What is Huadian’s in-house legal team’s strategy?

There is a basic principle for the in-house counsel: Above all, we position ourselves as “focusing on the central tasks and serving the overall interests”, which is the key to our job. Huadian has four major businesses, namely power generation, coal mining, finance, and engineering technologies. By “focusing on the central tasks”, we mean we need to work around these four businesses. Business is the material base that determines how the legal practices should be conducted. Legal is a supporting unit, not a core business. But it is closely and inseparably connected to the core businesses. As a result, we have to plan, design and prepare our legal services in accordance with the different features of the four businesses.

The policy of Huadian’s legal department is “three mosts and a transition.” First is lowest risk, then fewest disputes. By reducing risks, we minimise the possibility of legal disputes. The third one is largest value. Legal work should also add economic value to the company. Transition is from a transactional to a managerial pattern. Currently, we do our job mainly on a transaction- by-transaction basis. But as the transactions increase, need for good management emerges.

What is your daily work like?

Huadian has a three-level organisational structure, including the group headquarters, the regional branches, and local enterprises such as power plants and coal mines. The structure of the legal management also follows this structure.

The group headquarters is in charge of the issues in which they are directly involved. The secondary branches in provinces, including several listing companies, are supposed to look after their own issues. And the power plants and mines are fully responsible for their own legal matters. Our transition to the managerial pattern too has the three-level control mechanism.

The legal department of the headquarters has two functions. First, we directly serve the headquarters to provide advice and opinion on all contracts, regulations, and major decisions. We are also in charge of a wide range of other legal issues, such as trademark management, registration and alternation with the SAIC (State Administration for Industry & Commerce), annual inspection, etc.

In terms of regulation management, instead of simply examining and approving, we have a centralised system which is very strong. We have specifically compiled a “Code of Huadian”, in which we have collected all three levels of relevant laws and regulations – the state laws, the SASAC (the state-owned Assets Supervision & Administration Commission) regulations, and the company rules. By “code”, we deliver a strong signal that everybody has to strictly abide by laws and rules in their daily conduct and operation. This is an innovation from our end.

How is Huadian’s legal team structured?

In our in-house team, there are full-time counsel as well as part-time ones. The current structure is that within the headquarters, we have the Policy and Law Department (PLD) whose chief legal officer also holds the post of vice-president with the group.  In each of the secondary branches, we have a chief legal counsel and a legal department to go with the SASAC requirement.

The third level units under the branches, which are power plants and coal mines, have their own legal workers. Smaller enterprises have part-time ones, while the larger units have full-time ones and compulsorily a chief counsel. It depends on the asset size. For those units above 10 billion yuan, it becomes compulsory to keep full-time legal personnel. It is because the ultimate purpose of an in-house counsel system in SOEs is to preserve and increase value. The bigger the size is, the heavier the task of preserving state assets and operating within the law.

The legal counsels of the branches and units first report to their company heads and legal representatives. They also report legal issues to us, the PLD, for instance, when there is a major dispute. They are also under our direct monitoring.

Speaking of manpower, we basically have only one PLD, in contrast with some other big central SOEs with multiple departments and several dozens of people. This situation is because of historical reasons.

How do you manage to work with such limited manpower?

The reason that we do not have a big team is due to the characteristics of electric products, which to a large extent, have fixed trading partners. Amongst our largest contracts, the fuel procurement ones are mainly dealt by major coal mines with high credibility. The electricity we generate is sold to the state grid. These two are huge contracts. But for others, such as for equipment procurement and maintenance, there are limited options. Such a situation means our biggest contracts are all relatively mature, and our suppliers and clients are long-term partners.

Apart from this, there are highly market-exposed contracts which need to be checked and approved by legal personnel. For instance, the business unit of engineering technologies employs relatively more legal counsel than the other two levels.

Generally, we do not require a big number of people in our working style. If more hands are needed, the human resources department supports us in expanding the PLD. We also outsource some of the jobs, and get help from private law firms. We, at times, combine our in-house team with external lawyers too. Presently, the legal profession is so specialised that we cannot be experts at everything. Therefore, for areas we do not know, we seek advice from external lawyers. They help us examine some contracts which are difficult, complicated, or highly specific. In fact, companies which have a big in-house team have to use external lawyers in some cases too.

How do you choose external professional legal helpers?

