A seat at the table: in-house lawyers are business partners

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1 A seat at the table: in-house lawyers are business partners Launch of GC350 engagement programme The Law Society, London Donny Ching Legal Director, Royal Dutch Shell plc December 4, 2014

Donny Ching was appointed Legal Director of Royal Dutch Shell plc on February 10, 2014. He was previously General Counsel for Shell s Project & Technology business, based in Rijswijk, the Netherlands.

He joined Shell in Australia in the same year and re-qualified as a lawyer in Victoria, Australia, in 1989.

2 Donny Ching was appointed Legal Director of Royal Dutch Shell plc on February 10, He was previously General Counsel for Shell s Project & Technology business, based in Rijswijk, the Netherlands. Donny graduated with a law degree from the University of Southampton in the UK and was admitted to the Bar of England and Wales in He joined Shell in Australia in the same year and re-qualified as a lawyer in Victoria, Australia, in He worked initially in the Resources business before moving on to downstream and corporate work in Shell Australia. In 1992, he moved to Shell Hong Kong to work on the Nanhai petrochemicals project in China, as well as other smaller joint ventures and projects that marked Shell s re-entry into China. In 2000, Donny moved to London in the UK where he first worked on some chemical divestments before moving to support Shell s then Gas & Power business. He helped to set up Shell s global liquefied natural gas (LNG) trading business and on projects such as Pearl GTL in Qatar. Donny moved to Singapore in 2004 as Associate General Counsel for the Gas & Power business in the Asia-Pacific region. His role included supporting Shell s growing LNG trading business and LNG projects such as Sakhalin LNG and Gorgon LNG. In 2008, Donny became Head of Legal for Shell Singapore, responsible for legal support to the Downstream business in Southeast Asia. He became General Counsel of Projects & Technology in June Donny was born in Malaysia and is married with two daughters. In his spare time, he enjoys tennis, skiing and cooking.

3 The role of in-house lawyers is changing, the profession growing both in size and influence. In this address to the Law Society, Donny Ching reflects on what it takes for today s in-house lawyers to be business partners. He demonstrates how Shell s Legal Department has come to play an integral role in the company s business strategy. Earn your seat at the table, he says, building on what makes all in-house lawyers unique: insight, intimacy and influence. Good evening, everyone. It gives me great pleasure to welcome you to the Law Society s launch of the GC350 Engagement Programme. It s great to see so many of you here today to support this initiative. Since I took over as Shell s Legal Director, my initial focus was to get my feet firmly under the table before reaching out to the external world. This meant that it was a few months before I started thinking about making my first speech to the outside world. By coincidence, I was contacted around that time by Steve Gauke about the GC350 programme and I m really pleased to start here at the Law Society. More and more in-house lawyers You may be familiar with the numbers: one in four lawyers in the UK now practises inhouse. The number of in-house solicitors has doubled since The number of inhouse lawyers is even higher when you consider that many don t hold practising certificates. And the sector continues to grow, both in size and influence. I want to congratulate the Law Society for launching this programme. It s really important for the in-house community to come together to share best practices, exchange ideas and experiences, and learn from peers. Steve Thank you for involving Shell. You have our full support. We ll do all we can to help the Law Society promote and better understand the changing role of in-house lawyers. I m one of them, clearly always have been, actually. I m proud to have been working for Shell for the past 26 years. It s also the only company that I ve worked for. So, yes I m what you call a Shell baby. with more and more powers I ve seen the company grow and change. I ve seen its lawyers transform from mere gatekeepers to trusted advisors and business partners with a seat at the table. But before I talk further about this transformation, let me start by sharing the contents of a letter sent in 1916 by our then CEO, Sir Henri Deterding, to the Managing Director of Shell s operations in the United States. It includes the following passage: You gave me rather a start with your letter, because I gather from it that you employ solicitors much oftener than we would ever dream of doing. Lawyers are not business people; however large a lawyer s experience may be, in the conduct of business he is absolutely useless. A lawyer placed at the end of a concern would soon bring the business to rack and ruin. He is not a creative genius, he is able to give his opinion if a case is laid before him, but to ask a lawyer to draw up a contract for you is a most foolish thing to do, and this is bound to lead to trouble. Our custom here is to draw up a contract before having seen the lawyer and then to ask him to put it in more legal shape. Such a contract is more likely to embody the spirit of what has been agreed upon than one drawn up by a lawyer; to ask his opinion as to what you should do or not do is the worst possible way of conducting business, which I ve seen the company grow and change. I ve seen its lawyers transform from mere gatekeepers to trusted advisors and business partners with a seat at the table.

