Top inhouse counsel discuss how the pandemic has re-shaped their role, and how they are priming for the challenges that the new year will bring
Businesses are ploughing an uphill furrow in the Year of the Ox. While the pandemic may be receding, we have yet to go back to old ways of doing business, and only companies that have been able to swiftly adapt to the changing business environment will continue to thrive in these tough times.
Meanwhile, governments around the world have been in overdrive trying to manage and regulate the rapid transitions the world has had to make in the past 12 months. All these have opened up businesses to volatility and unprecedented risks, which has made the role of in-house legal teams more important than ever.
General counsel must now march lock-step with their business heads to help their companies navigate the challenges and prepare for the unseen. It is against this backdrop that we invited some of the country’s leading general counsel to share their expectations for the new year, their experiences of how they helped steady their ships, and what they have done to ensure their businesses stay on course.
Our participants are:
Peter Su, General Counsel, Tsinghua Tongfang
Ma Yihan, General Counsel/Vice President, Perfect World
Tonell Liu, General Counsel, Suning Sports
Shang Dongning, General Counsel, Agile Group Holdings
Yang Xixi, General Counsel, Volvo China
China Business Law Journal: What are your expectations for the new year – the opportunities and challenges?
Peter Su: Given the uncertainties in the US-China relationship, how to deal with competition with the West has become a key topic in business. Currently, Tsinghua Tongfang has a presence in more than 170 countries and regions. As a typical Chinese high-tech enterprise, Tongfang will follow the national strategic direction and actively promote R&D and co-operation globally this year, which is also the opening year of the 14th Five-Year Plan, and the 100th anniversary of the founding of the Communist Party of China.
In the face of any major impact on the global industrial supply chain, we will form a new development pattern in which the major domestic cycle and the dual domestic and international cycles promote each other, so as to achieve a linkage of resources internally and externally, and help the sustainable transformation under this dual-cycle pattern. We will take multiple measures to achieve mutual benefits and win-win results.
Ma Yihan: The booming digital economy will bring more growth opportunities. However, with the market environment changing rapidly, it has become more unpredictable and uncertain. Corporate counsel need to maintain the ability to respond quickly at all times to maintain competitive advantage in the marketplace.
The internet industry has entered a new era in which up and coming internet players need to continually innovate and find breakthroughs to create a space in the market, and find opportunities to grow. With the increasingly fierce competition in the domestic internet market and the increasing cost of obtaining customers, more and more Chinese internet companies are seeking to go overseas for development.
However, the compliance threshold, regulatory environment and legal culture in overseas markets are more complex and volatile. Considering the influence of geopolitics and other factors, the uncertainty has further increased. Therefore, it is a long-term challenge for Chinese enterprises to develop and operate internet products that meet the needs and preferences of overseas users, while meeting the compliance requirements of overseas markets.
Tonell Liu: The sports industry has undergone significant and substantial changes in the organisation and form of sporting events, live broadcast of events, sports copyright valuation, business operation and profits, investment and financing activities, and in competition, because of the pandemic.
As the largest new media broadcasting platform for soccer and fighting events in China, we will respond to changes in the external situation in the new year to discuss and determine a more reasonable mechanism for risk allocation and benefit sharing with all stakeholders, which is bound to be more balanced, mutually beneficial and sustainable, and will also be able to consider a wider range of participants and stakeholders in the live sports industry chain.
In 2021, if the reshaping of the sports industry is inevitable, it will also mean more opportunities for corporate counsel to participate in the restructuring and reshaping of business models, to plan corporate restructuring and M&A, and to lead major historical commercial transactions. Of course, corporate counsel will also inevitably face significant challenges such as revisiting past deal structures and contractual terms, as well as renegotiating with stakeholders and changing such deal structures and contractual terms.
