Why large Saudi companies must step up their legal game

Why large Saudi companies must step up their legal game

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When I joined Saudi Aramco’s law organization back in 2000, the company’s legal needs were much different than they are today, and could be adequately served by a dynamic legal team comprised of around 20 generalist lawyers. However, in the late 2000s, Aramco launched a vision to transform from being an oil and gas company, with limited presence globally, into a fully integrated global energy and chemicals enterprise. As an organization, we had to have the foresight to anticipate the legal demands that come with such a transformation and plan for them, prompting us to conduct a parallel transformation project of our own.

Today, the law organization is a fully functioning legal team that rivals the biggest law firms in the region in terms of size and subject matter expertise, and is staffed with specialized international lawyers in various fields to meet the expanding demanding needs of the enterprise. This company vision may not have been realized without laying the groundwork for a robust and sophisticated legal department.

A much bigger transformation is also taking place in the Kingdom. Today, Saudi Arabia is advancing at a rapid pace, thanks to a raft of ambitious government programs at the heart of Vision 2030, in which the private sector plays a major role. But with new opportunities come new risks, and Saudi companies must evolve with the growth and transformation of the national economy. This involves adapting to a rapidly changing business and regulatory environment both domestically and abroad, which requires large companies to develop best-in-class legal departments and to enhance the role of in-house counsels, to rival regional and global competitors.

In-house legal departments have two primary responsibilities: protecting a company’s interests — including its assets, reputation and rights — and being a business partner in advancing its strategy and objectives. This requires proactive management of legal risks, as well as legal counsels who are intimately familiar with their companies’ business and operations.

Currently, many local small and medium-sized enterprises do not have legal departments. Instead, they rely on law firms to provide specific legal services on an ad-hoc basis. The SMEs that do have legal departments typically employ a limited number of lawyers who offer general legal advice on matters such as reviewing contracts and handling labor cases.

For large companies, as the profile and scale of activities grow, so do the legal complexities and the costs associated with them. That is especially true in light of the judicial and legislative reforms taking place in the Kingdom, and the introduction of many specialized regulations. As such, large companies in the Kingdom cannot afford to be reactive in managing their legal risks. Instead, they need to invest in developing sophisticated legal departments that nurture talented legal counsels who can specialize in areas that serve their needs. Some in-house legal departments in the Kingdom, especially in major corporations, have already adopted this model.

There is no “one-size-fits-all” model for the management of corporate legal affairs, given the range of legal challenges associated with different businesses, and the financial capabilities of those businesses. However, best-in-class companies — particularly those facing significant risks or dealing with complex or specialized issues on regular basis — should have a multi-disciplinary legal department comprised of sophisticated and well-trained legal counsels, and structured according to business sector or legal specialization.

The role of in-house legal counsel has witnessed a remarkable transformation worldwide since the last couple of decades of the last century. This transformation has been prompted, in part, by an economic recession in the US, and a newly formed EU, which came with a host of complex new policies, that presented new challenges to companies in those jurisdictions. As a result, best-in-class enterprises resorted to developing specialized in-house counsels to meet their rapidly increasing legal needs and manage costs and risks effectively. This new reality of increased responsibility on companies, and in turn, their legal departments, has contributed to the rapid growth of the in-house counsel’s role.

Yet, even with the development of in-house legal teams, external law firms still have a critical collaborative and complementary role to play — for example, in matters that require specialized expertise or resources unavailable in-house.

Aramco has focused on developing its own in-house legal department for many years, and what started as a small team in the 1980s and 1990s of generalist lawyers is now a sophisticated, world-class legal organization capable of guiding the world’s largest integrated energy company through a period of accelerated transformation and growth.

Aramco’s current legal organization emulates that of global best-in-class enterprises, structured into various practice areas based on legal specialization and according to the needs of the company’s different business units.

One example of such specialized practice areas is a capital markets regulatory compliance practice, which was established in preparation for Aramco’s public listing on the Saudi Stock Exchange in 2019, to ensure compliance with the Capital Market Law and relevant regulations. Our aim is to ensure stakeholders in the company can work directly and continuously with legal counsels specialized in their field, which can in turn familiarize our counsels with each department’s operations and specific requirements — enabling them to propose practical and business-oriented legal solutions.

Developing young legal talents is another core belief of Aramco. Hence, the company’s young lawyers are normally enrolled in internal and external training and development programs. This helps increase their knowledge base and accelerates their journey towards specialization in a specific area of law. In addition, the company offers its legal counsels secondment opportunities with reputable law firms, in Saudi Arabia and abroad, to help develop their legal skills, specialized knowledge, and understanding of the complementary relationship between in-house counsels and law firms.

In light of Vision 2030, there is potential for an increased presence by Saudi companies in global and regional markets, opportunities for public-private partnerships, and a growing trend of international companies establishing regional headquarters in Saudi Arabia.

In this context, it has become incumbent upon large local companies to enhance the capabilities of their legal departments to reflect their size, strategic objectives and legal risk profile. Establishing multiple practice areas based on legal specialization and business requirements, and ensuring in-house counsels are fully aware of the scope of the company’s business, are no longer good-to-have measures but rather survival necessities. Similar to the transformation that the legal department at Aramco had to undergo to keep up with the growth aspirations of the company, large Saudi companies should seriously consider making that leap of developing sophisticated legal departments to fully realize, and take advantage of, the huge potentials of Vision 2030.

• Nabeel A. Al Mansour is Aramco’s senior vice president, general counsel, and corporate secretary.

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view