The Shrinking World
Research report: how European in-house counsel
are managing multinational disputes
Spring 2008
abc
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"The biggest challenge is the lack of knowledge of
international law."
In-house Counsel
"There are many lawyers that have no knowledge of
multinational disputes."
In-house Counsel
1Lovells | The Shrinking World
Key findings
* More companies have seen an increase in disputes than a decrease over the past three years.
Around a third (38%) of respondents say the number of disputes has increased compared with less
than a sixth (14%) who say that the number of disputes has decreased in the same period
* Although the number of regulatory or compliance type disputes is small (only 3% over the past three
years), they are viewed as the second highest area of risk, with 45% of respondents rating them as
medium to high risk
* Just under a quarter (22%) of respondents have either been threatened with or on the receiving end
of a class action
* Nearly a third of respondents (31%) feel there has been a trend towards more multinational disputes
in the past three years
* Lack of experience (32%) and lack of information regarding the relevant law and procedures (26%)
are the two most significant factors cited by in-house lawyers when it comes to the challenges of
managing multinational disputes
* The US (29%), China (16%) and Russia (16%) are the top three countries in-house lawyers are the
most concerned about when it comes to managing a multinational dispute
* The top considerations when deciding whether to contest or settle a dispute are, in order: impact
on reputation; financial cost of losing; and impact on relationships/customers.
Commentary
The upward trend in disputes seen by European companies is taking place notwithstanding a generally
strong economy and transactions market over the last three years. This seems to be driven by two forces,
the first economic and the second regulatory.
Past experience of economic downturns shows that litigation generally increases when the economy
turns sour and there is evidence to show a recent increase in the number of financial class actions in
the United States. On the regulatory side, the European Commission and national regulators have
prioritised increasing consumers' awareness of their rights and have introduced procedures to support
them. The development of a series of measures around antitrust enforcement actions and class
actions by European member states clearly reflects this.
Companies experience the majority of their disputes with customers, suppliers and employees.
However, they tend not to be the disputes that keep them awake at night. It is disputes with regulators
that stand out as an emerging area of concern. Disputes with regulators tend to be infrequent in nature
but create potentially catastrophic results for the entire company. The damage that can accrue can
result in significant damage to reputation, share price and ability to trade, as well as significant civil
and criminal penalties for the company and directors alike.
In-house lawyers generally feel ill-prepared to handle the difficulties that multinational disputes create,
citing as their major concerns a lack of experience and of information regarding the law and procedures
involved. Particular types of disputes lend themselves more readily to multinational conflict and they
tend to be the ones most likely to attract significant publicity; for example: product recalls, disputes
with regulators, class actions, patent and other intellectual property disputes. Whether the company is
a claimant or defendant it needs to be in a position to manage the strategic as well as tactical aspects
Overview
of a dispute. Understanding the best jurisdiction in which to resolve a dispute, as well as knowledge of
the detail of the procedures involved, are of extreme importance. Finding external counsel who have
that experience and capability is often a challenge.
Not all jurisdictions are viewed equally. Among European in-house counsel our research highlights
significant concerns regarding disputes in the US, China and Russia. In the case of the US, experience
shows that the complex relationship between state and federal courts, legal costs, the time involved,
the extreme and demanding discovery process, the inability to recover costs even if one is successful
and the potential for punitive damages awards creates concerns over the way in which a dispute will
proceed. In China and Russia, issues regarding the processes involved and their lack of predictability
are areas of significant concern. Barely one in five of research respondents with operations in China
was confident they could manage a major dispute in that country.
It is against this background that there is a noticeable increase in the use of alternatives to litigation
such as arbitration and mediation. The success of mechanisms that help keep disputes out of the
courts from the very beginning is a lesson from the construction and projects industries that others
may be keen to learn.
In conclusion, the range and risk of multinational disputes for European companies seems set to rise.
The stakes involved in terms of reputation and cost also appear to be increasing and in-house
lawyers face a number of serious challenges in managing complex, multinational disputes in a rapidly
shrinking world.
"Communication with foreign legal practitioners
is always a challenge."