Huadian has a code on external lawyer management. Unlike some companies, we think the personnel mobility of this industry is so high that it does not make much sense to save the data.

First, we care about the brand of the law firm. With so many years in the industry, we know the best ones, the most capable ones. Second, to provide legal services is to solve practical problems for the company. We observe the actual capability of such external legal service providers and the effects of their advice on the business.

In our code of external lawyer management, each time we use a lawyer, we do a performance assessment. I am in charge of doing that. For instance, while doing this, I pay attention to the lawyer’s attitude, his commitment to our case, his service quality, the result, number of complaints, etc. I fill a form in this regard, and on every trial, I give the lawyer a score, and comment on a series of parametres. One assessment for each trial.

The performance assessment is related to the payment. Normally, we clear the payment after the case. Of course, sometimes there is pre-payment, which depends on the situation. We certainly evaluate the lawyer’s job, and make future choices based on the evaluation. We also reconsider our choices if a strong firm does not send their best lawyer to achieve the best result for us.

We want to manage our hiring to meet set standards. External lawyers are to complement the knowledge and capacity of the in-house. We want the highest quality helpers. We won’t need them if we could handle it ourselves.

In which aspects do you want external lawyers to improve?

In external lawyers, I value their diligence the most. It is the fundamental and basic requirement. With it, high performance should be a natural result. A lawyer can never just take on a case without sending the best team, or not working on time. Diligence consists of many aspects, including working attitude, quality, result, and cost.

More importantly, as a lawyer, you have to have faith in the law. I care about this. You have to go the right way. You have to believe in the rule of the law, in compliance, in the fairness and justice of the law. Only in this way, can you give the company good and decent advice. Otherwise, the entire process could be dishonest. Of course, we in-house counsel will have to be the final goalkeeper. During the process, we will draw a frame for the lawyer and generally, they can deliver within the frame.

Our mission is to protect our legitimate interests in lawsuits. Above all, it has to be lawful. You can’t do it immorally. Illegal ways like spying on people or hiring gangsters are absolutely prohibited. If we are certain it is in our legitimate interests, we would persistently protect it through no matter what: an administrative lawsuit or civil lawsuit, any number of first instances, second instances, remandings or retrials. We target the rightful interests, and demand ultimate justice and settlement.

I think the so-called “faith in law” is indeed lacking in some of the external lawyers. It’s because they are more influenced by things like judicial injustice, which is not completely their fault. Nowadays for some unfair cases, it is the incomplete law system to blame, while in some other cases, the law is distorted by some from the judiciary.

Why are lawsuits so important?

Only by handling lawsuits successfully can the legal department win respect and dignity within the company. When you lose a case, you lose face. Of course, risk prevention is important, and it is the fundament job you have to do. But the hard measurement is whether you can protect the company’s rights and interests when there is a lawsuit. Risk prevention and rights protection are equally important, and neither should be neglected. A company should pay high attention to both. The first priority is to avoid problems through prevention, which is ideal, but only theoretical in practice. In the meantime, we should not be scared of problems. When facing a dispute, we need to fearlessly defend our legitimate rights and interests.

Simply speaking, people can hardly sense your direct effort towards prevention on a daily basis, no matter how much effort you put in. But when a lawsuit occurs, who is handling it and how it is settled are quite straightforwardly visible, which means the result of a lawsuit is the measurement of our performance and practice.

How do you increase the awareness of company executives and other business units regarding the understanding of your work apart from the lawsuits?

The awareness is not a problem in Huadian. The executives have already attached high importance to the legal work. So have other business units. In fact, they are proactively studying law themselves. For instance, the human resources department has hired experts to lecture on the latest labour law(s). Huadian has a high-level training centre for executives and senior managers. We require all programmes to have compulsory law courses to ensure regular legal trainings, and we keep urging people go through these programmes.

Currently, all units are doing well in implementing and enforcing laws and regulations, something in which we do not intervene. We are only called out to when they encounter difficult legal issues that need our examining and discussion.

We have law education every year, which is something that was started many years back, and has entered the sixth five year programme. The education has been subtle and influential. Each department has a contact for the education programme, which requires each department to study the laws and regulations relevant to their specific business and operation.

Through this process, we are increasing the learning, enforcement, and compliance of the law. In particular, we stress on defending and the protecting the sanctity of the law.

You have been emphasising on the faith in law and justice. Is that out of your own experience?

