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In-House Legal Function Survey 2014

2 PwC Luxembourg

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In-House Legal Function Survey 2014 3

Contents

Foreword 4

Introduction 5

Day-to-day management of legal risks within the Respondents’ organisation 6

Organisation of the in-house legal department of the respondents’ organisation 7

Position of the in-house legal department of the respondents’ organisation 8

Cost of the legal function within the respondents’ organisation 8

Legal risks management priorities 9

Conclusion 10

Contacts 11

Foreword

The In-house Legal Function must efficiently and consistently build new models and approaches to address, manage and mitigate the legal risks while helping achieve business goals. Yet, in the face of the current harsh economic climate, globalisation, mergers, governance requirements and business, the In-house Legal Function may not be properly seen, used and led. So to fulfil its objective, the In-house Legal Function needs to be strategically aligned with the business challenges.

The role of the In-house Legal Function has become blurred on the back of pressure and overloaded. As a result, the In-house Legal Function does typically not always have the time to reflect on its role and step back from its activities and chart the adequate way to deliver within its environment. That’s why, for the third year in a row, we conducted a survey about the In-house Legal Function in Luxembourg to provide insights into how players from the local market manage their in-house legal function and to spot their key challenges in that field of their activities.

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In-House Legal Function Survey 2012 5

Introduction

This survey is representative of the Luxembourg corporate environment. That’s why financial service companies feature among the respondents, which include banks and other financial sectors (e.g. asset management companies, investment funds and insurance providers) as well as non-financial organisations (e.g. industries, services and public sector).

In both local and international companies, the In-house Legal Function is not perceived as an inflexible guardian any longer. Instead, it is expected to evolve to a

valuable business adviser entailing proactive and efficient strategic decision support.

To illustrate the variety of approaches and help you assess your own situation in the light of the other companies, we present, when relevant, the responses with respect to the size of the respondents’ organisations.

Some parts of this survey will evidence statistics constancy over the years. While those figures remain average, aiming at

giving an overview of the Luxembourg trends, it would be misleading to focus on and consider them as targets to reach. The management of legal risk indeed consists in a case by case basis approach that closely depends on the specific potential legal risk exposure of an organisation, its business culture and strategic choices.

We conducted this survey from 15 June to 11 July 2014 to a contacted panel of 151 individuals, mainly general counsels and company secretaries.

> 501

47%

5%

16%32%

51 ≤ 150

151 ≤ 500

≤ 50

If 74% of the respondents belong to an organisation with turnover reaching over 25m euros a year, their respective headcounts vary:

Other financial sectors (Insurance/Asset Management/

Investment Funds)

Services

Public Sector

BankingIndustry

42%

5%

5%

16%32%

Here are the respective sectors of activity of the respondents’ organisation

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Day-to-day management of legal risks within the Respondents’ organisation

The survey shows that the respondents’ in-house legal function requires multidisciplinary experts that have to deal with a broad range of topics. Here are issues topping the list:

• Contractual issues, • Compliance, • Governance and international matters.

Real estate and public issues stand at the bottom of the list.

We also learn from the survey that litigation (no surprising), merger and acquisition, cross border issues and labour law are traditionally outsourced to an external adviser (even if the in-house legal function seems remaining the

leader) although real estate, intellectual property rights, governance, compliance and contractual issues are mainly treated internally.

Contractual issues

Regulatory/Compliance

Corporate/Governance

Cross borders issues

Labor law

Litigation

Merger and Acquisition

Insurance

Intellectual property rights

Real Estate/Insurance

Public issues

0% 20% 40% 60% 80% 100%

Covered % of insourced

Covered% of outsourced

Not covered

Do you usually outsource totally or partially the legal issues to an external adviser?

69

67

92

50

95

74

87

69

86

85

86 14

5

11

42

47

52

53

63

63

84

90

15

14

31

26

50

33

13

5

31

8

In-House Legal Function Survey 2012 7

Organisation of the in-house legal department of the respondents’ organisation

Most of the respondents are confident in the fact that their in-house legal department is fully aware of the legal issues in relation to their business. But, according to the survey, we realise that 21% of the respondents do not have an exhaustive overview of the legal issues. The same amount of respondents has no organised process to address the legal issues to which their organisation has to face.

Even thought we can reasonably assume that some legal issues may be fixed by colleagues or be acceptable for the business to risk; more than 50% of the respondents have no dedicated tool to organise the day-to-day work of their in-house legal department.

We even notice that this lack of tool remains important whatever the in-house legal department’s workload.

Has your in-house legal department an exhaustive overview of the legal issues addressed?

21%

Exhaustive overview

79%

Partial view

Do you have specific tools to manage legal issues?

47%Yes

53%No

we have implemented dedicated tools by ourselves

PwC’s viewThe challenge of the in-house legal function is clearly to have a complete awareness of the legal risks of his/her organisation in order to determine (implement and control as well) the good balance between the effective mitigation of the legal risks and the involvement of all shareholders that may deal with, or be impacted by, legal issues. This balance must not be assumed.