In-house Counsel
Lovells | The Shrinking World2
Survey findings 4
Background 4
The rising risks facing business 4
A class of their own 10
The trends and pressures facing companies in international disputes 13
Taking steps to manage and settle disputes 19
Reporting disputes to the board 23
About the survey 25
Contacts 26
Throughout this report are selected quotes from in-house lawyers who took part in our five country
survey. Their words illustrate the issues faced in managing the complexities of international disputes
and how they view their role.
Contents
3Lovells | The Shrinking World
Lovells | The Shrinking World4
Survey findings
Background
The Lovells 2007/8 survey of in-house lawyers is an independent survey
conducted among 180 lawyers in France, Germany, Italy, the Netherlands and
the United Kingdom.
The survey provides objective insight into some of the trends emerging around
the management and conduct of multinational disputes; the types of disputes
companies have to manage and some of the factors to be taken into account
when conducting and managing a dispute.
All of the participants are employed by some of Europe's largest multinational
companies. They are heavily involved in the management of disputes.
The rising risks facing business
The survey findings show
* More companies have seen an increase in disputes than a decrease over the
past three years. More than a third (38%) of respondents say that the number
of disputes has increased compared with fewer than a sixth (14%) saying that
the number of disputes has decreased in the same period
* In the UK and Italy, half or more of the respondents feel that the number of
disputes in which their company has been involved has increased
* In the banking, insurance and reinsurance industries, more than 45% of
respondents say that the number of disputes in which their company has been
involved has increased
ˇ Litigation and dispute management accounts for a significant proportion of
in-house lawyers' time (26%) compared with general commercial advice (22%)
and strategic advice to the company's management (13%) (Figure 1)
* The amount of time spent managing litigation and disputes is highest in Italy
(46%) and lowest in Germany (18%) and the Netherlands (13%)
* Across the different industry sectors surveyed, banking and insurance and
reinsurance tend to spend the greatest amount of time on managing disputes
at 33% and 30% respectively
* Customers are the main source of disputes for companies, representing
45% of disputes over the past three years, followed by employees (14%) and
suppliers (9%)
5Lovells | The Shrinking World
More companies have seen an increase in disputes
than a decrease over the past three years.
Mergers,
acquisitions
and disposals
Risk
management
Regulatory and
compliance advice
Strategic
advice to your
company's
management
General
commercial
legal advice
Litigation
and dispute
management
8%
9%
12%
13%
22%
26%
%
Figure 1: Litigation and dispute management take a significant proportion
of time
As a percentage, how much of the legal function's time is spent on advice in the following areas?
Base: All respondents (180).
Lovells | The Shrinking World6
Shareholderlitigation
M&Adisputes
Classorgroupactions
Environmental
Tax
Bankingandfinancial
instrumentsdisputes
Intellectualproperty
Antitrust/competition
Productliability
Employment
Regulatory/compliance
Commercial/contractual
7%
17%
14%
18%
24%
21% 21%
26% 25%
31%
34%
47%
2%
3% 7%
8%
5%
11% 11%
9%
14%
13% 11%
28%
Medium
High
Figure 2: Regulatory or compliance disputes carry significant risk compared
to their frequency
Please rate the risk posed to your company by the following types of disputes over the next three years.
Base: All respondents (180).
%
* Commercial/contractual disputes are seen as creating the most difficulty with
three quarters of in-house lawyers (75%) assigning them as medium to high risk
* Regulatory or compliance type disputes are viewed as the second highest
area of risk with 45% of respondents rating them as medium to high risk.
Employment (44%) and product liability (39%) are also rated highly as
perceived areas of risk (Figure 2)
7Lovells | The Shrinking World
"The challenge is to have a management strategy
to avoid disputes."
In-house Counsel
* While commercial/contractual disputes are universally recognised as the area
of greatest overall risk, there is significant geographic variation. For example,
in France, the other top two areas of perceived risk are regulatory and antitrust
disputes, while in Germany, banking, financial instruments and employment are
identified as key risk areas.
Commentary
Across Europe, the finding that a third of companies have seen an increase in
litigation over a period when the financial markets have been very strong may
surprise many. However, we have seen that litigation can often now be viewed
as a potential asset to be exploited and so is not as counter-cyclical as was
once the case.
