By Roy Strom
Martin Slark, the CEO of electronic connector manufacturer Molex Corp., can quickly rattle off the statistics that make his company global.
"Molex has 40 plants in 25 different countries around the world," Slark said. "Sixty percent of our business is in Asia."
That wasn't always the case. A decade earlier, 38 percent of the company's revenue came from Asia. Revenue from the Americas fell from 45 percent of the company's total a decade ago to making up about a quarter today.
Yet, as the company quickly expanded overseas, the legal department seemed left behind.
Until March, Robert Zeitler, the company's general counsel, could just as quickly count how many lawyers Molex employed outside Chicago: Zero.
Zeitler's 28-person legal department all worked domestically until they added a lawyer in Japan on March 16. That hire represented the first step of Zeitler's plan to develop a global legal department for his company, which brought in $3.6 billion in revenue last year.
"We had 75 percent of our revenue generated in locations where we don't have any in-house lawyers," Zeitler said. "We in the U.S. try and support that, but if you're not there and don't know what's going on from a day-to-day basis, it's difficult to give appropriate counsel to the business units."
Jonathan P. Bellis, head of the law department consulting group at HBR Consulting, said legal departments often get stuck in domestic mode while the rest of the company goes global.
"At some companies there's a surprising gap between where the legal department is located and where the company is currently, and then compounding it, where the company's growth is coming from," Bellis said.
He worked with two companies recently that take in 50 percent of their revenue overseas (and will see that number grow), but "are kind of slow in getting lawyers in seats" overseas, Bellis said.
No magic revenue number exists that would make Bellis suggest hiring an international lawyer, but he works on the issue mostly with large, multinational companies, he said.
Eventually, those companies and their general counsel, like Zeitler at Molex, recognize the value of employing lawyers in the countries where a large portion of their revenue and legal risk comes from, Bellis said.
General counsel from Molex, Illinois Tool Works Inc. and Kaplan Higher Education said they either recently made their first hire of an international in-house lawyer or soon plan to make that hire. While counsel from Boeing Co., Hyatt Hotels Corp. and Tellabs Inc. described how they manage their longstanding international departments.
Deciding where the lawyers belong
Paul S. Williams, Chicago office managing partner and global practice leader - diversity search at legal recruiter Major, Lindsey & Africa, said U.S. companies today hire a "tremendous" amount of lawyers overseas.
"I can say unequivocally that the percentage of lawyers in a legal department who are devoted to supporting international operations absolutely is going to be increasing dramatically," Williams said.
Developing a global legal department can mean a lot of work for a general counsel.
For example, Zeitler said he made bimonthly trips to Asia for two years, interviewed at least a dozen candidates (four of whom got brought back to the U.S. for round two), analyzed at least three countries' legal markets, hired a legal recruiter and consulted with fellow general counsel before making his first hire.
Companies must develop a plan that includes picking which countries to place their international lawyers in and learning how to find talent in those countries with tight legal markets.
Then, they need to create a reporting structure to keep those lawyers independent from the business and in touch with the legal team back in the U.S.
General counsel often look at where their company's revenue comes from as the first determinant when considering where to deploy international lawyers, Bellis said.
Maria Green, general counsel of $17.8 billion manufacturing company Illinois Tool Works, said she hired a lawyer last year to work in Shanghai.
That made sense because the Glenview company saw rapid growth in Asia during the past decade.
In 2001, 66 percent of the company's revenue came from North America. Twenty-six percent came from Europe, the Middle East and Africa, while 8 percent came from Asia, the company's 2011 annual report says.
The report also says that in 2011, North America dropped to 48 percent of revenue. Asia leaped to 19 percent, while Europe rose to 33 percent.
All the while, the company kept its legal staff (now a total of 12) in the U.S.
"Initially, we thought it would be nice to have a transactional lawyer in China because there's so much work over there," Green said.
But to make a final decision on placement of international lawyers, general counsel ask questions that go beyond where the revenue comes from, Bellis said.
For example, Chicago-based aircraft manufacturer and defense contractor Boeing brought in half of its $68 billion in revenue last year from overseas, the company's 2011 annual report says.
Still, 140 of the about 150 lawyers it employs reside in the U.S., said John C. Demers, assistant general counsel and head of global law affairs at Boeing.
