Six years after the government initiated a campaign to implement a "general counsel system" in state-owned enterprises (SOEs), the majority of the large SOEs have now established an in-house legal function and appointed general counsel.

Many of these in-house legal departments have thrived and proven their value to senior management in a remarkably short space of time. Legal managers and general counsel of these departments have also earned good reputations in the legal community. The in-house legal teams of CNOOC, Bao Steel and Sinopec, for example, have excelled in providing strategic and innovative legal solutions to enable their companies to achieve business and strategic objectives not only in the domestic market but also in key markets right around the globe.

As part of the campaign and in an effort to find the most competent candidates for general counsel positions, the State Assets Supervision and Administration Commission of the State Council (SASAC) started an annual public recruitment program to help appoint general counsel for enterprises under its supervision since 2006. So far, 16 central-level SOEs have appointed general counsel through three public recruitment programs.

Last May, a plan to promote general counsel roles in subsidiary companies announced by SASAC marked the beginning of the campaign's second phase. According to the plan, all important subsidiaries of the central-level SOEs should have appointed general counsel and set up an in-house legal function by 2010.

China Chengtong Group, a large logistics conglomerate which is a central SOE, is one of the first to respond to the new agenda set by the SASAC. Under the leadership of the group's general counsel, Tang Mingyi, who was appointed through SASAC's 2007 public recruitment program, the group recently named Wang Yonghai as the general counsel of its important subsidiary China Asset Management Corporation (CAMC), which manages more than RMB10bn worth of assets.

Wang has been and will remain a vice-president of CAMC while he serves as general counsel. With 17 years' legal experience, in-house and in private practice, he is responsible for the management and direction of the company's legal team and affairs. He reports directly to the president.

As the SOEs are becoming increasingly commercially oriented, international, market-driven, their developing of a solid in-house legal function is a good strategy. However, this raises an important question: does the growth of the in-house role translate into reduced business opportunities for external firms?

Three years ago, domestic law firms' perceptions of this issue would have been very different from now, but in today's more mature and diverse legal marketplace the majority answers "no".

According to Dacheng's senior partner, Tuo mingzhong (pictured), the promotion of in-house legal teams in SOEs will improve the legal service industry. "We see the rise of in-house teams led by a general counsel as a positive and necessary development. As large sophisticated organisations, they do need professional legal management," said Tuo.

Tuo has extensive experience working with SOEs, particularly on restructuring projects. He has been the main outside advisor for China Asset Management Corporation since 2000. After the appointment of the general counsel, he continues to provide legal support and advice regarding the company's business operations and strategic planning.

"General counsel and in-house counsel don't handle all legal matters directly; they are responsible for leading and managing the process," said Tuo. "The volume of legal work outsourced to us won't be lower than before the general counsel was named. But we have to offer more specialised legal services in certain practice areas and improve the quality of our services."

Tuo explained further that the rising role of general counsel in SOEs is a reflection of where the decision-makers' priorities lie. Their focus has shifted from litigation to legal risk management. This change in priorities enables law firms to be more involved in SOEs' strategic planning, business transactions and compliance. In addition, having an in-house legal team in place - in effect formalising the work relationship between clients and external legal advisors - will improve the quality and standards of legal services provided by external counsel.

In the past, due to the absence of an in-house legal team, communication between external counsel and board members and senior management has been problematic and prone to misunderstandings. Having an in-house legal team that can give advice on technical and business issues and can function as an external resource coordinator will help external counsel work more efficiently.

"In-house teams can help law firms to better understand companies' business needs, and at the same time they can ensure that external advisers are able to provide the best value and legal solutions for businesses," said Liu Yuming, a partner of Zhong Lun.

Liu and his team recently advised COFCO, a leading grain, oils and foodstuffs import and export group in China, and one of its largest food manufacturers, on its takeover of Wu Gu Dao Chang. Although the firm was instructed by a strategic business development unit, it worked closely with the group's in-house department during the course of the whole transaction. "The COFCO in-house counsel has played an important role in interpreting instructions from the business units and transmitting them to the external advisers, ensuring that everyone knows what will be delivered and ensuring matters can be moved along more quickly," said Liu.
 
The practices of in-house legal teams and general counsel in SOEs vary but they are all still in the initial stage of development. However, the campaign in its sixth year is having encouraging results - both for the companies themselves and the law firms they instruct.