High-profile litigation requires the in-house lawyer continually to exercise his or
her judgement, balancing legal, reputation and commercial issues involved in
ways that are different from when the business is handling a transaction such
as an acquisition. A high profile dispute is time-consuming and requires regular
consultation across the business. Coupled with this, a major dispute can take a
lot longer to run its course than a typical transaction and so is more likely to be
a semi-permanent fixture in the in-house lawyer's diary.
Although there has been a significant increase in the number of disputes being
experienced by Europe's largest companies over the past three years, the pattern
does not reflect a market that is undergoing a significant wave of litigation.
Instead, disputes in the larger European economies need to be looked at in
relation to their own particular characteristics and in relation to the economic
and social factors that impact more on some industries and markets than others.
For example, looking at the Italian market, experience tends to show that, as the
economy deteriorates, the amount of litigation increases and, for the past three
years, GDP growth in Italy has been relatively low. This justification can be
contrasted with the Netherlands where litigation is viewed as a means of dispute
resolution of last resort.
Lovells | The Shrinking World8
The finding that companies experience the greatest volume of their disputes with
their customers, suppliers and employees is probably a reflection of the sheer
number of different interactions that a business has with these groups on a
day-to-day basis. What is more relevant is to examine how in-house lawyers
perceive the relative risk of the disputes that they are handling. Commercial
disputes are always going to be difficult to manage because of the dangers they
pose to the company's overall supply chain and ability to trade. However, risks
associated with regulatory- or compliance-style disputes require businesses to
be much more sensitive as to how they operate. Regulatory disputes raise real
concerns for respondents, despite the fact that few have experienced them.
This lack of familiarity is potentially as threatening as the penalties for getting it
wrong. The prominence of regulatory-driven disputes, for example, with a financial
or environmental regulator, and the subsequent impact on the business at the
highest levels cause real concerns.
Within the European Union, the European Commission has been increasingly
focused on consumer rights. This may account for growing concerns around
regulatory disputes.
The financial reporting failures of the early 2000s and now fallout from the credit
crunch, often combined with white-collar crime, and subsequent increased
emphasis on corporate transparency and accountability, continue to raise concerns.
Disputes like these tend to occupy a significant amount of senior management
time and create headlines which can distract from the overall running of the
business. The sanctions available to regulators can also concentrate the mind
in ways that a straightforward commercial dispute between companies in Europe
may not. These regulatory sanctions can range from mild rebukes and public
censure through to massive fines and potential criminal prosecution and
imprisonment for company directors.
Companies recognise their compliance requirements and are willing to consult
with external advisers to mitigate those risks. However, it needs to be recognised
that in certain markets perceived differences exist between: those regulations
which are essentially management focused, such as data protection, privacy,
environmental, and financial regulations; and trading regulations, which have a
direct impact on the ability of the company to produce and sell goods or services.
There is better compliance with the latter than the former, as they directly impact
upon the ability of the company to trade on an ongoing basis.
Regulatory disputes can have a `chilling' cross-border effect on a company's
ability to operate in other territories as regulators in one country see what is
happening in another and launch their own investigations as appropriate.
In addition, regulatory disputes can also open the door to secondary litigation.
For example, an adverse antitrust ruling from a national competition authority
can open the door to follow-up private enforcement actions from both individual
claimants and classes who have suffered financial or market loss as a result of
price fixing or abuse of a dominant position.
9Lovells | The Shrinking World
Despite accounting for only three per cent of disputes,
regulatory or compliance disputes are seen as the
second highest in terms of risk.
Lovells | The Shrinking World10
A class of their own
The survey findings show
* Just under a quarter (22%) of respondents have been either threatened with
or on the receiving end of a class action
* Across the markets surveyed, in-house lawyers in France have been most
exposed to class actions (33%), while in Italy barely one in 16 (6%) have
seen them
* Slightly fewer than a third (30%) of insurance and reinsurance in-house
lawyers have experienced the threat or reality of class actions, while in the
energy sector the proportion drops significantly to around one in 12 (8%).