4 should be kept as far away as possible from lawyers. I could go on. He concludes that he s shocked that lawyers form an actual department of Shell s American business! I m pleased to assure you that the attitude to lawyers has moved on in Shell, where we now have some 650 in-house lawyers around the world, plus all the paralegals and administrative colleagues supporting their work. A seat at the table Tonight, I will show you how our in-house lawyers have won a seat the table and what that means to our profession. Shell, of course, isn t the only company where this transformation is taking place. Lawyers are becoming business partners across the entire private sector. Hugh Grant, the CEO of Monsanto, not the actor, said, and I quote, that If you came into a Monday morning meeting, you would be hard pushed to tell who the lawyer was because they are in the push and pull of what we need to get done. It s the same at Google, where Eric Schmidt recognises that lawyers have become more important in running the business. In areas that are sensitive, they have to be half product designers and half lawyers. Shell is no different. Like Monsanto, Google and so many other companies, our lawyers are involved in strategic decision-making. They re embedded at all levels of the business. And you d have a hard time telling them apart. They need not be half engineers and half lawyers. But they do have to think about how they contribute to the bottom line how they support the business strategy. You see, that seat at the table I mentioned, no one gives it to you you have to earn it. And it s not an easy thing to do when most of our work is dedicated to making other people s work possible. Engineers can show their products people in the business a contract. For us, though, the closest we often come to getting recognition is when nothing bad happened. Law is all around us Sometimes I can t help but feel like one of those fish in that story from American writer David Foster Wallace. Ever heard it before? Two young fish swim along and happen to meet an older fish swimming the other way, who nods at them and says, Morning, boys. How s the water? The two young fish swim on for a bit, until, eventually, one of them looks over at the other and goes, What the hell is water? Like water, law is around us everywhere. It affects everything a company does. But somehow you can t see it, at least not on the surface. And perhaps it s a good thing in the end. At Shell, we talk about our lawyers being business partners, not service providers, functional experts or other terms that suggest a them and us mindset. Given my lengthy service at Shell working in different parts of the world and different businesses, I ve had plenty of time to reflect on what it takes to be a great business partner what enables you to have a permanent seat at the table rather than being faced with a we ll call you when we need you mindset. Insight, intimacy and influence In essence, I believe in-house lawyers offer three unique advantages to a company. These are: Insight, Intimacy and Influence. At Shell, we talk about our lawyers being business partners, not service providers, functional experts or other terms that suggest a them and us mindset.

5 Let s call them the 3 I s, and I ll walk you through a couple of examples where Shell in-house lawyers applied the 3 I s to make a difference and earn their seat at the table. FLNG The first of these examples is about a gamechanging technology known as FLNG, which stands for floating liquefied natural gas. I want to introduce you to our first FLNG project: Prelude, the world s largest offshore floating facility. The first thing that strikes you when you see Prelude is its size. At 488 metres, it s longer than 4 football fields laid end to end. It will displace the same amount of water as 6 of the largest aircraft carriers in the world and its annual production will meet 117% of Hong Kong s annual natural gas demand. It s so big, wrote a New York Times reporter just a few weeks ago, that you can t really photograph it, at least not all at once. But it s deceiving. What s truly innovative about this facility isn t how big but how small it is. Just think about it for a moment: the whole idea behind Prelude is to produce gas miles off the nearest coast, turn it into liquefied natural gas by superchilling the gas to minus 162 degrees, and transfer it onto ships to be transported directly to markets. It all happens at sea! We re taking all the plants, facilities, control rooms, storage tanks and pipelines normally laid out on acres of land on-shore and putting this on a floating vessel. Can you picture it? I could just. But I was still astounded when I came face to face with Prelude in Geoje, South Korea, in June this year. Okay, so where do the lawyers fit into this? What did the Shell in-house lawyers bring to the table? Let me start with the first I Insight. I believe in-house lawyers bring value to the table by applying the deep knowledge and understanding of the business gained from being immersed in it day in, day out. Not only do we understand the business drivers, issues and challenges, we also know the organisation better when it comes to bringing knowledge together to generate a better business outcome. Floating LNG involves bringing a very large on-shore plant and putting it on a floating facility. Creating a new business model While it s a technological marvel, the idea behind this was not to just build one, but to anticipate the opportunities this could lead to which involved creating a new business model as well. A model with a commercial and contractual construct that anticipated the potential construction and deployment of multiple FLNGs in the future, with potential partners such as governments, national and international oil companies. Working together with the business, the lawyers had to draw extensively on what they and the company knew about LNG plant and ship construction and operations (which don t normally go hand in hand), but also about LNG sales, intellectual property, procurement, safety regulations, shipping law, maritime law, and other areas. They didn t just put together the contractual structure, but also a business model for something that basically never existed before. Not only do we understand the business drivers, issues and challenges, we also know the organisation better when it comes to bringing knowledge together to generate a better business outcome.

