In-House Lawyers Take on Enhanced Role
Kim Joong-won, an in-house lawyer for Hanhwa Group, recently took three business trips to Europe, including Britain and Italy, to help purchase raw materials and technology for his company.
He helped negotiate the purchase and develop the contact and also helped to develop a strategy for lower prices.
Kim said that it is important to minimize the risks that can arise by thoroughly screening the legal aspects of a deal in the first draft of the contract.
In the past, when the company’s negotiation team made the first draft of contract with its foreign counterpart abroad, the draft was sent to the legal affairs department of a local company for screening. Then it was sent back to the negotiation team after review.
Now that the role of in-house lawyers has been strengthened, they participate in the negotiation process as a member of the company team when a deal is made abroad.
The Hanhwa Group has 14 in-house lawyers who travel anywhere for negotiations and evaluating contracts as Kim did.
Global Competition Increases Need for In-house Lawyers
With the Korea-U.S Free Trade Agreement (FTA) reached, domestic companies are facing an era of unlimited global competition. Consequently, the need for advice based on a professional knowledge of law has been steadily increasing for local companies. To prepare for the opening of the legal market, companies have strengthened their in-house law departments.
Experts say that in this era of global competition, an in-house lawyer is a must to help manage risks for conglomerates.
According to Korea Exchange, the number of lawsuits filed against listed companies increased from 18 in 2000 to 326 in 2004.
Also, owing to consumers’ increasing awareness of their rights, a growing number of companies are expected to face lawsuits.
Conglomerates used to employ law majors for their in-house counsel. These days, they are increasingly employing experienced lawyers as well as novices, and using them in management and trade negotiations.
The country’s five major conglomerates have strengthened their law departments in recent years.
Korean companies’ exposure to global competition means that there is a growing possibility for them to get embroiled in global conflicts. Lawyers who can prevent and solve such conflicts are absolutely vital for companies, according to Lee Jong-wang, a representative in-house lawyer of Samsung Group.
``A company’s in-house counsel is a guide and precipitator of lawful management. It is also a defensive force for the company,’’ he said.
In-house lawyers began to attract attention when the nation’s largest conglomerate Samsung Group employed judges-turned lawyers and prosecutors-turned-lawyers for in-house counsel in 1996, right before the outbreak of the Asian financial crisis.
The group now has a large in-house counsel composed of 171 lawyers including 66 domestic lawyers and 105 foreign lawyers. The number is twice that of four years ago.
Other large conglomerates such as Hyundai and Kia Motors, LG, SK and Hanhwa have also enlarged their in-house law departments.
LG Group has an in-house department of 230 employees including 15 Korean lawyers, and 75 foreign lawyers of whom 55 work abroad.
At Hyundai and Kia Motors, 21 lawyers _ eight Korean lawyers and 13 foreign lawyers _ work in a local company while 34 lawyers work in foreign branches abroad.
SK has 12 Korean lawyers and 13 foreign lawyers. Hanhwa Group has 13 Korean lawyers and two American lawyers.
However, the number is far smaller than multinational companies like Citigroup, which has 1,500 and General Electric, which has 1,164.
Compared to the United States where in-house company lawyers account for 10 percent of the country’s total number of lawyers, South Korea has an insignificant number of in-house lawyers.
In South Korea few mid-sized and small companies employ in-house lawyers.
According to a survey last January of 220 companies by the Korea Chamber of Commerce and Industry, only 61 companies had in-house lawyers.
Company officials say that despite an increased need for in-house-lawyers, it is not easy to employ them on a large scale since many of them quit the company after one or two years.
``Even if you employ a lawyer, they just work for you for one to two years and quit by the time they get used to the job,’’ said a company official. ``Also, talented lawyers, judges and prosecutors still prefer to work for large law firms, a preference which blocks their employment as in-house lawyers.’’
However, experts predict that the number of in-house lawyers will continue to grow because of the opening of legal markets, an increased supply of lawyers and increased demand for legal expertise because of globalization and the growing number of regulations for companies.
Kim Hyun, secretary general of the Korean Bar Association, said that in the past, companies looked for lawyers only after large-scale accidents and problems arose. However, these days, companies employ in-house lawyers to prevent legal problems that might arise in the future and to minimize risks.
Several Korean companies have had difficult experiences in the last several years for failure to prevent major financial fallouts.
For example, the U.S Department of Justice fined Hynix Semiconductor $185 million in April 2005 for increasing its price and reducing the production of D-RAM.
In October of that year, the department also fined Samsung Electronics $300 million for fixing the price of RAM memory with other companies.
The department’s research on Hynix and Samsung Electronics started four to five years before the fine was imposed. In December, the United States conducted research on whether LG Phillips LCD fixed prices or not.
Cho Keun-ho, vice chairman of the Law Training Center, said that in-house lawyers are like corporate insurance as they prevent large-scale financial accidents.
``It’s really stupid not to prevent a problem in the first place because if you don’t it ends up costing you much more later on. It’s much better to spend 100 million won to block major conflict than spending billions of won later on when things get worse,’’ he said.
These days, an increasing number of novice lawyers just out of training are being employed by conglomerates.
In 1999, eight who passed the bar exam were employed by conglomerates. While last year, 47 began working as in-house counsel and this year 37 have been employed as in-house lawyers for conglomerates.
Experts emphasize that companies should attract lawyers with in-depth experience and high capabilities to prepare for the fiercely competitive environment.
Although Samsung now has the most in-house lawyers, it was LG Group which first employed highly experienced judges-turned-lawyers and prosecutors-turned-lawyers as in-house counsel.
Kim Sang-hon, currently head of in-house counsel at LG Group, is a former judge in the Seoul District Court. He was first employed as the head of in-house counsel of the LG Group in 1996.
LG Group began strengthening its in-house counsel because of its pursuit of ethical management.
Kim said that thanks to the advice of the in-house counsel, the company’s violation of laws because of mistakes has almost disappeared.
For the past two to three years, Samsung employed Lee Jong-wang, Hyundai Motors employed Kim Jae-ki, SK employed Kim Joon-ho and Hanhwa Group employed Chae Jeong-sok as their in-house lawyers. The four were all renowned prosecutors before taking on their current jobs.
Since prosecutors understand the rules of organizations and are active in their work, they seem to be popular with companies, they said.
Kim Jae-ki said that the prosecutor’s work of pursuing justice and a company’s duty to pursue ethical and lawful management are similar.
However, they say that that in-house law departments should still be enlarged and a greater voice given to in-house counsel in making policy. They also say that cooperation from other departments is required for in-house counsel to work effectively.
The majority of in-house lawyers said they like the diversity of their work and participating in business decisions as opposed to merely researching legal issues. They said they enjoy their role as intermediaries between outside lawyers and their layman clients.
The downside of working in-house is the limited resources, they said. With a small legal staff, there is less opportunity to bounce ideas off coworkers. They mentioned that there was less organization than in a law firm where lawyers are the main income producers. In-house law departments do not bring in revenue or provides a service that costs the company money.
An official of the Korea Bar Association said that owing to increased demand for professional knowledge on law, the importance of in-house lawyers will grow to the point where they will participate in a company’s management.
Kim Joon-ho, vice chairman of SK, and Chae Jeong-seok, vice chairman of Hanhwa Group, said that the role of companies’ in-house counsel will grow in the future.
The CEO’s commitment to manage lawfully has become a significant issue for companies and conglomerates these days, they say.