Adapting to Change: How Legal Departments Evolve With the Businesses They Serve, a CCCA Keynote

CCCA logoI hope you don’t mind as I continue gradually to post notes from the CCCA National Spring Conference earlier this week. We now jump ahead to yesterday’s closing keynote.

These are notes from a panel discussion by Joe Bradford, Vice-President, Joint Venture and Legal, CNOOC Canada Inc., Riccardo Trecroce, Vice President and General Counsel, North America, Magna International, Inc., and moderator Gary Graham, Partner, Gowlings, Hamilton on April 16, 2013 at the Canadian Corporate Counsel Association National Spring Conference 2013 in Toronto. Note: these are my selected notes from this session; any inaccuracies or omissions are my own and not the speakers’.

The speakers also pointed out that opinions expressed are their own, and do not represent those of their companies.

Graham (moderator):

To set the stage for this talk, describe the last 3 to 5 years in your company as your CEO might describe it.

Bradford:

In Calgary, things were challenging in the oil sands industry since 2008. Projects had a big cost and big ramp-up time. At OPTI Canada, they had invested billions of dollars in a project with no revenue because it was a one-project company. Markets were closing down in 2008 and their financing was based on debt. They therefore determined they needed to reach out for capital to fund their Long Lake oilsands project, but strategic partners were just not there.

They ended up selling 15% of the company to partner Nexen Inc. They went from over 500 people to 40, letting over 300 people go. Most were operational staff, and they secured most of them with jobs with their partner. There was, however, a significant change in the culture. Hundreds of contracts were transferred to Nexen.

“Leadership comes out at the worst time.” They worked to keep the morale going with the staff who were still there.

They had $750 million in the bank, and thought they had enough to proceed; however, later they sought an additional $800 million in debt. They were still not where they needed to be since the project was more expensive and complex than they had thought. They hired investment bankers to achieve strategic financing. To get financing, you are essentially selling yourself, your company, your projects and your people.

They ended up with a CCAA filing. They were negotiating with CNOOC, a Chinese company, at the same time as he was in court over the CCAA proceedings. And through all this, they still needed to keep the project going with their joint venture partner. They ended up selling themselves to CNOOC, a well-financed company that now actually owns Nexen as well.

Trecroce:

He joined auto parts manufacturer Magna in 2008, financially turbulent times. They had crisis meetings every day, not knowing what was going to happen with General Motors and Chrysler. They were surprised when Canadian and U.S. governments stepped in to support them. This inverted the whole order, where suppliers were now paid first and secured debtors took the financial hit.

They are now seeing a lot of “great growth” in the automotive industry. Once Frank Stronach sold control and exited the company, it became a true public company with a more simplifed governance structure. They could set themselves up with a more traditional corporate structure, such as having just one CEO. This was a sea-change for them, and they are now seeing growth in the company.

He is now directing people far away. They have sought to create local regional offices with legal staff in Mexico, India, São Paulo (Brazil) and China. This created a nucleus, and they now also have treasury, finance and corporate people in these regions.

He gives priority to the staff working in these regions to ensure they are a full part of the team. He sees them as “embassadors”, both representing the legal department in those countries, and also giving feedback to him as to what does and doesn’t work locally.

Graham (moderator):

How do you deal with legal compliance across such large organizations?

Trecroce:

Legal compliance has been a focal point for their efforts. He found anti-competitive behaviour in the auto parts sector in some countries. They are now pushing for legal compliance in these areas. They hired a legal compliance officer, do training “at every possible level” right down to the divisional area, and have created guidelines.

Graham (moderator, to Bradford):

As part of a large organization, do you need to respond to large compliance programs, or do you initiate them?

Bradford:

He is on the “opposite end” of the organizaton as Trecroce. OPTI Canada was previously listed on the TSX, but once sold, reports to the head of legal in Beijing. The cultural change was significant. He became Vice President of Joint Ventures and Legal, with operations and legal tied more closely together. He had been used to business and legal working together.

He was pleasantly surprised with the breadth of delegation. They were interested in how we do business in Canada.

They are also now listed on the New York Stock Exchange, so compliance is very important to CNOOC. It is more significant than he had expected.

He also learned that China is very sophisticated in how they run their companies.

Graham (moderator):

What value do you add in making commercial decisions?

Bradford:

He’s not a fan of the “bright-line” theory. There needs to be a combined decision-making effort between engineers, legal, operations and finance. Good legal advice means they are not “seduced” into a bad deal.

Good, strong legal advice also means good, strong commercial business. You have to have confidence in the people that they will speak up when something is not legally sound.

Trecroce:

Legal people are expected to find solutions, not expected to just stop at legal, and work with operations; however, he believes there is a line beyond which legal should not go. “There is a point in time where the business person has to make the call.”

Bradford:

The person in command has to be the ultimate decision-maker.

Graham (moderator):

Is there more pressure on this decision-making line?

Trecroce:

He does not have an issue with “getting into the muck” (i.e. making decisions), but younger colleagues see that as too much pressure.

Graham (moderator):

Working with different time zones and mobile devices, how do you adapt or cope with around the clock messaging and communication?

Bradford:

There are no rules. He is a “huge fan” of appropriately delegating work, but warns that you have to delegate the decision-making power along with it. If you can’t delegate, you can’t pass power along. If you can’t delegate and pass power along, you can’t be General Counsel. Some people cannot take this on.

You have to trust people and delegate. Some of the people you delegate to are going to make mistakes, and you have to take this responsibility on.

Trecroce:

Mobile devices are “a wonderful machine”. You have to rely on people on the ground to make good decisions and understand their local situations.

Bradford:

As General Counsel, for some issues, you have to physically be there so that your presence helps your team.

Graham (moderator):

What about compensation?

Trecroce:

Magna has a unique compensation structure. Frank Stronach introduced compensation linked to profitabilty of the business unit. Most of the lawyers are not on this plan, however. He feels profitability should not drive ethical decisions of the lawyer.

In China, one cannot compensate anyone with shares or options without the approval of two levels of government, so there is a cultural divide within the company.

Bradford:

Calgary culture is unique; it is a sophisticated marked. They have had zero staff turn-over since the acquisition. You have to listen to the people. If you don’t listen to them, you will lose them.

Graham (moderator):

What is the next big thing?

Trecroce:

Internationalization is growing. It is a great time when Canadian companies can be a part of it.

Bradford:

We are on the cusp of great opportunities for Canadian companies. He is very impressed with Canadians, especially lawyers and engineers. In other jurisdictions lawyers are often seen as just technicians. Canadians are about to “break out.”

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