources sector and related industries must engage in corporate social responsibility under Law No 40/2007 in its 4

Corporations Law. Companies usually fulfil obligations to the local community by focusing on areas such as healthcare, education, infrastructure and cultural preservation. The introduction of the new law has been controversial and debate has centred on whether CSR should be voluntary or mandatory, the meaning of CSR under the legislation, and the scope of operation of the new law. Forum participants in Indonesia however say ‘CSR goes beyond the obligation of the contract’ and companies have

a responsibility to fill a gap in the communities they operate in. “Freeport dedicates a minimum of one percent of the company’s gross revenues towards CSR. The economic value of the investment is intangible. The more obvious benefits include enhanced reputation and branding and continued goodwill from the government in granting concessionary sites,” says Tony Wenas, General Counsel and Senior Vice President of PT Freeport, Indonesia.

The status accorded to General Counsels in Asia, however is conflicting. One end of the spectrum mimics the American approach of ‘close business advisor to the CEO and trusted member of the board,’ never far away when strategic decisions are being made and weighed. At the other end are General Counsels who do not attend board meetings and are looked upon as ‘technicians’ to provide legal advice and ‘fix’ problems. It is interesting to note that this incongruity could be a product of company culture and ownership. According to Chan Hock Sen, Vice President Legal & Tax Services for Michelin Asia, “The role of the General Counsel often depends heavily on the CEO. Americans tend to view legal counsels as advisers, more so than European companies, perhaps as a consequence of a more litigious society.” Many Asian companies are also still very much family-owned and controlled, where according to participants; the concept of corporate governance has not filtered through.

“As the title suggests, as General Counsel you do everything… you’re the legal, ethics, investigative advisor… and sometimes sent as the special emissary to see the government.” – Wan Kwong Weng Group General Counsel – Asia of Infineon Technologies

Philip Payne, foreign counsel for Ali Budiardjo, Nugroho Reksodiputra in Indonesia offered a view that a General Counsel’s influence could also vary based on the different legal systems. “General Counsel in English Law systems tend to feature more prominently as companies are driven by fear of litigation or liability. In Asia, there seems to be less fear or concern about liability and there are fewer class action suits.” So, while the General Counsel in Asia may sit “a few chairs removed” from the CEO, participants all agree that their views today carry much greater weight then it did a decade ago. Then, the principal role of many General Counsels was to manage the day-to-day legal responsibilities within the organisation and was often seen as a “process reviewer” ensuring compliance. Today, the General Counsel in Asia is more often a strategic member of executive management with a greater internal and external role within the company. They participate at the highest levels of policy formation, are paid commensurate higher salaries and have critical influence. There are three main reasons driving the change. The first is the Executive Management’s growing awareness in getting a legal perspective early as they develop strategic initiatives; and also the broader skill sets that today’s General Counsel brings to the table. 5

“You need to demonstrate that you’ve seen the big picture…that you’re thinking beyond the clauses and show that you can engage from a business perspective.” – Terence Teo, General Counsel, Asia Pacific of Edwards Technologies

Participants all agree that General Counsels today need to have business orientation and a commercial mind, deep industry knowledge, operating and organisational skills and most importantly, leadership traits. Almost all participants say they spend more time on leadership issues today than legal and advisory matters. The second reason is the growing understanding of the importance of corporate reputation and the contribution the General Counsel makes to protect the company’s interest. Independent directors increasingly depend on General Counsel to head off wrongdoing and to blow the whistle on illegal practices. The expectations for responsible corporate behaviour have also increased dramatically among the public, regulators and governments. It simply makes more sense for General Counsel to be involved in meeting those expectations and often leading the effort. Many are actively involved in the role of guardian, lobbyist and even public spokesperson for the company. As Philip Jackson, the Managing Regional Legal Counsel - Asia Pacific for Baker Hughes Australia pointed out, “the greater the amount of regulations present, the greater the role of the GC within the company.” Lastly, and perhaps more significant in Asia, is the speed of knowledge transfer from globalised bodies of law relating to different industries be it mining, banking or oil and gas. Norman Bisset, Foreign Legal Counsel, Finance and Projects from Baker & McKenzie / Hadiputrano, Hadinoto & Partners explains, “Our function is to explain how things are done in other jurisdictions.” Globalisation also plays a larger role for General Counsel, in the hunt for capital and contract negotiations. In Indonesia for example, there is mounting pressure on foreign companies to comply with obligations of CSR under the Corporations Law, but what those obligations are, remain unclear. Companies, and in particular Asian companies, therefore start to see the value of the General Counsel when they want to expand beyond local shores. Here’s where commercially-oriented counsels fare the best as they are expected to be part of the solutions process advising executive management on the risks, consequences and liabilities. Noted Tod Gimbel, Director, Corporate Affairs, Asia Pacific, for Kraft Foods, “the role has definitely evolved from ‘let’s have counsels in case we get sued’ to ‘give us your insights on this from a processes, legalities and reputation point of view.’” Their jobs are made more difficult when they need to balance subtle local nuances versus global standards. The phrase ‘local practice’ was brought

up several times in discussion; General Counsels working in Asia need to understand what is acceptable or not in the local context, and very often the lines are not very clear.

