Globalization and General Counsel

Globalization’s impact on Main Street, Wall Street, and Capitol Hill will require new leadership solutions, particularly in navigating a materially changing landscape of legal, regulatory, and reputational risk. More than “shrinking” and “flattening” the world, globalization is ushering in a new paradigm in which the United States is no longer the only center of geopolitical and economic power: Main Street no longer wields unassailable leadership of global consumer markets, Wall Street no longer serves as the only gatekeeper to global financial markets, and Capitol Hill no longer produces the only coherent system of laws and regulations that establish parameters for global transactions. Similarly, emerging nations are privatizing and monetizing their rich natural resources and building cities with gleaming state-of-the-art infrastructure, while also providing capital to drive global consumer and financial markets. The new paradigm presents a host of formidable challenges for U.S. corporations wishing to remain competitive in an evolving global marketplace.

This article examines how the challenges arising from globalization’s new paradigm impact leadership; specifically how expectations surrounding core competencies and experience of effective Fortune 500 general counsel are realigning to meet the expectations of today’s business environment. To borrow a metaphor, chief executive officers (CEOs) need general counsel who “aren’t fighting yesterday’s wars, but who are trained to win tomorrow’s battles.” The general counsel continues to serve as both trusted advisor to a CEO and as the primary interface with global regulators, independent directors, stakeholders, business partners, and others. However, tomorrow’s battles will engage different players, across different cultures. Effectively anticipating and mitigating legal, regulatory, and reputational risk may draw upon different qualities and skills, and the resume of capable general counsel may look very different from that of his or her predecessor. For instance, the relatively declining importance of U.S.-based bankers, U.S.-based consumers, and U.S.-based lawmakers is counter-balanced by the relatively increasing importance of bankers, consumers, and lawmakers in other parts of the world. Ultimately, a global general counsel should know, for example, enough about Islamic banking so as not to offend a client in Dubai, enough about Indian culture so as not to ask for beef at a Mumbai restaurant, and enough about EU privacy laws so as not to disclose protected personal data in the UK. With so many U.S.-based Fortune 500 corporations targeting non-U.S. markets for sustainable growth, and courting non-U.S. consumers for products, the global general counsel must recognize limitations imposed by both U.S. and non-U.S. laws in devising and executing go-to-market strategies.

CEOs require general counsel who proactively and skillfully remove global barriers to success and navigate a rapidly evolving landscape of global enterprise risk—particularly legal, reputational, and regulatory risk. A general counsel can make the difference between a CEO’s success in capitalizing upon opportunities and avoiding or neutralizing enterprise-threatening risk, and a CEO’s failure to meet expectations after being blindsided by crippling regulatory obstacles. An effective general counsel adds the value of judgment, honed by core competencies and experiences that align with the enterprise risk challenges in the current environment.

To predict how the requisite skills and experiences of general counsel are likely to change as the result of globalization, it is helpful to examine the trends in general counsel selection that emerged from previous shifts in the business and regulatory environment. In the mid to late 1990s, a period characterized by the dot-com boom and high-flying markets involving mergers and acquisitions (M&As) and initial public offerings (IPOs), general counsel were the prototypical Wall Street or Silicon Valley M&A lawyers who had prior experience at the table with investment bankers. But the implosion of Enron, Tyco, WorldCom, and others in the early part of this decade brought a sweeping change in the regulatory environment exemplified by the passage of the Sarbanes-Oxley Act (SOX)—with a concurrent change in the ideal general counsel profile. CEOs who couldn’t sleep for worrying about the Securities and Exchange Commission (SEC), anti-money-laundering laws, Foreign Corrupt Practices Act (FCPA) inquiries, and back-dating stock options required a general counsel who could proactively identify and defuse risk, and who knew how U.S. regulators thought and what they cared about.

These reshuffled CEO priorities meant that the most sought-after lawyers were trained in Washington at the SEC, Justice, Treasury, or a similar high-profile federal agency, in addition to a world-class law firm. Having an ex-regulator or former federal prosecutor as the company’s chief lawyer, it was reasoned, would neutralize potential enforcement issues before crises erupted. To see the reach of this trend, consider the following general counsel appointments: Steve Cutler, Gary Lynch, and Dick Walker, all former Directors of Enforcement of the SEC, became general counsel of JPMorgan Chase, Morgan Stanley, and Deutsche Bank, respectively. David Aufhauser and Neal Wolin, both former general counsel at the Treasury Department, re-entered the private sector as general counsel of Hartford Financial Services and UBS. Former Justice officials Larry Thompson, Jim Comey, Jonathan Schwartz, Beth Wilkinson, and Ivan Fong became general counsel of Pepsi, Lockheed Martin, Cablevision, Fannie Mae, and Cardinal Health. Other general counsel of major U.S. corporations who have significant prior experience with federal agencies include Larry Tu, Dell, Inc. (State Department); Paula Boggs, Starbucks (Army); and Judith Miller, Bechtel (Defense Department).

