January 10, 2020
Charting a New Journey: The Evolving Role of the General Counsel in India's Changing Landscape
As a fast-growing economy with significant potential, India has been accelerating reform initiatives to improve the local business and foreign direct investment (FDI) climate in the country. However, some would argue that the execution of these reform initiatives has created its own set of challenges. The evolving regulatory landscape, coupled with global macro headwinds, have changed the rules of engagement and increased uncertainty for businesses in the short run.
In recent years, India’s economy has grown at an unprecedented rate thanks to a proactive government and the array of initiatives that promote a more open and progressive economic environment. The challenge, however, seems to be that the regulatory changes come in waves — and are often tough to predict. The constantly shifting governing landscape has given rise to uncertainty and limited the ability for companies to plan for the longer term.
Against this backdrop, Spencer Stuart organized a roundtable with senior legal leaders from diverse industries and law firms to delve deeper into the opportunities and challenges presented by India’s evolving legal and regulatory framework, and the impact on businesses across various sectors. We also attempted to answer some key questions: What is the role of the legal function in this environment? How can general counsels (GCs) proactively partner with the board and CEO to navigate challenges and mitigate risks while enabling sustainable business growth?
Legal leaders in India gathered to discuss changes in the GC role.
Areas for GCs to watch
Expanding responsibilities
The legal leaders at our roundtable explored their own responsibilities in understanding and changing the norms. They agreed that general counsels today need to be as disruptive as business leaders and suggested that having appropriate conversations at the right forums would improve the dialogue with regulators. While law firms and the government work together closely, greater involvement with industry leaders should be encouraged. They also debated the virtues of restructuring in-house legal teams in order to emphasize the role of compliance, governance, public policy and government affairs.
They also agreed that, today, the GC role as well as the legal function overall has expanded from being a traditional facilitator to a business partner and an advocate for an ethical company culture. One very interesting point to note here is that marquee organizations with an inclusive corporate culture can often reliably point to two contributing factors: The GC is vocal within the organization about important legal, compliance and regulatory issues and he/she has a good relationship with the board.
External regulatory, economic and political forces
When thinking about the broader landscape, the leaders felt that, whilst the economy has been growing rapidly over the last few years, there have been inklings of a slowdown in the Indian economy, which along with the global headwinds, brings its own industry and regulatory challenges.
They also emphasized that balance is key, be it with the media, regulatory bodies, the government or the judiciary. While some lament over-regulation in some spheres such as safety requirements in the taxi aggregation businesses, under-regulation in other areas like corporate governance standards in non-banking financial companies (NBFCs) can present significant challenges in the real estate sector.
In addition, some of the legal leaders anticipated that with nervousness around the global political environment, such as trade wars between the U.S. and China or Brexit in the UK, India is emerging as a top market for investments.
The evolving economic and geopolitical dynamics, increased regulations, stricter enforcement and technological advancements have only increased the need for legal leaders to use their voices. At the same time, companies must ensure they provide an environment that enable legal leaders to develop the mindset and skillsets needed.
Some multinationals/foreign brands find that India is not particularly attractive for business due to the number of required disclosures, including investment details and executive compensation, among others. Additionally, while the government is trying to encourage investments in R&D, these regulations have not been favorable to innovation and external players in India.
The participants noted that India is the only country other than China to have such stringent data localization laws, where the government requires data to be stored within the country. This translates into huge costs for companies as the platforms must be built from scratch. There is a growing gap between regulators and their understanding of technology that needs to be bridged. The group noted that there might be significant changes to the current requirement after the enactment of proposed data privacy legislation.
What do all these changes mean for organizations and the GC?
Business is not isolated anymore, which means boards have more to do, as well as the management team and general counsel. In this evolving landscape, the legal leaders outlined some of the GC’s expanded core roles:
- Adviser: GCs must become more business savvy in order to give relevant legal advice. They are expected to not only defend the company, but also to proactively offer guidance to avoid missteps in the first place.
- Culture creator: If an organization is intentional about establishing integrity and ethics as corporate values, that mindset should become part of business decision-making. By advocating for that behavior within the organization, developing a collaborative relationship with the board and helping to oversee the corporation’s cultural ethical values, the GC can be a crucial driver of the company’s culture — and its ability to achieve its long-term strategies.
- Diversity advocate: Many GCs realize the importance of diversity in decision-making, and that having diversity on boards is not enough. There needs to be a culture of inclusion so that the company gets the benefit of the varying perspectives that come from diverse voices. GCs can set an example by building a diverse legal function and advocating for diversity throughout the organization.
A central takeaway from our discussion was how the GC’s role is no longer limited to the letter of the law. In addition to providing counsel on legal risks, GCs in India are increasingly being tasked with staying abreast of economic, regulatory and political changes that could impact the business. Understanding the implications of shifts in the external environment and how they could affect the internal culture will be key to an increasingly important responsibility of the GC: proactive risk management.
We would like to express our sincere appreciation to Taniya Verma for her contribution to the event and this blog.