That ratio works for Boeing because it relies heavily on U.S.-manufactured exports. If it sells an F-15 to Saudi Arabia, for example, the fighter jet gets built in the U.S. (and creates most of the legal work), but the sales revenue shows up somewhere else, in this case Saudi Arabia, Demers said.
"The true exports, where we make the product here and sell it overseas, those don't require a lot of on-the-ground legal work in the country where you're selling it," Demers said.
"It's putting people on the ground that generates legal work for us. That determines where we need to place lawyers and where we need to add lawyers. Where we do a services business or where we do work with customers … or where we set up joint ventures."
Boeing places a regional general counsel in each of the five sections that it breaks the world into, Demers said. Those regional general counsel reside in London, Dubai, Tokyo, Sydney and Chicago. Each regional general counsel, besides Chicago's, works with a team of lawyers spread out in countries throughout the region.
Zeitler, from Molex, said he decided to put the first of his international lawyers in Japan. Most of the company's business comes from Asia and Japan houses a regional headquarters for the company.
When thinking about placing his second lawyer internationally, he said he's torn between Singapore and China.
"The benefits of putting somebody in Singapore, well that's where a lot of division leadership is so that person is right there with the key decision-makers," Zeitler said. "On the flip side, a lot of the day-to-day operations of that division are located in China and so maybe it makes more sense to have that person located in China because that's where more of the action is."
For an emerging market country, Brazil seems missing from these companies' rosters of international lawyers.
Bellis, from HBR Consulting, said some companies staff lawyers in the U.S. to handle Brazilian and South American legal matters because of the less-dramatic time difference there as opposed to Asia, for example.
Jim Sheehan, general counsel of $1.3 billion technology company Tellabs, said his company used to staff its Latin America lawyers in Florida. It made sense because of the small time zone difference and proved to be the easiest "jumping off point" for lawyers to fly to all the countries they handled in Latin and South America, Sheehan said.
Today, though, Sheehan employs two Spanish-speaking lawyers at Tellabs' Naperville headquarters. They handle the company's legal matters in countries south of the U.S. border.
"Latin America was the toughest place to keep an attorney," Sheehan said. "It would be nice to be able to have somebody on the ground with the Latin American team right now, but it's an affordability issue, so we're probably relying a little more on outside counsel than I would like."
If business ramps up enough in Latin America, Sheehan will consider hiring an in-house attorney there, he said. For now, he plans to keep 10 lawyers in the U.S. and one each in Singapore, Finland and Ireland.
Rena Hozore Reiss, general counsel of Hyatt Hotels, said as the company — which made $3.7 billion in revenue in 2011 — expands into South America, they may place an in-house lawyer there. But for the time being, she can staff the amount of legal work from that continent with the 18 lawyers based in Hyatt's Chicago headquarters.
While Boeing recently opened a Brazil office, Demers said his company staffs legal work from that country in the U.S. He also said Boeing plans to hire a lawyer in India within the year.
Finding talent overseas
Williams, the legal recruiter, said demand for lawyers in countries like China and Brazil shows up in the increasing amount of searches the firm does in those countries. Williams said his firm does not give out numbers on the amount of searches it does.
"If you know where to look and are adept at it, you can definitely find people (in China)," Williams said. "It's like anything else in business, it requires the requisite skill sets and there's an art to knowing where the talented Chinese lawyers are that will be a good fit."
The increase in demand leads to a tight legal market in countries like India, Brazil and China in particular, said Reiss, of Hyatt.
"China is a very tight market," Reiss said. "We're all chasing the same five people, be it corporations, law firms or investment banks. So, it's a very competitive market. And, it's a market driven, frankly, by compensation. A company like ours, we're not going to be able to match an investment bank or a law firm on compensation."
To find legal talent, Reiss said she appeals to the same kinds of lawyers in China as she does in the U.S. — talented lawyers who like the chance to "live the business" by working in-house.
Molex's Zeitler said China's legal talent shortage makes him more likely to place his second lawyer in Singapore.
"I've talked to a number of people who have actually put a lawyer in China and found it very difficult because of the mobility issues," Zeitler said. "They're working for you today and they go somewhere else tomorrow because they can get paid better.
"There's a lot of turnover even with our nonlegal workforce. The way China is growing, there's a real shortage of talent in that country."
Sheehan, from Tellabs, said his overseas lawyers in Singapore, Ireland and Finland all have worked for the company for at least 10 years. For that reason, he said if given the chance to start his legal department from scratch, he would make the same choices.