In short, when the SOX Enforcement Era replaced the dot-com boom, experience in Washington, D.C., and on Capitol Hill replaced experience in New York and on Wall Street as “must-haves” for coveted general counsel positions. Now, globalization’s impact means that experience in London, Hong Kong, or Dubai may soon replace experience in Washington as the sine qua none for the next generation of general counsel.

For some time, American companies have been looking beyond their own borders for both their supply chains and their fastest-growing markets. What is new, however, is that the United States no longer controls the rules of the game as played out in bourses and boardrooms in the same fashion that it had previously dominated the playing field.

The growing autonomy and economic strength of emerging nations is evident in the increasingly indigenous development of a cadre of sophisticated management talent, as well as the modernized infrastructure required for these nations’ long-term growth. This, of course, lays the foundation for a highly desirable consumer class armed with growing discretionary income.

More significant from the boardroom perspective is the globalization of capital markets and executive leadership. A listing on the New York Stock Exchange or NASDAQ is no longer mandatory for a large-cap company; London, for example, has shown itself to be a thoroughly viable option, given its critical mass of financial services firms and central location relative to Asia and the Middle East. SOX compliance requirements and vulnerability to litigation in the United States have attached a real cost to accessing the U.S. capital markets, which many companies are now choosing to forego: in 2007, only 24.7 percent of all equities were sold in the United States, compared with 47.2 percent in 2001.¹ Furthermore, a significant decline can be seen in the number of non-U.S. companies choosing to cross-list on U.S. exchanges, from 43 in 2000 to four in 2007.² Also, several companies that were cross-listed on U.S. exchanges have delisted their American Depositary Receipts (ADRs). Both Bayer and British Airways, for example, estimated an annual savings on the order of $20 million after doing so. Indeed, in 2007, a total of 56 non-U.S. companies have delisted from the NYSE, compared with 30 in 2006.³

These developments offer a glimpse into how to now redefine the capabilities sought in corporate legal officers. Washington’s status as a boot camp for general counsel was predicated on U.S. laws and regulations being the de facto standard for global capital markets and international business transactions. But personal knowledge of the inner workings of the SEC or Justice Department is irrelevant in the eyes of a non-U.S. company that lists on the London Stock Exchange (LSE), is ranked by an FTSE index of the Financial Times and the LSE, and does not dual-list on a U.S. exchange. Furthermore, other counties and regions that once relied on U.S. regulation as a benchmark are now establishing their own codes. Capitol Hill no longer dictates the legal models, regulatory constraints, and financial accounting standards for the rest of the world. For example, Brussels, the headquarters site of the European Union, has emerged as a center of competition/antitrust and environmental law, as evidenced, for example, in the $1.35 billion fine levied by EU Competition Commissioner Neelie Kroes against Microsoft on February 27, 2008, marking the largest fine ever imposed by the EU upon a single company. (In total, the European regulators have fined Microsoft roughly $2.5 billion in the long-running antitrust dispute.)⁴

In the same way that Wall Street is no longer the only access point to the capital markets, Capitol Hill is no longer the only source of law and regulation, and Main Street is no longer the world’s primary consumer market, the United States is no longer the only birthplace of CEOs. By January 2008, 15 Fortune 100 companies had CEOs that were born outside the United States,⁵ including Citigroup’s Vikram Pandit and PepsiCo’s Indra Nooyi (India), Alcoa’s Alain Belda (Morocco), Dow Chemical’s Andrew Liveris (Australia), and Coca-Cola’s Neville Isdell (Ireland). Many of these executives were not merely born abroad, but also have had truly global careers along the way: Belda was born in Morocco and was educated and spent a good part of his career in Brazil; Isdell was born in Ireland, educated in South Africa, and worked for Coca-Cola throughout Africa and Asia before assuming the helm in Atlanta. As non-U.S. revenue makes up an increasing proportion of the overall revenue of U.S. companies, there is no reason to expect that this trend will reverse.