Commentary
A number of the respondents to our survey have US operations, or are listed in
the US, and so the fact that around a quarter have been exposed to the threat or
reality of class actions is not particularly surprising. US class actions have been
declining over the past three years, partly as a result of changes to the way in
which class actions are handled by the US courts but also because of the general
strength of the market economy, which has brought about a reduction in securities
litigation. However, that downward trend is threatened by the credit crunch,
with securities class-action filings increasing to 166 in 2007 from 116 in 2006
(The Stanford Law School Securities Class Action Clearinghouse and Cornerstone
Research). Of the 100 filings made in the second half of 2007, nearly a quarter
were associated with subprime issues, demonstrating the tangible risks now
emerging for companies who have been involved, at whatever level, in this part
of the financial market.
Although in its relative infancy compared with the US, the market for European class
actions is starting to grow and evolve. Those developments reflect the focus of the
European Commission on providing consumers with adequate means of redress.
The development of means of collective action in some countries, such as Germany,
Italy and the United Kingdom, is designed to create mechanisms intended to reduce
the need to rely on the US system. For example, the Netherlands has legislation
that permits collective settlement, and this was the approach used by the oil
company Shell in managing some of the disputes which it faced following the
over-stating and subsequent correction of its oil reserves. The approach had the
effect of reducing the overall number of claimants, especially those outside the
US, which, in turn, reduced the attractiveness of the dispute to class-action
claimant law firms.
Funding for class actions remains a difficulty for claimants in a number of
jurisdictions where either contingency fee arrangements are not permitted or
where it is not possible directly to obtain third party funding to pursue a claim on
behalf of a class. In the UK, contingency fee arrangements (in other words, where
the lawyers take a percentage of the damages award if their client wins) are not
permitted, although other forms of funding arrangement, for example, conditional
fee agreements, are allowed under certain circumstances. Elsewhere in Europe
the position has been more restrictive, although this is starting to change.
These differences in funding rules across Europe result in claimants finding
innovative ways of pursuing a claim, for example, the creation of a Dutch special
purpose vehicle (SPV) to pursue a claim against a German company through the
German courts and thus circumvent German restrictions on class action funding.
Although only tested in relation to the German courts, the use of a SPV might
well appear elsewhere as a tactical device. In Italy, claimants' lawyers until
recently could not combine claims and so filed hundreds if not thousands of
virtually identical claims, overwhelming an unprepared defendant. There are
now new Italian rules in this area, increasing nervousness among companies
as a result.
11Lovells | The Shrinking World
Just under a quarter of respondents have experience
of class actions.
Lovells | The Shrinking World12
Faced with this changing environment in the European market, companies are
having to adopt two particular strategies when it comes to managing class actions.
The first is to use methods such as voluntary settlement schemes either to segment
or reduce the size of the overall pool of potential claimants. This has the effect of
reducing the appetite of class action lawyers who see a consequent reduction in
potential fee income as a result. It also deters more speculative or questionable
claims, while still recognising the need to ensure that appropriate redress or
compensation is available to those with legitimate grievances. The second
strategy is to identify one or more jurisdictions where it may be advantageous
for a case to be heard ahead of similar claims in other countries. This provides
defendants with a clearer picture of what they are likely to be facing in other
markets and enables them to act accordingly.
The trends and pressures facing companies in
international disputes
The survey findings show
* Nearly a third of respondents (31%) feel that there has been a trend towards
more multinational disputes in the past three years. German participants felt
the trend the most (39%) with respondents in France, Italy and the UK feeling
it the least (28%). The manufacturing and insurance and reinsurance sectors
both equally felt the trend the highest (43%) with the TMT sector feeling it the
least (9%)
* While the home country of the company surveyed is the location of the
overwhelming majority of disputes (78%), other EU member states and the
US also make a showing (7% and 3% respectively)
* Lack of experience (32%) and a lack of information regarding the relevant
laws and procedures (26%) were cited as the two most significant challenges
involved in managing multinational disputes (Figure 3)
* The US (29%), China (16%) and Russia (16%) are the most concerning
markets for in-house lawyers when it comes to managing a multinational
dispute (Figure 4)
* Of the 60 respondents with operations in China, a third (34%) were not confident
they would be able to manage a Chinese dispute, while only one in five (21%)
were confident that they could.
Commentary
Managing a complex multinational dispute can be heavily demanding on the
general counsel and the in-house team. This is especially true if the nature and
structure of the business itself is very national in nature, with business units
pursuing market strategies on a reasonably independent basis.