Shang Dongning: I hope that in the new year the covid-19 pandemic can be fully and effectively controlled, and people and society will return to pre-pandemic normalcy, and economic globalisation can be continued forward. Recently, the political environment at home and abroad has brought huge challenges to China’s development, as the containment and suppression between countries has escalated and strengthened. We hope that, while the pandemic in China is effectively controlled, the opening salvo of the 14th Five-Year Plan will be fired successfully under the leadership of Chairman Xi Jinping to make China more prosperous, and gradually cast off the impact of the pandemic on economic development. We also hope to forge ahead on the right path of socialism and create a stable economic environment for social development.
As China’s real estate industry has gone through a stage of fast-paced growth, taking big strides, it is becoming more specialised in an all-round manner. With obviously greater concentration, it has grown into an industry that is a pillar for stabilising the country’s livelihood. This year, in the context of the country’s increased regulation of the real estate market, regional control measures have correspondingly been deepened in metros such as Shenzhen, Shanghai, Beijing and Hangzhou, and house prices in major cities are gradually stabilising.
The diversification strategy of Agile Group is gradually maturing, as indicated by the substantial revenue contribution from diversified businesses and the success of the emerging businesses this year, which have successfully tapped capital markets. It’s our hope that the company will see substantial performance growth in all aspects this year.
Yang Xixi: China, being a market on the rise, brings to us lots of opportunities. With the opening up of more sectors, foreign companies are looking forward to contributing more to the Chinese market. In the new year, in China, there are quite a number of important laws in the legislation pipeline, which will bring challenges to domestic and foreign companies alike.
CBLJ: What are the major regulatory and policy developments that you anticipate will have an impact on your business?
Peter Su: Tongfang was acquired by China National Nuclear Corporation Capital Holding (CNNC) in December 2019, and the actual controller was changed from the Ministry of Education to the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council. As a listed central state-owned enterprise (SOE), Tongfang insists on the “two-wheel drive” of scientific and technological innovation and institutional mechanism innovation, and is driven by the twin cores of “intellectual manufacturing plus resources”. Relying on the support of CNNC and Tsinghua University, we have started a new journey by “restarting our business”.
This year, according to the requirements of the central SOE management model of SASAC, Tongfang will further develop compliance management in the areas of compliance systems, corporate governance and investment management, accelerate the level of compliance management, enhance legal protection capability, and implement the spirit of construction of central SOE enterprises under the rule of law.
Ma Yihan: The internet industry has turned into a policy-sensitive industry, with more and more legislative and regulatory documents at various levels, such as the Civil Code, the Copyright Law, the Law on the Protection of Minors, the Personal Information Protection Law (Draft), and various regulatory documents issued by various competent authorities from time to time.
This has raised higher requirements for content production, distribution, operation and internal management in the internet industry, consequently requiring us to quickly interpret the documents and make corresponding compliance responses. In addition, we need to pay attention to the judicial opinions brought by the judgments of various new cases.
Tonell Liu: As laws and regulations on personal information protection in China have been improving, all our businesses – such as media content distribution, live or interactive event broadcasting, and sports retailing – involve the collection and use of personal user information in multiple scenarios, therefore requiring greater attention to legal compliance.
The rules about the classification, collection, use, transfer, outbound transfer, sharing and property rights protection of personal data or information need greater attention. To this end, we are establishing a professional compliance team for personal data protection, paying more attention to active communication with regulators in the process of business development, and actively participating in the legislative process of personal information protection, which is not only necessary for the company’s compliance, but also an obligation on the part of the company, as an important stakeholder in the sector, to protect and promote the rights of individuals in the internet space, and optimise an internet governance rules system.
Shang Dongning: The fundamentals of the country’s regulation and policy for the real estate industry have remained unchanged, which is to resolutely implement the fundamental guideline that “houses are for living in, not for speculation”. In 2020, the government released the new financing rule known as the “three red lines” (a regulation that caps debt-to-cash, debt-to-assets and debt-to-equity ratios) and a series of policies such as “two red lines”, which tightened bank loans for the real estate sector.
