The Counsel

Introduction
by Dr. Tariq Hassan
Dr. Tariq Hassan comments on the launch of the Counsel, and the increasing importance of in house Corporate Counsel.

The launch of the Counsel, Pakistan’s Premier Corporate Law Magazine, by a team of dedicated young lawyers is commendable. This initiative is not only desirable but necessary as well.

The Counsel, in its Statement of Objectives, has undertaken to “publish both academic and vocationally oriented materials by corporate leaders, legal practitioners, professors and judges including in-house corporate counsels, company secretaries and chief financial officers.” It promises that “[i]n addition to publishing opinion pieces by legal practitioners and articles by corporate professionals, the magazine shall have as its regular feature, interviews and discussions with eminent members of the judiciary and leading legal practitioners and corporate leaders thereby creating a forum for debate on legal trends and policies.” In fulfilling this mandate, The Counsel may become an effective tool for enhancing corporate law compliance and herald the much needed legal reform in the corporate sector.

Legal education in Pakistan has traditionally been based on the primacy of litigation as a means of resolving disputes. Legal training in Pakistan is also oriented towards litigation and does not include counseling, which is an important means of preventing disputes. Very little is done to impart knowledge about alternative dispute resolution methods and nothing is done to develop counseling skills with a view to enhancing legal compliance and/or avoiding conflict.

The legal profession in Pakistan needs to be reoriented. It presently thrives on conflict resolution and pays little or no attention to conflict avoidance. The professional direction needs to be changed from mere dispute settlement to preventive lawyering as well (1).  The Counsel can play a vital role in bringing about this transformation.

The purpose of preventive lawyering is to assist clients to achieve their objectives with minimal legal risks. Most corporate lawyers—particularly in-house counsels—are conditioned to be preventive lawyers insofar as they are generally involved at the inception of most business activities (2).  Proper legal input at the planning stage minimizes legal risks and precludes unnecessary enforcement action or litigation at a later stage.

A legal counsel is a person who gives advice in legal matters. The importance of legal advice in legal matters is recognized by the Pakistan Constitution, which entrusts the counseling function to the principal law officers of the country, namely the Attorney General for Pakistan and the Advocate General for the Provinces (3). However, this advisory function remains overshadowed by litigation activities of these officers in mostly contentious court matters before the Supreme Court of Pakistan and the High Courts of the Provinces respectively. Hence advocates, rather than legal advisers and counselors, remain a predominant feature in the legal framework of Pakistan.

The Legal Practitioners and Bar Councils Act, 1973 basically deals with advocates, their enrolment, right to practice, seniority, pre-audience etc., and conduct of advocates (4). There are no additional or specific requirements for legal advisers and in-house counsels for companies and corporations in Pakistan. However, advocates are generally prohibited to render “any service or advice involving disloyalty to the law” to corporate clients and furthermore required to observe and advise their clients “to observe the statute [sic] law (5).”  

The promulgation of the Companies (Appointment of Legal Advisers) Act, 1974 (6) was basically intended to provide for the appointment of legal advisers to companies (7). This Act requires every company to “appoint at least one Legal Adviser on retainership to advise such company in the performance of its functions and the discharge of its duties in accordance with law” (emphasis added) (8). No person other than an advocate (9) or a registered firm (10) can be appointed as a legal adviser under this law (11). While this law requires every concerned company to appoint a legal adviser, it may be noted that an advocate is not obliged to act either as adviser or advocate for every person who may wish to become his client. He has the right to decline professional employment (12).

Although there is no empirical data available in this regard, it appears that the advisory role of advocates under the Companies (Appointment of Legal Advisers) Act, 1974 has not been able to develop the requisite corporate culture of compliance. This legislation, consistent with its limited objective (“to provide for the appointment of legal advisers to companies”), has unfortunately only been used as a service generation tool for lawyers. It is likely to remain inefficacious unless lawyers are made to shoulder professional responsibility under this law or the emergent Code of Corporate Governance (13). Unlike the pioneering corporate responsibility legislation, the [U.S.] Sarbanes-Oxley Act of 2002, (14) on which most corporate governance codes are based, the Pakistan Code of Corporate Governance does not provide any rules of professional responsibility for advocates (15).

While the threshold of legal compliance has been raised by the Pakistan Code of Corporate Governance for directors of public listed companies, (16) no effort has been made to enhance the role of legal advisers or in-house counsels to provide the necessary enabling environment to enhance corporate compliance. The only role assigned to lawyers under this Code is the possibility of being appointed as the Company Secretary (17). The Code would have enhanced its effectiveness by necessitating the appointment of in-house counsel by public companies to administer the implementation of the Code.

Nonetheless, the evolution of corporate counsel in Pakistan is inevitable because of the widening scope and growing complexity of corporate regulation (18). Company law in Pakistan which once comprised a single piece of legislation—the Companies Act, 1913—now encompasses a plethora of laws, which include: (i) The Companies Ordinance, 1984; (ii) Securities and Exchange Commission of Pakistan Act, 1997; (iii) Securities and Exchange Ordinance, 1969; (iv) Listed Companies (Substantial Acquisition of Voting Shares and Take-overs) Ordinance, 2002; (v) Banking Companies Ordinance, 1962; (vi) Central Depositories Act, 1997; (vii) Companies (Appointment of Legal Advisers) Act, 1974; (viii) Companies (Appointment of Trustees) Act, 1972; (ix) Companies Profits (Workers Participation) Act, 1968; (x) Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980; (xi) Undesirable Companies Act, 1958; and a multitude of rules (e.g. Asset Management Companies Rules, 1995) and regulations (e.g. Stock Exchange Regulations) promulgated under or pursuant to these enactments.