13Lovells | The Shrinking World
Nearly a third of respondents feel that there has been
a trend towards more multinational disputes in the past
three years.
The lack of knowledge / understanding of international law /
procedures / jurisdiction / no experience of
multinational conflicts
Legal system / conflict in laws / different / varying legal
systems in each country
Effective management / co-ordination / strategy /
logistics to resolve disputes
Finding the right people / good support / knowledge from
external people
Language barriers / communication issues
No international dispute department
Cost control / keeping costs down
Attempt to avoid / prevent disputes
Don't have multinational conflicts
Keeping up to date with everything
Need an international governing body
Fast resolution of disputes
Not stated
None / nothing
Don t know
Other (specified)
32%
26%
11%
11%
11%
8%
6%
3%
3%
2%
1%
1%
5%
7%
8%
9%
Figure 3: Lack of knowledge creates challenges for in-house lawyers
What do you think are the challenges for in-house lawyers trying to manage multinational disputes?
Base: All respondents (180).
%
Lovells | The Shrinking World14
15Lovells | The Shrinking World
While in-house lawyers are relatively comfortable with managing disputes in their
own countries, there is great concern regarding the unknowns that they may
encounter when faced with disputes in different markets, especially where the
legal system is radically different from that of the home country. These differences
most often appear when lawyers from civil code countries, which make up the
overwhelming majority of European jurisdictions (and all of continental Europe),
find themselves embroiled in disputes in common law countries and vice versa.
For example, the radical differences between privilege and document disclosure
requirements that exist can hit a company hard, leading to disclosures in a
common law country that are simply unimaginable in a civil law country.
Companies need to be smart about how they manage the multinational nature
of the dispute. Experience shows that they manage them in very different ways,
some outsourcing the management of the dispute to a single law firm, others
managing most of it in-house and relying on counsel for specialist advice.
Familiarity with the legal system is also an important factor, but other considerations
such as translation costs, external lawyers' fees, travel and senior management
time commitments need to be taken into account.
In terms of tactics, forum-shopping by both claimants and defendants is relatively
common as both sides seek to identify jurisdictions where they are either able to
fast track or delay certain aspects of the dispute to their respective advantage.
In some cases there are clear benefits in being able to progress a case quickly
in a particular country in order to obtain early sight of the opponenťs position.
The Netherlands, for example, permits pre-action interrogation of third parties,
which can be very helpful in this regard.
The internet makes the market for multinational litigation much more transparent,
and the sharing of information and tactics from one jurisdiction to another,
along with associated publicity, forces companies to take a more holistic view
of the management of their disputes. What might have been treated as a `little
local difficulty' could now trigger a genuinely global problem and require a
multinational response.
"It is a challenge to take into account the different
legal systems ­ the challenge is to know them in both
a theoretical and pragmatic way."
In-house Counsel
Companies have the greatest concerns surrounding disputes in the US, China
and Russia. With regard to the US, the amount of time it can take to bring a case
to trial, the exhaustive discovery process, the inability to recover costs and the
potential for a jury to award punitive damages creates an environment where
companies are worried about how a dispute will proceed.
The section opposite (The US question) looks in more detail at some of the
issues European companies have to deal with when handling disputes in the US.
Lovells | The Shrinking World16
11%
1% 1%
6% 6%
7%
9%
16% 16%
29%
Other
Netherlands
Turkey
France
Germany
Italy
UK
Russia
China
US
Figure 4: US, China and Russia create serious concerns
In which of the following countries are you most concerned about a major dispute taking place?
Base: All respondents (180).
%
17Lovells | The Shrinking World
"It is hard to find legal practitioners with good knowledge
and the right experience."
In-house Counsel
The US question
The US legal environment is correctly seen as a difficult one for European
companies. Although far more transparent and free of corruption than
most, the US legal system is filled with traps in which the inexperienced
or uninformed may easily become caught.
There are many aspects of the US litigation engine which make this
so. Among the best known are the existence of contingency fees; the
"American rule" on costs (in which each party bears its own costs, win
or lose); the cost and length of time involved in the discovery process;
the uncertainty of jury trials; and the associated risk that punitive damages
may be awarded by juries not subject to effective judicial supervision.
