Six years after the Chinese Government initiated a campaign to implement a “general counsel system” in state-owned enterprises (SOEs), the majority of the large SOEs have now established an in-house legal function and appointed general counsel.
Many of these in-house departments have thrived and proven their value to senior management in a remarkably short space of time. Legal managers and general counsel in these departments have also earned good reputations in the legal community. The in-house legal teams of CNOOC, Bao Steel and Sinopec, for example, have excelled in providing strategic and innovative legal solutions to enable their companies to achieve business and strategic objectives not only in the domestic market, but also in key markets around the globe.
As part of the campaign, and in an effort to find the most competent candidates for general counsel positions, the State Assets Supervision and Administration Commission of the State Council (SASAC) started an annual public recruitment program to help appoint general counsel for enterprises under its supervision since 2006. So far, 16 central-level SOEs have appointed general counsel through three public recruitment programs.
Last May, a plan to promote general counsel roles in subsidiary companies announced by SASAC marked the beginning of the campaign’s second phase. The plan says all important subsidiaries of the central-level SOEs should have appointed general counsel and set up an in-house legal function by 2010.
China Chengtong Group, a large logistics conglomerate which is a central SOE, is one of the first to respond to the new agenda set by the SASAC. Under the leadership of the group’s general counsel, Tang Mingyi, who was appointed through SASAC’s 2007 public recruitment program, the group recently named Wang Yonghai as the general counsel of its important subsidiary, China Asset Management Corporation.
As the SOEs are becoming increasingly commercially oriented, international and market-driven, the development of a solid in-house legal function is a good strategy. However, this raises an important question: does the growth of the inhouse role translate into reduced business opportunities for external firms?
According to Dacheng’s senior partner, Tuo Zhongming, the promotion of in-house legal teams in SOEs will improve the legal service industry. “We see the rise of in-house teams led by a general counsel as a positive and necessary development. As large sophisticated organisations, they do need professional legal management,” he says.Tuo has extensive experience working with SOEs, particularly on restructuring projects. He has been the main outside advisor for China Asset Management Corporation since 2000. After the appointment of the general counsel, he continues to provide legal support and advice regarding the company’s business operations and strategic planning.
“General counsel and in-house counsel don’t handle all legal matters directly; they are responsible for leading and managing the process,” Tuo says. “The volume of legal work outsourced to us won’t be lower than before the general counsel was named, but we have to offer more specialised legal services in certain practice areas and improve the quality of our services.”
In the past, due to the absence of an in-house legal team, communication between external counsel and board members and senior management has been problematic and prone to misunderstandings. Having an in-house legal team will help external counsel work more efficiently.
“In-house teams can help law firms to better understand companies’ business needs, and at the same time they can ensure that external advisers are able to provide the best value and legal solutions for businesses,” says Liu Yuming, a partner of Zhong Lun.