Open-mindedness, resilience and leadership have increasingly become necessary qualities for corporate counsel in this turbulent age, writes Victor Shen
All such new features are reflected not only in a series of US policy shifts, such as the more vigorous enforcement practices and contemplated expansions of scope and power of its Committee on Foreign Investment in the US (CFIUS), its renegotiations with Canada and Mexico regarding the North American Free Trade Agreement (NAFTA), the tariff sticks Washington frequently wields against its trade partners, but also in the EU’s ongoing about-face policy adjustments towards foreign investments in its region of responsibility, more strict antitrust enforcements against tech giants like Google, Amazon and Facebook, among others, aiming to keep the EU at a distance from the sweeping powers of US tech unicorns, as well as the profound regulatory changes with respect to data protection, tax schemes, labour laws across China, South Korea, Japan, Australia and other major economies throughout the world.
To keep things in perspective, we can compare the regulatory changes that have occurred with how the global economy, especially the multi-national companies (MNCs), has been developing in the past. It is ironic to see that, though regulatory changes are featured with populism and deglobalization, MNCs have continuously and firmly been rolling out globalization schemes, such as the mushrooming share-service centres across the borders, the proactive M&A practices in emerging markets, the windfall of restructuring projects across the regions and countries. It is worth noting that all such globalization efforts have been significantly enhanced in some cases in a disruptive manner, with the digitalization edges, such as artificial intelligence (AI) and big data. All these aspects not only imply that the deglobalization attempts of various politicians may probably fail, despite their origins, but they also indicate a new Globalization 2.0 (assuming the post-World-War-II era with its US-led international order constituted Globalization 1.0), with distinct features, scale and depth, may loom on the surface.
Amid such a mixed picture, MNCs, as beneficiaries of globalization, and their law departments should, without doubt, continue embracing globalization instead of something else, while navigating the current VUCA world, with open-mindedness, resilience and, most importantly, leadership. Consequently, when it comes to legal support for mainland subsidiaries, the local law departments of MNCs in China need to set the following as guidelines for both their strategic work planning and daily management of legal and compliance affairs:
Consistently bear in mind global perspectives and judgment when tackling legal issues affecting the company in China. In reflection of Globalization 1.0 from its commencement to date, no one can deny that a comprehensive and well-knitted international regulatory system has been well developed and implemented – including such institutions as WTO, WIPO, among others – with wide international acceptance from the corporate sector worldwide. To a great extent, this is universal with certain mutatis mutandis adjustments in implementation. Looking deeper into the over four decades of “open-the-door” policy, we can conclude very clearly that China’s reform towards the market economy is a gradual and incessant process of learning and adapting to the ongoing internationally accepted regulatory framework and practice. In certain fields of law, China has made significant progress, such as antitrust legislature and enforcement practices, to catch up with peers in mature-market jurisdictions like the US and the EU. As a majority of business initiatives are developed at the headquarters of MNCs, before being rolled out in China, the main underlying regulatory framework can still be attributed to those of mature-market jurisdictions. All such, it is of critical importance for the local law departments of MNCs in China to have deep insights and reasonable proficiency in understanding the regulatory framework and practices of mature-market jurisdictions.
Consistently stick to “China uniqueness” when dealing with legal issues affecting the company on the mainland. Having stressed the importance of global perspective and judgement, the local law departments of MNCs in China still need to remember that China, as a jurisdiction, is still marching towards a market economy and remains far from a wholly law-oriented society. Moreover, as the second largest economy with a large population, China still has on its agenda a lot of urgent and thorny issues, such as environment, balanced economic development, cyber security, among others. The reality of these issues definitely sees the Chinese central government and its local counterparts follow playbooks in country governance and enforcement practices that are different from those of modern developed countries.
Without any hesitation, immediately embrace digitalization as a common challenge and opportunity facing the entire corporate world. The importance of digitalization may well be highlighted in these words: “In today’s world, if one person wants to do something good, he needs to go digital, while, if one person wants to do something evil, he also needs to go digital, as well.” With its sweeping power permeating areas like supply-chain operations, marketing and finance, among others, digitalization has solidly taken root in every aspect of the corporate world to become an integral part of such life.
In light of this, corporate law departments’ full embracement of this aspect will, first, ensure they keep pace with the digitalization of regulatory and compliance schemes, such as the EU’s General Data Protection Regulation (GDPR), China’s Cybersecurity Law and the strictest-to-date privacy law in the State of California.
Second, the rocketing sense of hunger among businesses for data-rich start-ups in the M&A context impels legal professionals to develop both technical savvy towards digitalization and the increasing concerns of relevant anti-trust authorities and their consequent scrutiny of data-related regulatory violations.