However, beyond these relatively obvious factors there are a host of others
that can make the management of US litigation particularly difficult for
those outside the US:
* the complexity of the US federal system with its multiplicity of courts,
prosecutors and regulators at state and federal levels
* the American tradition of targeting corporations as well as individuals in
criminal cases ­ effectively using criminal investigation and prosecution
as a form of regulation
* the aggressiveness of US prosecutors and regulators, and the political
nature of some of them, especially at state levels
* the extraterritorial application of many US laws (and even international
law as in, for example, cases involving the Alien Tort Statute)
* the existence of well-funded and politically connected claimants' lawyers.
When it comes to Russia and China the reverse is more likely to be the case,
with concerns resting on uncertainty over who to turn to for good quality objective
advice, a fear of the unknown and the unpredictable nature of a dispute, both in
terms of process and outcome. Certainly in the Russian and Chinese markets there
are concerns centred on how a dispute will be practically managed through the
courts; the potential for corruption; and the degree to which political interference
will influence any outcome.
These concerns can result in companies preferring to use arbitration or mediation
to manage disputes in such jurisdictions.
Lovells | The Shrinking World18
There are a number of ways in which companies can minimise their
exposure to litigation in the US. In addition to comprehensive compliance
programmes and well planned corporate organisational structures,
companies can establish strong internal control procedures and effective
document management and retention procedures, and manage their
activities to avoid the jurisdiction of the US courts. Even if subject to
jurisdiction, non-US companies may obtain an early dismissal on grounds
of forum non conveniens, international comity or because the case raises
political questions.
Generally, it is very difficult for a plaintiff to obtain punitive damages in a
commercial case between two sophisticated corporate parties. Whether
it is more difficult for a non-US corporation to obtain punitive damages
against a US corporation is difficult to say and the answer to that question
may depend upon the state and jurisdiction. In January 2008, Lovells
obtained a jury award of punitive damages in federal court for AXA against
AIG, illustrating that it is not impossible in New York.
Taking steps to manage and settle disputes
The survey findings show
* The top trend in dispute resolution over the past three years (Figure 5) is the
increased use of alternatives to litigation such as arbitration and mediation
(31%). Taking steps to avoid conflicts (22%) and the impact of increased
consumer rights and related disputes (14%) are the highest trends
* The top consideration when deciding whether to contest or settle a dispute is
its impact on the company's reputation. This is followed by the financial cost
of losing and the impact on relationships/customers. The areas of least concern
are potential disclosure of the dispute in the company's financial statements or
having to justify losing to shareholders (Figure 6).
Commentary
Alternative dispute resolution can often be seen as a way of avoiding the costs,
time pressures and risk to reputation that can be associated with a major dispute.
However, in those European countries where the courts are generally perceived
as fast-acting and cost-effective, the appetite for alternative dispute resolution is
less marked.
The desirability of using mediation can also vary from country to country.
In some markets the appointment of a mediator to settle a dispute with a large
number of claimants may well be perceived as the most practical and pragmatic
way of solving the problem. On the other hand, such an approach might be
viewed as opening the floodgates to a wave of other claims, because of the
perceived willingness of the defendant to settle claims.
19Lovells | The Shrinking World
The top consideration when deciding whether to contest or
settle a dispute is its impact on the company's reputation.
Lovells | The Shrinking World20
Increase in negotiations / mediation / arbitration /
transactions / transactions out of court / dispute resolution /
alternative dispute resolution / financial intermediation
To avoid conflicts or going to court
Increase of consumer disputes /
strengthening of consumer rights
No significant trend over last three years /
similar / same as before
Communication / better communication / discussions
Bankruptcy / Debt / clients in debt
Commercial litigation / becoming more commercial / increase
of litigation / disputes with clients / as company grows
Include / hire external lawyers / good working relations
with them / more lawyer orientated / driven
Settlement / settling of legal issues
Increase in contract disputes
Increased disputes due to the Italian economic situation
Use of adjudication / adjudicators
Use of ombudsman services
Regulation / self regulation
Increase of court cases / going to court
Nothing / Don't know
Other
31%
22%
14%
11%
7%
6%
6%
5%
4%
3%
2%
2%
1%
1%
1%
5%
11%
Figure 5: Top trends in dispute resolution
Please describe what you see as the major trends in dispute resolution over the last three years.