I received my degree in law from Peking University in 1986, one of the earliest law schools in China. I first wanted to be a judge, but instead, ended up being an in-house counsel. I have been working for the company since 1994, and it’s been almost 20 years now. It is interesting to work as in-house counsel though, because it engages in many different kinds of laws, unlike being a judge who only processes a very specific case. An in-house counsel is involved in all sorts of cases, which are horizon broadening, challenging, and useful.

As a legal professional, I always fight against judicial injustice in my practice. These last few years, I have been dealing with several big and significant disputes. All very difficult, but have received good results on all of them.

What have you learnt or concluded from these years as an in-house counsel?

The characteristics of in-house legal work can be described with very few words. The first one is “practical.” It is practical, realistic and specific. Every little thing needs to be examined bit by bit. For instance, the PLD has 2,000 tasks, which are broken down to 100 to 200 tasks every month as “to-be- done.”

The second is “timely.” It is very time-sensitive. We can’t say “hang on, give me some time” when there is a mission. You are going to court tomorrow, signing a contract the day after. You have to make your legal judgment and decision in very limited time. Pressure follows this. A huge pile of contract, a complicated legal relationship, or a difficult court strategy; they all mean great pressure in a short while.
The third one is most striking, and it is “responsibility.” Heavy responsibility which is followed by serious consequences. If you are not careful enough while examining, if you miss out a potential risk in a clause, or if you misjudge, or are imprecise while editing, you may cause a terrible economic loss, or end up with a legal dispute. What distinguishes a legal worker most is whether you have the insight and the foresight. You have to predict the future risks, and whether they can be covered by current control solutions based on present laws and regulations and your own experiences. You also have to avoid any incompliance and delinquency of your own, as well as inappropriate expressions, as disputes may arise from even one or two words.

The most stressful tasks connect to major lawsuits, or contracts. Many key decisions, like the investment decision, joint venture agreement, and acquisition agreements, are carried out by the contracts and our goalkeeping is also shown in the text of the contracts. We PLD members are involved in all the leadership groups, like the investment review committee, or the bidding teams. Our people are there on the overseas project leadership group too.

Nowadays, I can view the increasing sense of responsibility on my shoulders while reading and approving a contract, especially during its signing. In other words, being an in-house makes you more and more timid.

Facing the challenges of a heavy workload and pressure, what are your plans for the future?

From next year, Huadian will introduce an enterprise resource planning (ERP) system, in which there will be an embedded contract management system. This is also our next highlight.

In our company, contract management is the key of keys, the first priority. Production, construction and operation, all these frontline businesses are implanted into the system. Whenever the frontline starts an act, it has to go through the contraction management system before reaching the financial department. This guarantees true and complete business information as we can monitor the contracts through the system. Whichever contract I want to check, its key facts and the fulfillment progress are available whenever I need them.

We have put a few types of contracts under special monitoring. We label the risk level of a contract at the signing. The subsidiaries have no authority to approve the high-risk ones, which are to be monitored by the group. Like the ones worth a large amount, or with certain partners. We calculate the possibility distribution of legal disputes, and work out the risk level. Moreover, the contracts of acquisitions, joint ventures, and other derivatives have to be approved by either the group or by the SASAC. Such contracts prompt out to the PLD as soon as they enter the system. Thus, the risk is largely reduced.

In what ways do you think the role of in-house counsel in Chinese SOEs should improve?

Multinational corporations (MNCs) are different from us in that the reason large MNCs keep a team of in-house lawyers is that they have their own specific legal issues which need lawyers who fit in the company to provide specialised and customised services. Their in-house counsel have the same licences as external commercial lawyers. But in China, lawyers and in-house counsel are clearly demarcated.

In China, we are only “consultants” rather than “lawyers.” And the SOEs’ counsel are registered with the SASAC, while the private lawyers are with the Ministry of Justice.

Although we have all passed the bar, we can only practice within the company. In many cases, we have to rely on external lawyers. For example, we are restricted from looking up for information at the judiciary, as we are only employees of non-legal organisations. Technically, only private lawyers have the access to the data in some of the administrations and judiciary. These places are “lawyers only.” This dual structure is a result of misalignment with international standards. It is a fact. Generally, there is a long way to go to achieve the rule of the law. The current “in-house lawyer” mechanism, including the overall role of the in-house counsel in China, needs to be developed. It is my opinion that we ought to gradually change this situation.

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