SASAC has moved up another gear in its continuing efforts to improve legal risk management within state-owned enterprises – it has issued new measures to ensure heightened competency and professionalism among in-house legal departments.

The profile of the nascent in-house legal profession has gradually been rising over the past few years and the latest effort by the State Asset Supervision and Administration Commission (SASAC) to ensure a high standard of in-house legal profession within state-owned enterprises (SOEs) marks further official recognition of the profession's rising importance.

SASAC, which in essence is the regulatory body and shareholder of the state-owned equity interests in the central-level SOEs, issued provisional measures in May 2008 on assessing and administering job qualifications for in-house legal counsel of SOEs (《国有企业法律顾问职业岗位等级资格评审管理暂行办法》). Last year saw advances in its implementation and adoption by many central- and provincial-level SOEs. The measures set up a four-level framework for classifying and certifying individual in-house legal roles and their seniority.

Any SOE in-house counsel can apply for the title of either assistant (junior), level three, level two or level one (most senior) corporate counsel, if all requirements and criteria for the corresponding title are met. Applications are reviewed and approved by a special panel appointed by the in-house counsel's employer before the titles are finally authorised by SASAC.

SOEs: quick statistics

By October 2009, 99 of the 132 central-level SOEs and 46% of the 1200 important subsidiaries there of had established the general counsel system By September 2008, 755 of the 1,028 provincial-level SOEs had set up an in-house legal department and 349 had adopted the general counsel system. The total number of in-house legal staff employed by provincial-level SOEs was 16,000, of whom 4,696 had obtained the corporate counsel certificate In 2008 the total number of M&A transactions (both at home and abroad) by central-level SOEs reached 423, a significant increase from the previous year

The criteria for each level, such as years of practical experience and relevant professional credentials, have been set forth in the measures. Passing the national corporate counsel examination, administered by the Ministry of Human Resources and Social Security (MoFRSS), and obtaining corporate counsel certification are the basic requirements for each level.

Although the national examination was inaugurated in 1998 and holding the certificate has been a requirement for employment in many positions, its mandatory status and its role in the professional development of in-house counsel has only been formalised now. "The measures have motivated - and will continue to motivate - in-house legal staff to take on further training or study, or upskill and upgrade their legal knowledge," said Zhang Xiaofeng, the vice director of the contract and project division of Sinopec's legal department. "The enhanced capabilities and professionalism of in-house counsel, and their improved performance and skills, will lead to a stronger and more effective management of state-owned assets."

Among many other legal staff in his company, Zhang sat the exam and obtained the corporate counsel certification after the measures took effect. Sinopec's headquarters and important subsidiaries have a combined team of nearly 1,700 legal staff, with a majority of staff having already obtained corporate counsel certification. The rest are expected to obtain certification by the end of 2010.

A tiered proposal to show appreciation for outstanding in-house counsel while increasing their compensation and benefits is part of the new measures. The lower-than-market-average remuneration for in-house roles and limited promotion opportunities are regularly stated as two of the difficulties many SOEs face in retaining legal talent. "In corporations, only a very small percentage of the in-house legal counsel can climb up to management. Promotion opportunities in a corporate are rarer than in private practice," said Wei Zhengxing, manager in charge of legal risk for China Southern Airlines. "The four-level professional qualification framework, therefore, creates a brand new channel for in-house counsel to progress in their careers and offers new incentives to advance their professional development. Once an in-house counsel is granted a certain professional-level title, the employer ought to raise compensation to match the national standard for that level," he added.

Level/title	Credentials	Years of in-house legal experience	Other requirements
Level 1 – senior professional	Bachelor degree and above; corporate counsel certificate	Five years on level 2	High level of management skills; ability to lead and manage legal affairs of a department and a company
Level 2 – semi-senior professional	Bachelor degree and above; corporate counsel certificate	Five years on level 3	Sound management experience; ability to coordinate and manage complex legal matters and issues
Level 3 –intermediate professional	Corporate counsel certificate	nil	nil
Level 4 – junior professional	-	Minimum one year’s experience	nil

"The fundamental problem is that in-house legal counsel are not regarded as 'lawyers' in the legal system"

As the division manager points out, the administering of in-house counsel is inconsistent among different sectors: The designations and requirements for in-house counsel in private companies, multinational companies and SOEs vary significantly. The corporate counsel exam and certification, for example, are mostly required for in-house positions in SOEs. Private companies and multinational companies can hire lawyers who have passed the national bar exam or are admitted to practice law in foreign jurisdictions.
 
"The fundamental problem is that in-house legal counsel are not regarded as 'lawyers' in the legal system, even though a significant number of them are advising on the law, practising law and providing legal advice and opinion to their internal clients," the source said.

Unlike other professionals such as accountants, economists and engineers, who are distinctly identified and clearly recognised across all of China's different sectors, in-house legal professionals don't have a single, official, unified representation before the public authorities. They have no defined rights and obligations - nor are their qualifications subject to a specific set of national regulations.

Situation abroad
In many developed countries such as Australia and the UK, practising as an in-house lawyer requires the same standing as private-practice lawyers (qualification as a solicitor). Private-practice and in-house lawyers have exactly the same obligations and owe the same duties to their clients and the courts. And generally, only those lawyers who have been practising at a law firm for a number of years are taken on for in-house roles in these jurisdictions. "In-house lawyers have to face many complicated situations and a broad range of problems. Corporates and government bodies normally prefer employing people who have experience practising law in a law firm before going in-house," said Peter Turner, the CEO of the Australian Corporate Lawyers Association (ACLA).

Having participated in exchange programs regarding in-house legal practice and legal risks management initiated by SASAC, Turner understands that the Commission is putting significant effort into improving the in-house legal profession and legal risk management of SOEs. He can also see the unique difficulties that in-house counsel have to endure in China.

"The fact that in-house counsel's employers are also their clients creates an in-built conflict-of-interest situation for in-house roles. This is one of the most difficult things for Australia's in-house profession. [So] in the context of Chinese SOEs it's even more difficult, as in-house lawyers there have to ask the question: do they owe their duties to the regime, the party, the enterprise or the directors? It's difficult to stand back and clearly sort out where their duties align."

As the famous saying goes, "the value of identity is that so often with it comes purpose". Only when the identity of in-house counsel is clearly and formally defined by both public and private sectors in China will they as a profession be able to best serve their legal purpose. ALB 

July 2002 Initiated a pilot program to implement the general counsel system in several central-level SOEs May 2004 Issued a policy requiring all important SOEs to adopt the general counsel system and establish an in-house legal department March 2005 Co-hosted theSASAC-ACC international roundtable in Beijing on enterprise legal risk prevention August 2006 Launched the first public recruitment program to appoint the best and most competent general counsels on behalf of large SOEs April 2008 Issued provisional measures on assessing and administering job qualifications for in-house legal counsel within SOEs May 2008 Launched a new three-year plan to promote in-house legal departments and the general counsel role in subsidiaries of SOEs. 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

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