Common functions of the legal team - corporate functions

In this second of three articles, we consider how the legal team can support other corporate functions of the organisation. We look at your relationship with departments that serve internal clients as opposed to the organisation’s customers and suppliers.

As well as looking at what other corporate departments do, we highlight the ways your team may interact with, and support, these departments.

This should help you build a picture of the type and range of work undertaken by a typical legal team.

The legal team and other corporate services providers

In larger organisations, the legal team will often be part of a corporate services division, perhaps headed by the General Counsel or a Corporate Services Director. The legal team will work closely with other corporate services functions to support the organisation’s customer facing and back office activities. Let’s look at some of those activities.

Company secretariat

Private companies don’t have to have a Company Secretary unless their constitution requires it. Public limited companies (PLCs) must have one and many larger private companies choose to.

Large organisations with complex structures often have a company secretarial department made up of qualified company secretaries and administration staff. They deal with compliance with company law, listing rules, shareholder agreements, regulatory requirements and service the boards and committees that form part of the organisation's governance structure, so that the company/group can run compliantly. This ensures that the corporate entity is formed and exists compliantly so that it is then able carry out it's business.

The Company Secretary is also the advisor to the directors on their personal duties and obligations at law and under the company's governance documents.

The General Counsel's role is normally as the advisor to the company, through the medium of the company's directors and managers, on the duties and obligations at law in its trading and/or other activities.

So, on our Company Ecosystem diagram, the top side of the diagram and all of the internal workings from the top level down to the management layer are normally largely the Company Secretary's domain; and the other three sides of the Ecosystem and the management levels down are largely the General Counsel's domain.

In some organisations, the General Counsel is also the Company Secretary. In others, particularly larger companies, the role is split. In the latter case, because the Company Secretary handles governance and compliance matters, they often work closely with the General Counsel and legal teams to advise on:

  • Laws governing share dealings, shareholders, directors, and mergers and acquisitions;
  • Compliance with regulatory requirements for reporting, audits, and meeting governance codes such as the Corporate Governance Code;
  • Induction and evaluation training for board and committee members, including in relation to decision-making, conflicts and diversity;
  • The structure, constitution and powers of the organisation; and
  • Compliance requirements relating to matters such as modern slavery, anti-bribery legislation and listing rules.

If the General Counsel is also the company secretary, they’ll also be involved in ensuring the organisation complies with its filing and registration requirements. Other duties include taking care of the administrative requirements of boards and committees, such as agendas, papers and minutes, and board actions.

Corporate communications

This function has become increasingly influential in many organisations. Also known as public relations (PR) or public affairs, it often also deals with the organisation’s dealings with government. The Financial Times newspaper defines corporate communications (CC) as being dedicated to the dissemination of information to key constituencies, the execution of corporate strategy and the development of messages for people inside and outside the organisation.

Today, managing the tone and consistency of communications across multiple internal and external channels is vital in all organisations. A busy CC team will deal with:

  • Media relations;
  • Reputation management;
  • Corporate social responsibility and sustainability;
  • Crisis communications;
  • Government and regulator liaison; and
  • Internal communications.

In all these areas, CC will work closely with other departments, including the legal team. For example, they’ll handle media enquiries about any litigation involving the organisation or negative media coverage. In sensitive areas, CC will liaise closely with the legal team to clarify the facts, understand what they legally can say and adopt a company position.

When dealing with CC, explain the legal issues clearly and succinctly and set out what the risks are. Ideally work with them regularly so that you can learn how to write legally "safe" content in CC language. Crafting messages for external and internal audiences is a key aspect of reputation management, so it pays to understand how CC works and the pressures the team is under to release information and respond to enquiries. Remember, your CC colleagues will often want to cooperate with the media and release more, rather than less, information. Consequently, you need to be clear where your red lines are and, in particular, where you must advise against releasing information.

It is important to do this with a clear understanding of the company's overall risk appetite and messaging competencies. A number of recent business crises have shown that a more empathetic and legally "exposed" messaging strategy in a crisis has actually done less overall harm to the business than an approach that has, in purely legal terms, been more protective of it.

If the media have access to sensitive or confidential information, you’ll want to know if it was protected. Do your staff and contractor agreements make clear what is confidential and place appropriate and practical constraints on disclosure, other than where legally permissible?