With Main Street, Wall Street, and Capitol Hill declining in relative global importance, Fortune 500 corporations know that they must either identify and align with new global business opportunities, or step aside for those who can and will. Much of the legwork for that process will fall on the companies’ general counsel, whose responsibility it is to interface with investors (to whom they have a fiduciary responsibility), business partners, and regulators who may just as easily be in Asia or the EU as in the U.S. For general counsel to be credible in that role, their reference points will have to extend beyond the U.S. markets, U.S. regulators, and U.S. courts; certainly, a pan-national CEO will have no reluctance expecting the same global perspective from her legal chief. This new breed of global general counsel will possess a multicultural perspective often forged by living and working in several countries, achieving fluency in languages in addition to English, and compiling hands-on experience with regulators in the European Union and in Asia. In their career trajectories, these general counsel may have, for example, represented corporate intellectual property concerns in Asia before taking an appointment in the E.U. Directorate General for Competition. Thus, globalization is rewriting the requirements for general counsel in the same way that SOX did, and as the M&A boom did before that.

Evidence of this evolution is already evident on an anecdotal basis, if not statistically. For example, in the wake of the EU’s punitive action, Microsoft appointed Maltese-born and -educated John Vassallo to the newly created position of Vice President, EU Affairs, reporting to Microsoft’s General Counsel.⁶ Vassallo has a wealth of ambassadorial and legal experience in European affairs. Many other Fortune 500 corporations, including JPMorgan, Google, and Lehman Brothers, are creating or markedly expanding regional general counsel offices to provide more in-depth coverage to Europe, Africa, the Middle East, and the Asia/Pacific region. Others with legal offices outside the United States have appointed counsel native to that country to head the office, sometimes replacing American lawyers. More broadly, boards and CEOs looking to fill general counsel positions are asking for candidates who not only have the traditional regulatory agency experience, but significant international experience as well—even if the company currently conducts little overseas business. And although senior counsel with that mix of experience may be in short supply, the talent pipeline at work two and three levels down from the top is filling up with lawyers who represent a wide range of global education and training. In the meantime, the impetus toward diversity in hiring legal officers will only accelerate; someone who hails from a different culture is that much closer to being able think beyond the perspective of the home country.

Some of the “must-haves” for general counsel in the new global paradigm include the following: 

• Working knowledge of differences in laws and regulations across countries;
• Working knowledge of “hot buttons” where local business custom and the extraterritorial reach of U.S. law may clash (e.g., “know your customer” rules in anti-money-laundering programs, gift-giving and perks relative to extra-territorial reach of U.S. laws under the FCPA);
• Personal knowledge of non-U.S. regulators;
• A multicultural perspective;
• Experience living and working in countries other than the United States;
• Multi-lingual fluency; and
• Exceptional communication skills, particularly with non-native English speakers.

This new constellation of “must-haves” should make diverse candidates even more attractive to Fortune 500 companies. Diversity translates into a competitive and economic advantage when doing business in the non-U.S.-centric global marketplace.

At the same time, those core traits and competencies that distinguish an effective global general counsel remain unchanging. These include:

• Unimpeachable ethics and integrity;
• The ability to act as a trusted advisor to the CEO and the company’s Board of Directors;
• Courage, confidence, and independent judgment;
• The ability to lead and manage the in-house legal and compliance function; and
• Credibility with stakeholders, regulators, and business partners.

Thus, the role of an effective general counsel will continue to evolve and realign itself to the shifting paradigm of geopolitical power and the strategic priorities of CEOs. The critical question for individual enterprises and their leadership teams is, “How will you respond?” Forward-thinking companies will identify opportunity in the midst of change, and thus take steps now that will: assess the impact of globalization on their legal, compliance, and risk functions; realign the function’s structure as necessary; and ensure that their legal, regulatory, and compliance executives possess the diverse set of competencies, backgrounds, cultural awareness, and experiences necessary to succeed in today’s global marketplace.    DB

Notes

1. Bruce Stokes, “U.S. Economic Hegemony Ebbs,” National Journal, January 26, 2008, p.37.
2. Committee on Capital Markets Regulation, The Competitive Position of the U.S. Public Equity Market, December 4,  2007, p. 20, available online at www.capmktsareg.org/pdfs/The_Competitive_?Position_of_the_US_Public_Equity_Market.pdf.
3. Id. at p.21.
4. Kevin Sullivan, “EU Slaps Third Fine on Microsoft,” Washington Post Foreign Service, February 28, 2008, p. D1. 
5. Louise Story, “Seeking Leaders, U.S. Companies Think Globally,” N.Y. Times, December 12, 2007, p. A1.
6. See Microsoft Appoints John Vassallo to Newly Created Position Vice President, EU Affairs, May 31, 2008, available online at www.webwire.com/ViewPressRel.asp?aId=66813.

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June Eichbaum is a Managing Director of Russell Reynolds Associates, where she specializes in assignments for general counsel and chief compliance officers, among others. For more about June’s practice, please see last issue’s cover story, “The Lawyer’s Road to Corporate Royalty.”

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From the July/August 2008 issue of Diversity & The Bar^®