"I'd probably have a different answer if I had been going through attorneys every couple of years," Sheehan said. "I probably would say I should have gotten more experienced people to begin with."
Some companies viewed sending American lawyers to China or other overseas countries as a way to staff lawyers in a land of few available legal minds, consultant Bellis said.
But the cost of sending American lawyers overseas makes that option less attractive today, he said.
Hyatt's Reiss said two legal markets exist in China: A local market of Chinese-born lawyers and a market of American ex-patriots (ex-pats) working in the country.
"There are in-country and ex-pat pay scales and the in-country pay scales are nowhere near (the ex-pat pay scales)," Reiss said.
"If you're sending your lawyers from the U.S. or from London over, you're going to have to pay them pretty well and you'll probably subsidize schooling or housing, which you won't do if you're hiring in-country."
Hyatt avoids those costs because it hires in-country attorneys, except for one American lawyer based in Zurich, Reiss said.
Boeing's Demers said his company placed an American-trained lawyer in China who speaks Mandarin and who spent several years living in China before Boeing hired him.
"That's the way that we've dealt with" the tight labor market in China, Demers said.
Ex-pats working abroad, typically Boeing's regional general counsel, receive housing and living allowances as well as a tax allowance so their income doesn't get taxed by two countries, Demers said.
"For everyone in Boeing, if you start here and go abroad, the company recognizes that moving for your job, especially moving internationally, is asking you to make certain sacrifices," Demers said.
Setting up a working relationship
Once a company finds and hires an international lawyer, the general counsel needs to understand the potential "danger of the one-off lawyer working in a remote location," Bellis said.
The danger lies in a reporting structure that makes the lawyer captive to a business unit the lawyer helps to operate but also oversees for compliance, Bellis said.
"There are a few areas where we feel pretty strongly and our starting default position is that a law department, the lawyers within it, need to report up through the law department and not the business unit they work with," Bellis said.
"You're less likely to have problems if you have that strong counterbalance of an integrated global legal function that is obviously very responsive to the clients in helping them achieve their objectives but keeps in mind their obligation to protect the company."
All the companies with international lawyers interviewed said their lawyers report up through the legal department.
Tellabs' Sheehan said his lawyers also report to their business clients.
"The attorneys need to report into the law department so that they have us as their backup in case they're getting pressure to do a deal or do something that they feel uncomfortable with," Sheehan said. "You hope that doesn't happen, but from time-to-time, customers' demands are beyond what we're comfortable with."
That type of reporting structure keeps international lawyers from coming into a conflicting position with a regional boss who decides compensation and promotions, Sheehan said.
Apart from reporting structures, general counsel need to develop ways to keep tabs on and keep in touch with their foreign-based lawyers, these lawyers said.
Foreign attorneys receive a rather large amount of autonomy compared to U.S.-based attorneys. That makes the need to stay in touch with them all the more important, Hyatt's Reiss said.
"Some of (the difficulty of being a foreign-based attorney) is being solo," Reiss said. "Even if you have one other attorney colleague out there, you're it.
"So some of that is just a level of maturity that, frankly, there are some people who have it very early on, but a lot of us require a little seasoning before we're there."
To foster better relationships among the legal department, Reiss said she wants to schedule rotations for her foreign lawyers to spend some time at the headquarters in Chicago.
"We're starting to do it in other parts of the business, rotate people through, and it's been wonderful for us to hear firsthand from our colleagues some of the things they deal with," Reiss said.
She plans to start working on the logistics of a Chicago rotation for her foreign lawyers soon, Reiss said, but it becomes difficult because "people have families and lives halfway across the world."
Tellabs' Sheehan said he made it the job of a Chicago-based assistant general counsel to keep in touch with the company's regional attorneys.
He does that by calling them once a week and gathering reports of what they worked on and what they see as any pressing issues coming up.
In addition, Sheehan visits each regional lawyer once a year, he said. He also plans reunions in Chicago about every two years for all of the company's attorneys.
A well-connected legal department can help companies avoid serious ethical missteps, Bellis said. Looking back on four or five major cases of corruption or scandal (Enron, for example), he said the law department's integrity and structure came into question.
"(In those cases) the law department was fairly weak; it was decentralized and there were not strong controls and standards set by the central legal function," Bellis said.
"If the law department is decentralized, it's an easy thing to point to. I'm not saying that solves everything, but you are less likely to have problems."