You'll also need a process for dealing with particular types of enquiry from CC, including those subject to the Freedom of Information Act, data protection legislation and information gateways.

Finance, tax and treasury

The finance department deals with all aspects of the organisation’s financial affairs and is involved in the budgetary and reporting cycles. If you manage your departmental budget, you'll need to understand these cycles to ensure your plans are factored in and costed.

You’ll also need to know how other departments’ plans and objectives may affect their legal needs and factor these in, too.

Finance also reports on the organisation’s financial performance, often in the form of dashboards and traffic light reports. Ensure the data you collect and report fits your organisation’s format.

If you have some control over what you report, focus on value rather than just cost and activity. In particular, how the legal team has helped protect the organisation's assets and reputation and how innovations you have introduced have resulted in greater efficiencies.

Understand how finance use numbers and terms - materiality, percentage chance etc. - as they will probably not use them the same way that you do from a legal perspective. This gives rise to scope for confusion, especially when dealing with high impact activities like reporting accounting reserves against litigation outcomes in the audited accounts.

Tax and treasury

Tax law is complex and subject to change. You may not have to advise on tax law, yet you'll need to be aware of how changes may affect your organisation’s trading relationships, its T&Cs and relationships with employees and contractors.

In particular, aim to ensure tax advice in your organisation:

  • Gets implemented properly and is sustainable across business practices including showing adequate local decision making and control in subsidiary entities);
  • Is implemented properly in intra group as well as external facing contracts;
  • Is consistent with the way that your intra group contracts, IP licences, group external contracting parties, etc are actually written;
  • Is sustainable in a Brexit and anti-avoidance environment; and
  • Can be unwound in a clear, certain and cost effective way if the law changes.

The treasury function manages the organisation’s financial relationship with shareholders, lenders, regulators and the tax authorities. It’s also concerned with the organisation’s banking arrangements, liquidity and investment strategy.

Treasury teams often operate these arrangements under complex contracts with banks and other lenders, which can impose requirements on group companies to act/ not act, contract externally/ not contract externally etc. It is important to ensure that such commitments are properly understood, are not entered into unless they can be done compliantly. For example, not sweeping company funds into a group savings account to collect interest from a joint venture company where the JV agreement does not permit this. Then, once the agreement has been entered into; that the terms of that agreement and of the related restrictions on other business activity are actually followed in practice - especially where you group is tax planned carefully and/or has subsidiaries in many jurisdictions.

Common Treasury tactics which can create major challenges include:

  • Cash pooling for interest: see above;
  • Taking a charge over bank accounts and other assets (with resulting restrictions on what can be done with those accounts/assets) in order to secure borrowing rights from lenders which may be used to buy assets, buy back shares or go on an acquisition spree;
  • Debt factoring: selling company debts to a third party at a discount in order to get earlier payment of that debt from the third party;
  • Debt placement/collection: selling the right to collect debts to a third party in return for that third party being able to keep a share of the debt - the proportion of which increases the less likely it is that the debt will be collected;
  • Extending payment terms to suppliers and/or delaying the entitlement to initiate and invoice, to delaying when payment has to be made. The former is sometimes in breach of local laws on payment terms and/or run the risk of bankrupting some suppliers whereas the latter often runs contrary to other parts of finance's desire to own the asset sooner - particularly if it is about to be resold to someone else - which you cannot do until you own the asset!

In a bank or other financial services organisation, legal teams often advise their treasury colleagues in relation to financial instruments and changes in regulation and the legislative landscape. In a business dealing with specialist financial markets and instruments, the legal team will seek to establish standard and non-standard terms of business, together with risk tolerance around standard and bespoke services.

As the financial services sector is heavily regulated, legal teams are closely involved in compliance and monitoring functions, including in different jurisdictions, where relevant. So, as well as understanding the principles, rules and policies of regulators such as the FCA, the PRA and the FRC, you may also advise on the legislative and regulatory framework affecting your organisation in other countries. For example, if your business is subject to US regulation, you'll need to be up to speed on the Dodd-Frank Act and Sarbanes–Oxley.

Your role in a regulated business will also involve working with compliance colleagues regarding compliance programmes, risk modelling, stress testing and training.