No tool

Existing tool

0% 20% 40% 60% 80% 100%

> 501

101 ≤ 500

≤ 100

33 67

45 55

80 20

Number of contracts/year

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Position of the in-house legal department of the respondents’ organisation

Cost of the legal function within the respondents’ organisation

While the in-house legal function may variously be able to play his/her role depending on his/her reporting line, the survey shows clearly that the in-house legal function tends to become a

distinctive employee within the respondents’ organisation and is then intended to have a proper vision of the strategy of his/her organisation.

Usually, the higher is the turnover of an organisation; the higher is the average weight of the legal risk management cost. However, there is no standard situations within the same category of turnover as

the incurred cost are closely linked to specific potential legal risk exposure of an organisation, its business culture and strategic choices.

42%

42%

16%

Yes, of a management committee

Yes, of the executive committee

No

Does a member (general counsel) of your in-house legal department is member of a leadershop committee of your company?

The executive board of your company

The CFO of your company

The General Secretary

The general counsel of a parent company

42%

16%

21%

21%

To whom does your in-house legal department currently report to?

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Internal legal management costs External legal management costs

40%

60%

50%

29%

21%

20%

40%

40%

7%7%

86%

> 250.001 �100.001 ≤ 250.000 �≤ 100.000 �

PwC’s view The in-house legal function is expected from business to bring value added instead being a cost centre; internal cost rationalisation and optimal balance between internal and external cost will certainly help evidencing it in an objective manner.

≤ 25.000.000 ≤ 25.000.000> 25.000.001 > 25.000.001Turnover Turnover

In-House Legal Function Survey 2012 9

Legal risks management priorities

According to the respondents’ answers, the in-house legal function is now mostly considered as a valuable business adviser. He/She must be professional, efficient and available but is not supposed to leave from his/her supportive role. The mission of the in-house legal function is not to take any decision or to impose rules but to give solution minded professional advice to help making legal decisions.

The expectations concerning the in-house legal function are tremendous as the in-house legal function must be innovative and prepared to the forthcoming challenges...

... and to meet the markets players’ expectations.

In your opinion, what will be the ‘regulatory/legal’ challenges that may impact your legal risk exposure within the next two years ?

In your opinion, what should your in-house legal function change over the next two years, compared to today?

Perception of the in-house legal function

0% 10% 20% 30% 40% 50% 60%

Valuable support of the business

Leader/main partner of the business

Cost center

Business prevention department

59%

24%

10%

7%

Risk of change of regulatory/legal environment or increase in the number of rules

Increase of potential litigation

More difficult contractual negotiations with clients

Change of the size of your organisation

Globalisation

Spreading of potential legal risks out of the core business of your organisation (multiplicity of staff faced to legal risks at any level of your organisation)

Discrepancy between the in-house legal department expertise and the business needs and evolution

Increase of the costs dedicated to the legal risks covering

0% 5% 10% 15% 20% 25% 30% 35%

9%9%

11%12%

16%31%

7%5%

14%

16%16%

18%

23%Be closely involved in the strategic decisions of your organisation

Improve its value adding to the business (more solution minded and business acumen)

Act proactively in the mitigation of the legal risksEfficiently coordinate and control the management of the overall legal risks within your

organisationWiden the range of its expertise/scope

Be more reactive and available to the business/clients

Reduce or optimise its costs

N/A

0% 5% 10% 15% 20% 25%

7%4%

2%

Main expectations

0% 5% 10% 15% 20% 25% 30% 35%

Solution minded and business acumen

Effective mitigation of legal risks

Reactivity and availability

Strict authority

Cost efficiency

33%

27%

32%

4%

4%

PwC’s view In the current context, we might assume that the in-house legal function would have considered its financial efficiency with care, but we are surprised to realise that the respondents aren’t seem concerned with cost and the forthcoming challenges consisting in doing more with less.

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ConclusionThe traditional notion of a lawyer has gone... the in-house legal function is now expected to become an innovative business-focused role with deep management skills.

Are lawyers prepared to be so integrated into the business and to seize the opportunity of their cross-business position to be seen as valuable and cost efficient as any other organisation’ team players?

In-House Legal Function Survey 2012 11

Contacts

Cédric Nédélec

ILFE leadercedric.nedelec@lu.pwc.com+352 49 49 48 2186

Christian Scharff

Partnerchristian.scharff@lu.pwc.com +352 49 49 48 2051

© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC Luxembourg” refers to PricewaterhouseCoopers, Société coopérative (Luxembourg) which is a member firm of PricewaterhouseCoopers International Limited (“PwC IL”), each member firm of which is a separate and independent legal entity. PwC IL cannot be held liable in any way for the acts or omissions of its member firms.

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