Third, as the whole corporate world embraces digitalization determinedly, without acceptable related technology savvy, in-house legal teams can neither be assured that their counselling would match the digitalizing business arrangements or transactions, such as e-commerce, smart factories, artificial intelligence, etc, especially the controversies resulting from the conflict between digitalization and the current legal system, nor hit the business targets with precision. One typical example of such is that, when planning an M&A, it has been proven prudent to check and align the deal structure with relevant key stakeholders of a corporation’s digitalization process for feasibility and practicability.
Last, but not least, digitalization can definitely serve as a means to increase the working efficiency at corporate law departments with the easing of the load of routine “house-keeping” legal work, such as routine contract drafting and reviewing, documentary due diligence, etc. This allows corporate law departments to devote more time to high-value work like M&A and compliance.
Be more vigilant throughout in pursuing daily house-keeping and transaction work. “More” is added to highlight the extreme importance of keeping vigilant in today’s VUCA world. Among other things, one may summarize today’s regulatory landscape as full of radical changes or enforcement trend shifts, such as the noticeable regulatory scheme changes regarding foreign inbound investments in the EU and its member states or the overhauling of the CFIUS scheme in the US, resulting in the “re-emergence” of old fields of law, such as international trade law and investment law amid a staggering and shaky WTO system against populists’ or trade unilateralism, and relentless enhancements in certain fields of law such as the one dealing with environmental protection in China.Against this scenario, in order to ensure full compliance, corporate law departments face both increasing burdens to develop expertise in new fields of law like data protection and privacy law, as well as shifts in regulatory practices, and refresh established knowledge bases on those “re-emerging” fields of law, such as trade compliance, customs laws and regulations. Also, they need to learn further and jointly work with other corporate stake-holding departments, such as SHE (Safety, Health & Environment) to tackle the challenges emerging from the quick development of environment protection laws and regulations in China. More importantly, such extra vigilance, which corporate law departments need to maintain, is expected to last for a long time as the foregoing changes are quite dynamic and still evolving.
Be resilient throughout the ongoing navigation. Looking forward, how long the current VUCA will last before settling down is difficult, if not impossible, to predict. The reason for the difficulty is the fact that the root cause of the populism and unilateralism are profound and impossible to eliminate or address, meaning they will remain unchanged for the foreseeable future.
To be more specific, social disparity due to the past Globalization 1.0 and the consequent resentments towards it have led to, and accelerated, the mass of gruntling underdog class to elect leaders they trust. Such leaders have simply rolled out administrative and legislative measures to address relevant concerns and such a trend may remain in play for a while.
Operating under such a backdrop, corporate law departments in China need to take up challenges on two fronts – one is following and implementing headquarters’ global standards of compliance and regulatory requirements and the other is simultaneously ensuring that operations in China remain fully compliant with China’s laws and regulations. It is worth noting that the compliance and regulatory requirements of these fronts do not necessarily co-exist with each other without conflict. Moreover, the difference and even conflict in terms of values and enforcement practices between the home country and the host country are becoming increasingly stark. To tackle all these never-ending deglobalization efforts and complexities, whether corporate law departments in China can remain resilient throughout these acid tests will be critical to success.
Demonstrate leadership throughout the navigation. To some extent, VUCA is something where each country’s head claims to be holding the truth, though no existing leader is genuinely well accepted. Putting aside this ironic observation, all the changes, challenges and volatilities in the VUCA world take the form of legislature and enforcement initiatives. So, highly capable law departments have the advantage of legal expertise and strong risk acumen to help the company navigate the deep and even troubled waters, when it comes to regulatory compliance and risk management.
Such an eventuality impels corporate law departments to demonstrate leadership by proactively monitoring the latest regulatory changes and challenges, warning of the changing enforcement trends and rationale, advising the internal corporate clients on the legal risks, as well as feasible solutions from a business perspective and steering the company through various risks and regulatory burdens and fundamentally towards successful closing.
Overall, the VUCA world is not a good era though it has not been the worst as it is still evolving. It is high time for corporate law departments to support their companies to navigate the VUCA world successfully with open-mindedness, resilience and demonstrations of leadership throughout the march.
Victor Shen is chief legal counsel at Henkel Greater China & Korea.
(This article represents the author’s personal opinions and observations solely and in no circumstances shall this article be treated either as legal advice or representation of the company where the author is hired. For any comments or questions, please feel free to contact the author at either [email protected] or call +86 21 2891 8140)