The Shell report is evidence that in-house lawyers' responsibilities now extend far wider than legal work.

Rachel Rothwell looks at the implications for all legal departments

When US law firm Davis Polk & Wardwell published its investigation into Shell's overstatement of oil reserves by 3.9 billion barrels last week, a damning picture emerged of senior directors deliberately misleading investors.

But for general counsel, the real shock was the way the report's searchlight locked its beam onto the legal function.

According to the report, Shell's widely admired, 600-strong worldwide legal function needed to be more visible at the highest levels of the organisation.

The investigation found that key committee meetings took place without advice from lawyers with the right securities or corporate governance expertise, and that the group legal director was not even asked to attend the all-important disclosure committee - which the report recommended he should chair.

But was Shell's predicament really so unusual? Chris Arnull, associate general counsel at KPMG, says: 'The Shell legal team is very highly regarded outside the organisation, and no doubt within Shell too.

If they were not visible enough, that is very surprising - and if it can happen there, it makes you wonder what more has to be done.'

Colin Leaver, partner at City firm Simmons & Simmons, agrees.

He says: 'Not being represented at key committees is an issue for the legal function everywhere.

In-house counsel can only advise to the extent that they are involved, and if they can't get themselves involved, they are in a difficult position.

They are often characterised as policemen, but a policeman can only work with what he is given.'

Gone are the days where a general counsel's remit could be neatly packed into a file labelled 'legal'.

The Shell report is evidence that the legal function's responsibilities now extend far wider.

Jonathan Pearl, chief counsel at Sony Business Europe, says: 'Questions over the reported value of oil reserves sound like an accounting issue.

But fingers can get pointed at lawyers because it is convenient.

'People say compliance issues must be the lawyer's responsibility, but I'm pushing back against that.

Not everything to do with compliance is a legal issue - for example, you can't expect all lawyers to know how all costings should be accounted for.'

He adds that the UK is behind the US, where the press has given extensive coverage to the increasing demands put on general counsel by legislation.

'We do not have [that sort of] legislation here just yet - unless your company is affected by Sarbanes-Oxley - but it is a worry,' says Mr Pearl.

'It is regrettable if the buck is stopping with the legal department at Shell - what has happened there could be a wake-up call to general counsel in the UK.'

One legal director in the banking sector puts it more bluntly: 'After what has happened with Enron, Tyco, Worldcom, Parmalat and now Shell, you would have to be both blind and illiterate not to realise the pressures on the legal department,' he says.

'Between the legal and compliance function, there is an expectation that people will not just be looking for strict legal risks, but they will have a much wider brief.'

He adds: 'But the legal function should not be the be-all and end-all when it comes to control issues - the audit committee has a strong role to play and must be independent.'

Deepak Malhotra, co-chairman of the Law Society's Commerce and Industry Group and director of legal affairs at Interbrew UK, is concerned at the way legal departments can find themselves in the frame.

He says: 'At the end of the day, corporate scandals are usually a mix of operational and financial issues.

It is very important that the lead lawyer is aware of what is going on and has the opportunity to influence - but fundamentally it is the operations and finance community that should be in the firing line, if those are the areas causing the particular damage.'

Mr Arnull sees the need for a cultural change before UK general counsel have much hope of exerting the kind of control evidently expected of Shell's legal function.

He says: 'Given recent events at Enron and large corporate failures, there is a need for a legal contribution to what the business is doing, so that they don't go astray.

The problem on this side of the Atlantic is that businesses don't want to feel that they are being run by the legal department, and a lot of general counsel are happy to take on a supporting, advisory role.'

If the message to be learned from Shell is that the legal function can no longer afford such a restricted view of its role, then at least the ubiquitous coverage that the crisis has received could prove useful.

High-profile crises can only strengthen the hand of general counsel as they seek the places they need on committees and boards to enable them to exert real influence.

Mr Leaver says: 'The reports on what has occurred at Shell will make chief executives think about whether they are using general counsel properly.

As the Shell story develops, others will start questioning whether they are taking risks because they are not involving the legal department enough.'

Mr Malhotra adds: 'Press coverage of scandals can be helpful up to a point, because they give visibility to one of the reasons why lawyers should be at the centre of things.

But it is a negative argument - and lawyers should be on the board and on committees because they can make a positive contribution.'