Based on past restrictions on purchases, loans, contracts and prices, strengthened control measures will be implemented in different regions to restrict financing and land supply, which will increase financing pressure in the sector. As the scale of financing for real estate enterprises has declined since the start of this year, their operational and financing capacity have all faced a tough challenge. These enterprises will continue to make efforts for co-operative development, and increasingly resort to joint ventures and joint operations to draw more investors. They will adopt more measures to reduce the impact of the “three red lines” policy.
At the beginning of this year, some key cities introduced a new policy of “centralised land supply”, which has a great impact on the investment plans of major real estate enterprises in the country, urging them to actively bid for high-quality land, and therefore boosting the premium of land auctions.
Because of tightened loan policies, real estate enterprises are seeing limited cashflow. Therefore, the recovery of accounts receivable of companies has become particularly important, and subsequent legal risks and disputes are also mounting. In this sensitive period, real estate enterprises all hope to take moderate and reasonable measures to legally and efficiently recover money, and to relieve their financial pressure quickly. As legal departments play an important role in this aspect, their importance has also been realised by the management.
At a time when the high pressure of government regulation is not abating, and the rules of the industry are becoming clearer, the problems and challenges faced by real estate enterprises are becoming more complex. So, in this process, they should pay more attention to improving their understanding of legal affairs, and upgrading their legal departments from a small unit for legal work to a big framework for legal affairs, in order to build a comprehensive legal compliance management system.
Yang Xixi: Data privacy and cybersecurity regimes will be undergoing fast development this year. As a multinational company, how to manoeuvre among different requirements from different jurisdictions is a challenge. Along with recently issued export-related laws and rules, doing compliance is more challenging than before.
In-house lawyers are not only required to be a generalist, but to some extent also a specialist in those emerging areas. Fast learning of these skills becomes a must for an in-house counsel.
CBLJ: How has the pandemic changed your business, as well as the role of a GC, and how do you think it will evolve in the coming year?
Peter Su: The positive actions and effective measures taken by the central government since the outbreak of covid-19 have effectively controlled the epidemic in China, however, the situation globally remains severe. As Tongfang’s international revenue covers a wide area, I am the director of Tongfang’s four regional companies in the US, Canada, the UK and Hong Kong.
Because of the impact of covid-19, I was unable to travel and communicate face-to-face with my local colleagues, so I basically communicated with them online. For different countries and regions, we asked our local branches to actively study the latest local laws and regulations, and analyse their impact on the company’s operations, such as labour protection and supply chain, and to make an early judgment on the material impact that local policies may have on the company’s production and logistics, especially maritime logistics. We will continue to promote and support overseas corporate entities to localise their business management and implement localised business strategies according to local conditions.
Ma Yihan: The epidemic has increased people’s reliance on online products and services. Our company’s main business focuses on online services, so the epidemic has brought greater workload and more challenges to corporate counsel. In order to adapt to this reality, we are increasingly optimising working tools, standardising processes, and motivating the teams to achieve better user experiences for online business.
In the post-epidemic era, it is indeed possible for consumers to continue to increase online entertainment time or consumption expenditure, so many content producers on the internet have also invested more energy and financial resources into upgrading online entertainment products.
For the game industry, both big manufacturers and latecomers are doing their best to make more refined products. For example, the quality of mobile games will be raised to the height of the console game. Users are more discerning and have more diverse preferences, and competitors are constantly and frequently upgrading – all of which have intensified competition in the internet industry and made it challenging for us to grow our business.
Tonell Liu: At a macro level, the sports industry was among the hardest hit by the pandemic. The operation of our platform relies heavily on a regular supply of copyrighted content for major sporting events, while the spread of the pandemic in China, Europe and America has led to the interruption of content supply and fundamental changes in content quality and quantity.
The company has had to accelerate its transformation in content operations into an open platform for sports content, and a sports consumption platform, reducing heavy reliance on copyrighted long video content for events, and seeking more ways to ensure traffic maintenance and realisations.