Human resources

HR plays an increasingly strategic role in organisations as they respond to globalisation, employee expectations, technological disruption and political and legislative change as well as the increased cost, complexity and complications related to effective compliance in their areas of operations.

The scope of work HR departments now undertake has increased the need for expert legal advice on many issues. Examples include:

  • Business expansions, contractions or relocations and the attendant workforce issues, whether under TUPE (Transfer of Undertakings (Protection of Employment)) consultations and bargaining rights or changes to T&Cs and severance terms. These issues may arise in a national or international context;
  • Recruitment checks, movement of labour rules and visas (especially in a Brexit era) and taxation and reward strategies;
  • Use of social media by the organisation and its staff, which require user and privacy policies;
  • Flexible working, both in the context of working "health and safety" outside the office; and in relation to different types of engagement, such as employment and contracting. This is a particular concern given the recent Pimlico Plumbers case and other so-called "GIG Economy" and "self-employed contractor as de facto employee" cases which have substantial and unclear historic obligations associated with them - such as calculating backdated pension contribution obligations;
  • Employment contracts, handbooks, disciplinary manuals and employment policies generally;
  • Internal investigations;
  • Equal Pay Act reporting, Modern Slavery checks, National Minimum Wage, Workplace Pensions and other recent important and high reputational profile compliance and reporting obligations around employees;
  • Dealings with external counsel, employment tribunal cases and subsequent training and guidance on lessons learned;
  • Hiring and firing issues, together with redundancy procedures and severance terms; and
  • Equality, diversity and gender balance policies and requirements with the growing focus on mental health and transgender in the workplace.

IT

Policies regarding IT are another important part of the legal team’s work, with wide-ranging responsibilities that include understanding the technology and the supplier business model as well as the law in order to advise on:

  • NDAs, software development agreements, outsourcing agreements, software licenses, cloud services, SaaS agreements, telecommunications services agreements and SLAs;
  • Intellectual property rights;
  • Legal status, issues, risks and contracting needs around new Internet of Things services and advertising;
  • Data protection and data security policies and procedures;
  • How and which systems to search for a claim, a regulatory investigation, a data subject data access request, or a dawn raid;
  • Issues arising out of software license audits;
  • Disputes with suppliers, interruption of supplies or supplier insolvency; and
  • Risk allocation, liability allocation and responses to cyber breaches and data breach notifications.

These are particularly important when you’re commissioning or adapting software services, as this raises issues around data privacy compliance and ownership of software code integrated into your organisation’s software. In these circumstances you should also understand what Penetration Testing is and what a "zero day vulnerability" is.

Property and facilities and health and safety

Your organisation’s estates and facilities management department will rely on you for legal advice across a wide range of property-related issues. Increasing numbers of these areas carry large fines and criminal liability for organisations and managers and directors personally. The critical areas are:

  • Leases, licenses and wayleaves;
  • Utility service contracts, facilities management and outsourcing agreements;
  • The development of a property database recording notice periods, renewal dates and term end dates;
  • Disputes and notices to quit;
  • Construction contracts and agreements with external advisors;
  • Premises and occupier liability, health and safety training and compliance assessments - especially when there are a high proportion of outsourcers, consulting/contracting staff and short term staff in the "onsite personnel mix"; and
  • Insurance.

Conclusion

All organisations have a range of corporate functions and the legal team will be heavily involved in advising them on a wide range of issues. The better you understand their work, their pressures and their need for consistent, timely legal advice, the more you'll be seen as a key business partner.

To read the next article in this series titled 'Common Functions of the Legal Team - Customer and Supplier Facing Functions' click here.


Please see Nick On's comments below:

A strong in-house legal team will have a company-wide remit and a need to forge strong links with virtually every other department and function in the organisation.  This article makes that clear and indicates some of the key functions that the legal team will need to understand and support in any organisation.  The article also gives an excellent indication of the range of knowledge and skills required in the in-house function, especially if it is to give proactive support across the business.   For me this is what makes the in-house role so interesting and challenging, although it can also be a lonely place!  Corporate Communications teams are ever more important and the article gives an excellent summary of the things in this area a good in-house counsel will need to embrace to form an effective partnership with the comms team.
CLL Typical Company Ecosystem (PDF 27 KB)
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