6 Believe me, it wasn t easy I was the lawyer pulling all this together at the beginning of the project, which accounts for many of my grey hairs today. This brings me to the next I Intimacy. One of our biggest advantages as in-house practitioners is our proximity to the business not just in terms of physical location, but also in the language we use and, most importantly, in the relationships we build that enable us to be regarded as trusted advisors. Knowledge and relationships For Floating LNG, this intimacy meant that the lawyers were involved from not just day one but hour one and subsequently, every step of the way. The lawyers were core members of the different teams dealing with the multi-faceted project, internally of course, but also externally in negotiations. We ensured that certain lawyers stayed with the project as it moved through its different phases. For example, the lawyer who worked on the EPC aspects of Floating LNG almost 8 years ago is still working in this area. Also, we seconded a lawyer from Perth to Paris to work with the design and engineering team, and the same lawyer has since moved back to Perth to prepare the ground work for when Prelude makes it way to the north west coast of Australia upon its completion. This provided the continuity in knowledge and relationships which are essential for intimacy. Intimacy encourages our in-house lawyers to be the first port of call for the business. It ensures that we are involved early and facilitates prevention rather than cure, which can only be a good thing for the company. Intimacy is the ability of the in-house lawyer to not just meet his colleagues expectations, but to even anticipate them. It s the capacity to balance legal and business risks, knowing which one to put first and when. It allows the development of strong personal relationships that will be tested on the occasions when we have to say no to the business. Intimacy, together with insight, gets us invited to the table. To truly guarantee our seat at the table, however, we need the next I Influence. I believe that to keep our seat at the table, we must be able to demonstrate that we don t just influence legal outcomes, we must be able to influence business outcomes as well. That s my second example. Standardisation Shell engages in millions of contractual transactions and, at any time, actively manages over 25,000 larger contracts with many tens of thousands of suppliers, spending over $65 billion per year with third parties. With no standardisation in place, we used to end up with very different terms and conditions, which meant usually different prices for the supply of fundamentally the same product in different parts of the world. We were also potentially losing out on opportunities to leverage our volume spend, as each country was allowed to do its own thing. You can imagine the amount of effort and resources, including legal, required to draft, review and negotiate these many contracts. This, I point out, is a problem not just for Shell, but for nearly every multinational company in the world, albeit perhaps at a One of our biggest advantages as inhouse practitioners is our proximity to the business not just in terms of physical location, but also in the language we use and, most importantly, in the relationships we build that enable us to be regarded as trusted advisors.