The changes in business make it necessary for general counsel to have a sharper sense of the industry and a broader vision, to optimise the structure of personal knowledge and competence in a timely manner, to adjust and define the work goals and performance objectives of the team, to carry out work around new issues, and precisely define legal issues affecting the company’s business, which will become the new issues for general counsel to handle.
At the same time, general counsel should actively participate in the design and demonstration of the company’s new business model to ensure the compliance and sustainability of the model to the greatest extent. Of course, adjustments to copyright-related contracts brought by the epidemic greatly affect the core interests of the company and its partners. As a general counsel, one should examine and judge such a situation from the perspectives of business, management, law, finance and strategy, and actively maintain the stability and balance of the copyright transactions through friendly negotiations.
Shang Dongning: The construction and engineering processes of real estate enterprises have been bit by the pandemic, leaving us with the dilemma of insufficient construction workers and tight completion schedules, which have led to the risk of late deliveries of commercial properties. Meanwhile, on the sales side, they face the difficulties of insufficient on-site visitors and shrinking sales volumes.
As the chief legal officer of a real estate enterprise, I actively support the company’s efforts to maintain compliance. In the project construction aspect, we actively assist relevant departments with resolving disputes, collecting convincing evidence, and striving to negotiate and solve problems at source, so as to reduce losses and litigation burdens of all parties. In the marketing area, as real estate enterprises are all pursuing digital transformation and focusing on online marketing, the legal department is taking the initiative to co-operate with the business departments to carry out legal risk research of online marketing, and effectively assist the marketing department in quickly meeting annual performance targets.
In my view, if the pandemic cannot be effectively controlled in the short term, the real estate industry will proactively take measures to adapt to this situation by: Re-evaluating plans for the construction schedule and rising to the situation together with construction units; more actively embracing innovative marketing structures such as online sales and VR-based remote house visits; and turning the company’s sales model from a passive to an active one, so as to adapt to the changes of this era.
Yang Xixi: During the pandemic, often people worked remotely. Technology is a very good tool to keep people connected when it is otherwise not possible. With more and more communication being accomplished digitally, the value of in-person connections cannot be underestimated, even if we are more used to digital connections. One important part of the GC’s job is to build a trusting relationship with the business. With China’s pandemic being more under control, we encourage more people to walk to others’ offices and discuss face-to-face, join a team-building activity, and build your inter-personal relationships.
CBLJ: What are the major practice areas that you think will be most important for you and your business?
Peter Su: The future development strategy of Tongfang’s legal department will be around “compliance for development”, helping Tongfang to achieve its goal of becoming a world-class high-tech enterprise. The team has 11 functions, which used to focus on investment and financing, dispute resolution and intellectual property rights, and we will gradually increase the scope and depth of these functions in the future.
We will strengthen the company’s compliance set-up so that the concept of compliance is instilled in every employee. The legal department is also incorporating a review of the company’s rules and regulations into all its functions, and is participating in the company’s decision-making meetings. By strengthening the depth of the legal department’s involvement in the company’s business, we will change our legal work from passive to active, and from post-event emergency response to prevention, and help the company better achieve its business goals.
Ma Yihan: Internet law, intellectual property rights and data privacy are expected to be the key areas in which regulatory changes will impact internet-based businesses in the coming years.
Tonell Liu: Intellectual property protection, commercial conflict management, dispute resolution, and sports copyright transactions are going to be key practice areas that will require most attention from general counsel in the industry in the coming year.
Shang Dongning: At present, along with the diversification of the company, the business I am involved in is also gradually diversifying, that is, transforming from a single business to more business areas such as real estate, property management, environmental protection, education, construction, commerce and capital. However, in whichever field I am engaged, the “business integrated with law” management tenet is what I have consistently followed. My job is mainly to follow the requirements of the company’s growth, lead the team to actively and quickly support business departments in areas of legal affairs, establish and improve the company’s compliance set-up, regulations and processes, and provide legal support for the company in its formulation of these development strategies.
CBLJ: What are you or your legal teams doing now to prepare for the next big disruptive event?
