Joseph Chan, Group Chief Legal Officer at Yum China, was the founding partner of the Shanghai office of Pillsbury Winthrop Shaw Pittman and previously a partner of Sidley Austin, based in its Shanghai office. In June 2019, with an impressive law firm background, Joseph took up the top legal role at Yum China, a US Fortune 500 multinational listed on the NYSE and the largest restaurant group in China. In 2020 “Fast Company” recognized Yum China as among the world’s 50 most innovative companies and China’s 10 most innovative companies. Sherry recently sat down with Joseph and had a chat on the evolving role of Chief Legal Officer / General Counsel, the difference between external and in-house counsel, and the value-add of in-house legal teams. (Following this interview, in September 2020, Joseph co-led the company team that achieved a historic secondary listing of Yum China on the Hong Kong Stock Exchange, as an innovative company under the newly introduced Chapter 19C of the HKEx listing rules. This listing, the first of its kind, broke many new grounds in the global capital markets.)
Sherry：Sherry Xu (Director, Hughes-Castell)
Joseph：Joseph Chan (Group Chief Legal Officer, Yum China)
Sherry: Joseph, you have remarkable experience in the private practice and in-house sectors. Can you tell us more about your observations on the evolving role and position of General Counsel around the world, including China?
Joseph: The legal market in China has been rapidly developing. Still, the recognition of in-house legal function in domestic Chinese companies, even among European or US companies operating in China, and the understanding of the role of general counsel, is behind that of the Common Law jurisdictions such as the US, the UK, and Australia. I think that is due, at least in part, to the relatively recent development of in-house legal culture and market here. Comparatively speaking, the legal industry in the US and Europe has gone through an evolution, especially in the past 10 to 20 years, during which period significant changes transpired. (I might add, however, that in spite of the relatively longer history, even in the US, not all general counsels sit in the C-Suite. The very title of “general counsel” speaks volumes. It is quite prevalent that on top of the GC title, one would have an additional title that represents the executive position of the GC, such as Executive Vice President (EVP) or Senior Vice President (SVP). In truth, if a GC is already in the C-suite, one title suffices: chief legal officer. I know that a CLO title is still not that common in the US.) Furthermore, more than a few legal heads in small and medium-sized companies in the US still report to someone other than the CEO, be it the CAO, CFO or COO.
The public perception of the role of GC and in-house legal function varies. However, after the global financial crisis, the role of GCs in the US has been comparatively elevated. Due to the financial tsunami, a myriad of challenging regulatory and legal issues emerged. The gravity of the situation called for speedy response and creative solutions from GCs and their in-house legal teams. That contributed to the change of perception in the mind of CEOs with respect to the value and role of GCs and the legal departments. In the last decade, even in terms of reporting line, we can see that GCs have moved more into the limelight. In contrast, the legal industry in China is still developing. It is great that we can play a role contributing to the GC and in-house value proposition in this “developing market.”
Sherry: Joseph, you have held high positions in both your private practice and in-house career tracks. Who better than you to tell us what core skills are necessary to be a successful partner and what credentials are needed to be a good General Counsel?
Joseph: Law firm partner and general counsel roles call for different skill-sets, although sound technical legal skills are the foundation for both. In private practice, you must be a good lawyer first, and then you can potentially be a successful partner. There was a time when a law firm partner only needed to be a “rainmaker.” Those days may be long gone. Nowadays, besides serving clients with excellent legal skills, being a partner also entails doing a good job in marketing, team management, budgetary control, and debt collection! All in all, it can be summed up as delivering superior client services.
When I arrived at the in-house legal scene, I knew that just being a lawyer, even a good lawyer, would not enough to make contributions to the company. A while back, my former firm Sidley interviewed me and asked what the most significant differences are between being a law firm partner and a general counsel. I said I was a little surprised how little I advise on the law per se in my daily work these days. I found myself mostly participating in discussions related to corporate strategy, talent management, and operations including business development and new initiatives.
In the in-house arena, you only have one client. Although there are different business units, we all collaborate. I am still relatively new to my role, but I know that if I want to thrive in this position and make contributions, I need to understand the business well. What we want to achieve cannot be seen only through the legal lens, let alone merely abiding by the law; one must go beyond basic legal skills to serve this (only) client well. A number of international legal articles and reports, including a recent GC survey, have said that general counsel nowadays should not merely be the head of legal but also a strategic business partner. Today marks my 13th month at Yum China. I have learned a lot about management.
Even in the matter of advisory on the law, a law firm partner and a general counsel play different roles. As external counsel, one gives legal advice, primarily. It is good if your client accepts your advice, but it is also alright if your client does not take your advice. In any event, your client pays your legal fees. On the other hand, I am now part of the decision-making process. I discuss many things with the CEO and CFO. We brainstorm, and we make decisions together. I have to bear the consequences of those decisions, for better or worse. These experiences have been entirely different for me after being external counsel in the last two decades.