Base: All respondents (180).
%
There are lessons that can be learned from the construction and other
capital-intensive industries when it comes to mitigating or managing disputes.
They have developed clear protocols for dispute management across the lifespan
of a particular project. This is based on the recognition that, at some point in the
course of the project, a dispute is going to arise between the various parties and
that, for the project to succeed, it is important to ensure that the dispute does not
stop work continuing or unduly delay the delivery of the project. Disputes can be
taken to independent arbitration or mediation without having to resort to the
courts every time a dispute arises.
The dangers that a dispute can pose to a company's reputation, especially if it leads
to regulatory exposure, feature highly in the research findings. Businesses which
have built their reputation on particular characteristics such as high quality, value
for money, consumer fairness, trust and environmental responsibility are acutely
aware of the damage that a high profile dispute can have on the company's public
perception and brand equity. Assessing the damage, whether through direct impact
on short term sales or longer term undermining of the strength of the brand,
should be factored into the management of the dispute.
21Lovells | The Shrinking World
Lovells | The Shrinking World22
6.9
6.1
5.3
7.1
6.7
5.0
4.7 4.7
Financialcostoflosing
Financialcostofconducting
Opportunitycostsincluding
seniormanagementtime
Impactonreputation
Impactonrelationships/
customers
Countrywherethelitigation
istakingplace
Theextenttowhichthedispute
needstobedisclosedinyour
company'sannualfinancial
statement/otherfilingswith
thestockexchange
Justifyinglosingto
shareholders
Figure 6: Reputation tops the list of considerations when considering how
to handle a major dispute
How influential are the following considerations when deciding whether to contest or settle a major dispute?
Base: All respondents (180).
Reporting disputes to the board
The survey findings show:
* Barely one in six respondents (16%) say they or the general counsel sits on
the board. However, nearly half (46%) feel that the general counsel should sit
on the board
* Just under half of respondents (45%) say that the general counsel reports
either at each board meeting or on a monthly basis on the status of the
business' exposure to disputes. One in 20 (5%) never report (Figure 7)
23Lovells | The Shrinking World
Barely one in six respondents say that they or
the general counsel sit on the board.
16%
29%
19%
5%
26%
5%
At each board meeting
Monthly
Quarterly
Once a year
Occasionally as issues arise
Never
Figure 7: Very variable board reporting across Europe
How frequently do the general counsel / legal function report to the board on the status of the business' exposure to disputes?
Base: All respondents (180).
Lovells | The Shrinking World24
* The country with the greatest frequency of board reporting is the UK, with more
than seven out of 10 (72%) in-house lawyers reporting either at every board
meeting or on a monthly basis. Germany has the smallest proportion (30%)
of general counsel reporting on this basis
* The manufacturing and TMT sectors have the greatest frequency of board
reporting on disputes by the general counsel (51% and 52% respectively).
Commentary
The gap between the reality and the aspirations of general counsel to sit on the
board remains significant across Europe. Given the frequent importance of legal
issues in corporate decision-making, it seems logical that there should be an
effective line of communication with board members. However, across Europe
these are significant differences in terms of what makes effective corporate
governance and in-house lawyers must, ultimately, be driven by what is
appropriate in their market.
However, when the general counsel has the confidence of the board, they can
ensure that the company is better equipped to view legal risks in their commercial
context. Being on the board is one way for this to happen; another option is
for the general counsel to be present at board meetings whether or not as a
board member.
About the survey
In the last quarter of 2007, Lovells commissioned an independent survey of
in-house lawyers in five European jurisdictions. The objective was to obtain
reliable, research-based market information to help better understand how
in-house lawyers viewed the management of multinational disputes and some
of the issues with which they have to contend.
Professional independent researchers conducted the interviews by telephone,
using a sample made up of the largest companies in each country.
In total the survey comprised 180 respondents, with 36 taking part from each
of the following countries: France, Germany, Italy, the Netherlands and the UK.
The industry breakdown of respondents is shown below:
25Lovells | The Shrinking World
28%
28%
17%
14%
13%
Investment or Commercial Banking
Manufacturing including Automotive
Insurance and Reinsurance
Energy
Telecoms, Media and Technology
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