Peter Su: In 2020, Some of Tongfang’s businesses were subject to a 337 investigation by the US International Trade Commission (ITC), but we took a series of measures to effectively control the situation and resolve the case, and eventually achieved a good litigation result. Earlier this year, one of our subsidiaries was placed on the US “Entity List”, a trade blacklist published by the US Department of Commerce’s Bureau of Industry and Security. We are taking a series of effective measures to actively communicate with our US partners and promote the normalisation of our business.
As compliance is an important aspect for enterprises to enhance their global competitiveness, Tongfang joined the National Enterprise Compliance Committee in 2020. In order to better meet the challenges of the global business environment, we will further promote compliance in Tongfang’s international business activities this year, comprehensively enhance the international competitiveness and influence of the group companies, and support the development of our international business.
Ma Yihan: External markets are changing rapidly, regulatory rules are emerging one after another, and product iterations are more frequent and advanced. This is the great challenge brought to us by the times. We believe that this situation will become the norm for internet businesses.
Therefore, we are improving our ability to upgrade our thinking and communication skills, especially cultivating an open mind that actively embraces changes, with the agility to adapt to changes and solve problems.
On this basis, we have cultivated two irreplaceable skills of corporate counsel: First, instil data skills in corporate counsel. This allows corporate counsel to innovate, and to provide high value-added services through big data analysis and the use of automation tools. Second, the transformation of corporate counsel as a “product manager”. This allows corporate counsel to work closely with business teams to complete product development and operation, ensuring that they are always at the front line of the business and the market.
Tonell Liu: We are revisiting and adjusting the original contractual mechanisms, including copyright transaction contracts, investing and financing contracts, etc. We are also communicating and collaborating closely with significant stakeholders and other parties to find better risk sharing and benefit sharing mechanisms.
There are also discussions with top international and domestic law firms and industry consultants on the resolution of major sensitive issues in the sports industry. We are looking for ways to enhance external communication, accessing and sharing industry information, and seeking more knowledge, insights and tools.
Shang Dongning: In the past five years, my team and I have expanded the legal team of Agile Group from 10 people to 102, expanded the business areas from initially a single sector of real estate to nine industries, and have established a professional team who have won recognition from our management, business departments, and external parties.
By strengthening the innovative management of corporate legal affairs and elevating the specialised level in this area, we have reduced corporate legal risks and promoted the orderly development and operation of the enterprise. We are also thinking about how to bring about innovation, and in the new year we will devote ourselves to:
(1) Standardisation of the legal work. We will focus on improving the legal risk prevention and control system of the whole group, standardising the output of each legal business within the enterprise, working out guiding templates and case libraries for handling frequently filed litigation cases, and gradually strengthening the legal supervision function of the company. By doing so, we strive to achieve the goal of high-speed and integrated development of the company.
(2) Information-based transformation of the legal work. We intend to introduce advanced information management technology to build a three-dimensional legal risk prevention and control system with horizontal information sharing and vertical management connection. We aim to unify the legal work to a higher degree, realise online dynamic monitoring of various legal affairs, and enable legal risks to be followed up practically so as to standardise our internal legal management, improve efficiency and avoid legal risks during operations.
(3) Exchanges with advanced legal teams. We plan to strengthen our learning with domestically or even internationally advanced legal teams to make our team more adaptable to developments in the current times.
Yang Xixi: In a business, the legal team has the role of problem solver, and we should always be prepared for the next problem, which could be a disruptive event. It is sometimes hard to foresee what the next to come will be, just as no one could predict this pandemic in early 2019.
Being calm when something big happens is a necessary character of a good lawyer. Making sure our business is covered with good contractual protection when things become unpredictable should have been built into daily work from the start. Risk control is another role of the legal team. It goes into everyday details. Good risk control may seem easy when things are all well, but it could help the business to survive amid turbulence when things turn unpredictable. Bringing a safeguard mindset into daily work is a fundamental.