7 different scale compared to our million contracts and purchase orders. We had to transform not just our contracts, but our commercial contracting mindset and process. Developing standard contracts that would cover ALL the jurisdictions in which we operate or source from with all these suppliers AND reducing the effort, time and costs involved in preparing and negotiating these contracts was never going to be an easy task. This required a member of the Contracting & Procurement leadership team to influence her colleagues to believe that such a dream was not only feasible, but would save billions of dollars. In fact, the standardisation process was the easy part relatively speaking. The harder part was changing people s mindset from one that naturally expected our standard terms to always protect Shell to one where we engaged and listened to our suppliers and drafted standard terms that were much more balanced. We put all this on a software platform and Shell s standard model contracts library, coupled with a new process and new mindset, was rolled out in January All sorts of advantages have resulted, not least cutting in half the time it takes to negotiate contracts. We ve reduced our third-party spend by billions of dollars and cut the number of lawyers working on procurement contracts by more than half. You know that you ve done something special when your own suppliers come and ask you whether you can help them develop something similar for their supply chain. This is an example of a great business outcome one that came from an in-house lawyer who had the courage to not just influence the decision to proceed, but to then go on to co-lead the project to influence the outcome. Lawyers are part of the solution For my predecessor, it was one of these things that makes us in-house lawyers no longer viewed as getting in the way of business, as people who say you can t do this or that, or that you can only do it this way. Nowadays, lawyers are seen as part of the solution, not the problem. And with our seat at the table, we can also influence and lead the solutions. I hope I ve shown you the incredible value that we, as in-house lawyers, bring to the table as business partners who bring insight, intimacy and influence. But there s one last I I need to mention Independence. You re all aware of the front-page headlines on unethical behaviour across many different industries and companies. Always independent A fundamental element of our role as an inhouse lawyer is to assure ethical behaviour in our companies. At Shell, our Legal team plays a critical role in shaping and protecting our Business Principles and embedding a strong Ethics & Compliance culture across the company including anti-bribery and corruption efforts. We have to always remind ourselves of this responsibility and to defend our lawyers when they maintain their independence and discharge this responsibility to the irritation of their business colleagues. Some observers feel that as in-house lawyers, our independence is inevitably compromised. I see it differently I don t believe our role of being independent is in conflict with our role as a business partner. I would argue that our seat at the table actually helps us discharge this responsibility You know that you ve done something special when your own suppliers come and ask you whether you can help them develop something similar for their supply chain.

8 more effectively because we have the insight, intimacy and influence to intervene sooner and more effectively. I look around this room, and I see colleagues, friends fellow in-house practitioners. I must admit feeling that standing here today seems a rather long way, and time, from the first time I set foot in this country. I was 14 years old. I was on my own, and it was my first ever trip overseas. My parents wanted me to go to boarding school. They believed that this would lead to better opportunities. In my mind, those opportunities did not ever include being a lawyer. As such, I owe my old biology professor at Bedford School a lot; not because of biology, it turns out. No, one day, as he was explaining something to me, he said, Donny, ever thought of becoming a lawyer? I told him no, my entire family was in business, but why? Because you argue too much! A force to be reckoned with I still do. So here I am, an accidental lawyer perhaps; but one who believes that in-house lawyers are now a force to be reckoned with a force that can make a difference. To be successful, an energy company has to understand everything from national and international politics right down to the fundamental chemistry and physics of wells and all the other technology and commercial challenges that I mentioned tonight. But success also depends on having an agile organisation that can adapt to change efficiently and effectively. In-house lawyers, armed with the 3 I s, make companies more agile they make them more successful. I would like to thank the Law Society for this programme for inviting us to sit at and around the table. Considerable consultation and thought has gone into what I believe is a very relevant programme for in-house lawyers. Shell s Legal Department, with a thousand professionals, may be bigger than some of yours, but the issues we face as business partners are pretty much the same, regardless of the size of the department or the sector. I look forward to working with Steve, his colleagues and all of you to collectively bring our 3 I s our insights, intimacy and influence to this particular table and applying them to bring tangible outcomes for both our profession and our respective industries and companies. Thank you. In-house lawyers make companies more agile they make them more successful.

9 Recent speeches by Shell s senior leadership Working together to build a lower carbon, higher energy future, Ben van Beurden A century of ideas, Ben van Beurden Taking geoscience beyond the conventional, Matthias Bichsel Asia s energy future, Peter Voser The power of innovation in collaboration, Matthias Bichsel Keynote speech to the Royal Dutch Gas Association (KVGN), Peter Voser Investing in the future, Peter Voser Shell s recommendations for a more competitive EU energy policy by 2020, Peter Voser For information about Shell, including downloadable versions of these speeches and other publications, please visit Shell International Limited, Permission should be sought from Shell International before any part of this publication is reproduced, stored in a retrieval system, or transmitted by any other means. Agreement will normally be given, provided the source is acknowledged. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this publication the expressions Shell, Group and Shell Group are sometimes used for convenience where references are made to Group companies in general. Likewise, the words we, us and our are also used to refer to Group companies in general or those who work for them. These expressions are also used where there is no purpose in identifying specific companies.

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