The understanding of external counsel on legal issues that a company faces is almost always different from that of in-house counsel. I have heard this before but now I personally experience it. External counsel can give accurate legal analysis, but they do not have the same breadth and depth of understanding of the business background as we do. It is not a question of technical competence. Rather, it is the natural outcome of sitting in management meetings every day, discussing business scenarios and operational risks arising therefrom. Of course, external counsel should endeavor to understand the client’s business; otherwise, their advice would be too “legal” (impractical) to apply. Let’s take a privacy lawyer, for example. If you are not well versed in privacy laws, you are not qualified to pitch for the work. But it is not enough to merely know the laws. Suppose we have an App that we want to cooperate with Tencent on. External counsel should take the initiative to understand: What kind of data exchange would this project entail? What is the business objective of this project? What are the KPIs of this project? How much interaction will there be between the two platforms? Is each interaction compliant with the relevant laws? Only after you understand these issues well can you offer legal support that matches the business reality and satisfies the commercial needs. Of course, it is important to maintain your team’s stability and delivery quality to give the client confidence.
I have the same requirements for my team – “understand your client.” As much as possible I assign them to attend business meetings. I don’t want them to be notified only after legal issues have surfaced. Instead, on Day One, when business folks are still in the process of formulating ideas, I’d like to see our in-house legal team involved. We can provide pragmatic and business-oriented legal advice only if we understand the business well. In order to facilitate my team’s early involvement in a given business initiative or project, I emphasize the necessity of understanding our business. With respect to these finer points, when I used to look inward from the outside, I had one perspective, but now that I look outward from the inside, my perspective is entirely different!
What is the attraction of an in-house role for young lawyers? I can tell you from my own experience: job satisfaction. When you work in-house, you get to know the enterprise. You can proactively participate in shaping the company’s strategies. External lawyers do not usually have the opportunity to do so. Moreover, as in-house counsel, you no longer need to worry about finding clients, billing, and collection. Your motivation is different. You seek to be a successful business partner.
Sherry: After comparing these differences, I think the value of external lawyers, as service provider, can be summarized in one sentence, “solving problems that the client’s in-house counsel can’t.” Of course, as you said, external lawyers need to be superior client service-oriented. Now, more than a year has passed. Based on your in-house experience, what do you think is the most significant value proposition of in-house counsel?
Joseph: We should, first and foremost, be Trusted Advisors. That’s foundational. There is often friction between the business and legal teams in many companies. The business teams may think that the lawyers restrict them. This is perhaps due to miscommunication between the two groups, or perhaps due to the fact that in-house counsel may not be commercially minded enough. If we, in-house lawyers, can put ourselves in the shoes of the business folks and gain their trust, they may be more willing to involve us as part of the working group at or near inception, and share their thoughts and concerns with us. It would then be easier for us to help mitigate risks early on, instead of jumping up and saying “no” at the eleventh hour, giving rise to the impression, whether fairly or unfairly, that lawyers are deal killers.
Secondly, we should be Problem Solvers. Of course, the easiest way without too much consideration is to simply tell the business team that they can’t do it. But in most cases, you can recommend a solution or, at least, explore an alternative. These options may not be perfect but may offer a higher degree of flexibility and feasibility. For example, a framework as currently proposed may cross a red line. Can we suggest a revised framework? Or can we change certain terms of an agreement with a third party to bring the agreement within the bounds of the laws? If so, we may have found a solution! After going through these scenarios and possibilities, our legally trained mind may come up with several options. The risk exposure of these options may be different, so we have to exercise judgment to help the business team choose a suitable option. There is a significant difference between an engineer’s mindset and a lawyer’s mindset. Engineers are trained to solve problems. Lawyers are not trained this way at the outset. Our traditional frame of mind is perhaps to work within a legal framework, but when we operate in an in-house environment, we have got to take on an engineer’s mindset!
Then, finally, we should be Strategic Enablers. There may be new business models in the company. New business models introduce new risks. If you are to be an integral part of a new strategy and help the team achieve a business objective, you have to get involved in guiding the development of the strategy. In China, many innovative business models are not yet regulated by rules and regulations. Our role as in-house legal is to ascertain what the current legal or regulatory framework is and identify potential risks. Under the existing legal framework, we should think about how we can assist the business team develops the new business. When you look at the legal issues today, there may not yet be any relevant laws on the subjects. Pilot rules may soon be promulgated. However, even after the authorities issue pilot rules, such rules may not be sufficiently comprehensive. In that case, how do you guide and protect the business team?
To put these three points in order: Trusted Advisor -> Problem Solver -> Strategic Enabler.
After going in-house, every day is exciting! There are many unexpected things that happen every day. Before going into the office in the morning, I would wonder what new issues we might encounter today. Long story short, I’m having a lot of fun! When I was in private practice, every day was pretty predictable. While I lived very well, it was not as fun as it is now. A lot of the things that I am dealing with now go beyond the law; I am getting grounded in business operations. Although I did my undergraduate degree at a prestigious business school, I found what I had learned is no longer adequate. I feel like I have embarked upon a brand new career, kind of as a lawyer, but probably not quite.