The role of the in-house counsel to help companies cope with their ever-increasing legal obligations cannot, therefore, be overemphasized. This role is likely to be enhanced with the inevitable growth in the corporate sector (19). As in other countries, the role of the corporate counsel in Pakistan will go through a metamorphosis. The corporate counsel will gradually take on a more prominent and perhaps even a more dominant role in the provision of corporate legal services (20). The enhanced role of the in-house counsel is likely to have an impact on organizational efficiency, legal compliance, and eventually corporate governance.

The employment status of an in-house counsel makes his role far more difficult than an outside counsel who is engaged as an independent professional (21). In my view, corporate counsels have an independent fiduciary duty to the company and not its management. They should, therefore, as honest agents of the corporate entity, assist the corporate board in meeting its corporate governance obligations.

The emergence of the Counsel is a welcome development in the corporate legal scene in Pakistan. In addition to serving the needs of the growing corporate sector, it is likely to offset the litigation bias introduced by legal education and practice in Pakistan by playing a positive role in promoting the concept of preventive lawyering in the country.

I join the corporate sector in felicitating the Counsel team members for their strenuous effort to launch this magazine and wish them immeasurable success in achieving its multiple objectives.

© Attorney & Advocate, Supreme Court of Pakistan; Former Chairman, Securities and Exchange Commission of Pakistan. [Email: law.hassan@gmail.com.]

1 Recommendation made by the author (then Adviser to the Finance Minister of Pakistan) in a Presentation on Law and Economic Development to the Economic Advisory Board of the Ministry of Finance on 14 October 2000.

2 See generally, Bruce J. Winick, “The Expanding Scope of Preventive Law,” 3 Fla. Coastal L.J. 189 (2001-2002).

3 See, Art. 100(3) & Art. 140(2), The Constitution of the Islamic Republic of Pakistan, 1973, which mandate the Attorney General for Pakistan and Advocate General for the Provinces to give “advice” to the Federal Government and Provincial Governments respectively.

4 See, Chap. VI & VII, Act XXXV of 1973.

5 See, R. 172, The Pakistan Legal Practitioners & Bar Councils Rules, 1976.

6 In its review jurisdiction under Art.203-D of the Pakistan Constitution, the Federal Shariat Court has held that the Companies (Appointment of Legal Advisers) Act (X of 1974) is not repugnant to Sharia principles. In re: Islamization of Laws, 1986 PLD 29 FSC. The Act is supplemented by the Companies (Appointment of Legal Advisers) Rules, 1975. For earlier attempts to appoint legal advisers in government corporations see, West Pakistan Statutory Bodies (Appointment and Removal of Legal Advisers) Ordinance, 1965, and West Pakistan Municipal Committees (Legal Advisers) Rules, 1964.

7 The term “company”, as defined in this Act, means a company formed and registered under the Companies Act, 1913 (VII of 1913), but does not include a company the paid-up capital of which is less than five lakh rupees or a company limited by guarantee or an association registered under section 26 of that Act. Sec. 2(b), Companies (Appointment of Legal Advisers) Act, 1974.

8 Sec. 3(1), Companies (Appointment of Legal Advisers) Act, 1974.

9 The term “company”, as defined in this Act, “Advocate” means an advocate entered in any roll under the provisions of the Legal Practitioners and Bar Councils Act, 1973 (XXXV of 1973).

10 The term “company”, as defined in this Act, “Registered firm” means firm registered under the Partnership Act, 1932 (IX of 1932), all the partners of which are advocates.

11 Sec. 3(2), Companies (Appointment of Legal Advisers) Act, 1974.

12 R. 171, The Pakistan Legal Practitioners & Bar Councils Rules, 1976.

13 SECP, Code of Corporate Governance, 2002 (SECP Letter No.2(10)SE/SMD/2002-March 28, 2002).

14 Public Law 107–204, July 30, 2002, 116 STAT. 745.

15 In comparison see, Rules of Professional Responsibility for Attorneys, Sec. 307, id. (15 USC 7245).

16 The Code of Corporate Governance requires directors of listed companies, at the time of filing their consent to act as such, to give a declaration in such consent that they are aware of their duties and powers under the relevant law(s) and the listed companies’ Memorandum and Articles of Association and the listing regulations of stock exchanges in Pakistan. Furthermore it, inter alia, empowers the Board of Directors to determine the terms of and the circumstances in which a law suit may be compromised and a claim/ right in favour of the company may be waived, released, extinguished or relinquished. Cl. ii & cl. viii(d), SECP Code of Corporate Governance, supra note 13.

17 No person shall be appointed as the Company Secretary of a listed company unless he is: (a) a member of a recognized body of professional accountants; or (b) a member of a recognized body of corporate/chartered secretaries; or (c) a lawyer; or (d) a graduate from a recognized university or equivalent, having at least five years experience of handling corporate affairs of a listed public company or corporation. Cl. xvii, SECP Code of Corporate Governance, supra note 13.

18 For a historical U.S. perspective see, Leon E. Hickman, “The Emerging Role of the Corporate Counsel,” 12 Bus. Law. 216 (1956-1957); Carl D. Liggio Sr., “A Look at the Role of Corporate Counsel: Back to the Future—Or Is It the Past, 44 Ariz. L. Rev. 621 (2002); See also, John C. Taylor 3rd, “The Role of Corporate Counsel”, 32 Rutgers L. Rev. 237 (1979).

19 Abram Chayes & Antonia H. Chayes, “Corporate Counsel and the Elite Law Firm”, 37 Stan. L. Rev. 277 (1984-1985).

20 See generally, Carl D. Liggio, “The Changing Role of Corporate Counsel”, 46 Emory L. J. 1201 (1997).

21 See generally, Geoffrey C. Hazard Jr., “Ethical Dilemmas of Corporate Counsel,” 46 Emory L. J. 1011 (1997).