“In today’s environment, the General Counsel must be part of the solutions process, helping to find What’s apparent though is that General Counsels are often able to play a unique role in their corporations beyond the context of the legal environment, comparable solutions for because they are able to observe the role their corporation plays within the clients.” larger society. When business heads perceive them to be able to provide greater perspective and value to the business in addition to legal solutions, these counsels are brought in as trusted partners and advisors, and to some extent as guardian of the firm’s corporate value and conscience to senior leadership.

- Nurman Djumiril, Director, Senior Vice President Corporate Affairs and General Counsel of PT International Nickel Indonesia

Enablers of Business Outcomes

As we look to the future, it’s clear the role of the General Counsel will be heightened as a key member of the team setting strategic direction for the organisation and protecting and speaking up for the corporate reputation externally. There will be a greater need to balance and mitigate risks with the commercial aspects of the business. In shortened timeframes between boom and bust cycles, shareholders demand immediate returns. More and more General Counsels are working closely with the CEO and Board to set the benchmarks for CSR principles, its impact on the immediate profit versus the threat to the company. CEOs realise that they can no longer shirk the responsibility of the CSR function to other business units or view it as a staff function. By welcoming the General Counsel to the board as partner and guardian, it’s a step in the right direction as his or her counsel is integral to drive business sustainability and ensure business longevity and success. Furthermore, whilst the influence of the General Counsel in Asia continues to increase, General Counsels on their part must remember that they have to “earn” their place at the boardroom table. It is not a right, nor is it automatic. Their value directly correlates to their own experiences and the skills they bring from a business perspective. Only then will the evolution from legal technician to business enabler be truly complete. 7

Taking the Pulse of General Counsels in Asia To gain further insight on the evolution of the General Counsel in Asia, Korn/Ferry conducted a separate pulse survey as part of this white paper. Interestingly, half of the respondents rated themselves as ‘very influential with the CEO and the Board’ while eight percent believed they were not influential at all. Only 25 percent of respondents were regularly invited to participate in boardlevel meetings such as strategy and financial planning while 67 percent said they receive an invitation ‘sometimes.’ Respondents unanimously agreed that the two key contributions they can bring to the Board include offering alternative inputs on business issues and providing perspectives on risk management. When asked about the top two ways General Counsels could increase their influence with the CEO and Board, the majority cited raising the profile of the legal function within the company (83 percent) and negotiating with clients directly (42 percent). In terms of current roles, respondents said they would ideally like to spend more time on staff management and development, strategy planning with the Board and managing external stakeholders. (See Figure 1) Lastly, when asked about the most critical challenges they expected to face over the next five years, 67 percent of respondents indicated ‘rapidly fluctuating business cycles’ followed by ‘leadership development and talent shortage’ at 42 percent. (See Figure 2) 8

Figure 1: Percentage of current time spent on roles vs. ideal time allocation 33%

Current Time Allocation

30%

Ideal Time Allocation

21%

20%

17% 17% 12%

10% 8%

6% 4%

Contract and legal negotiations

Staff management and development

Compliance and governance issues

Strategy planning with the Board

Managing external stakeholders (Government, investors, NGOs)

Other (including training, M& A and business restructuring)

Figure 1: Percentage of current time spent on roles vs. ideal time allocation

Figure 2: Top challenges facing General Counsels in Asia over the next five years Not an issue

Somewhat challenging

8% 25%

Critical challenge

17% 33%

25% 50%

58% 67%

33%

67% 67% 42%

33%

33% 8%

Rapidly fluctuating business cycles

Leadership development and talent shortage

Regulatory and compliance burdens

Recognizing CSR as a tool for business sustainability

17% Increasing the influence of General Counsels with the Board

Getting the CEO to view integrity as a key business requirement

Figure 2: Top challenges facing General Counsels in Asia over the next five years

Lelia Lim-Loges is a Client Partner in Korn/Ferry International’s Singapore office specialising in the Consumer and Industrial sectors. She is a member of the Legal Centre of Expertise and can be reached at lelia.lim@kornferry.com.

About Korn/Ferry International Asia Pacific

Korn/Ferry International, with more than 90 offices in 40 countries, is a premier global provider of talent management solutions. Korn/Ferry was the first major U.S. executive search firm to operate in Asia Pacific when it opened its doors in Tokyo in 1973. Today it has 18 offices in key business centers throughout the region, including: Auckland, Bangalore, Bangkok, Beijing, Brisbane, Guangzhou, Hong Kong, Jakarta, Kuala Lumpur, Melbourne, Mumbai, New Delhi, Seoul, Shanghai, Singapore, Sydney, Tokyo and Wellington. Based in Los Angeles, the Firm delivers an array of solutions that help clients to attract, develop, retain and sustain their talent. For more information on the Korn/Ferry International family of companies, visit www.kornferryasia.com.

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