In-house lawyers in commerce and industry operate in a landscape that has changed hugely since the turn of the millennium. This new terrain has been shaped by across-the-board growth in the demands of regulators, investors and legislators worldwide, and by an increased sensitivity to litigation risks.
One result of this has been a significant increase in the proportion of the legal profession in-house lawyers represent. They now comprise approaching a third of UK solicitors (if public sector lawyers are included). Changes in the demands of the job have both increased the prominence of in-house lawyers in their organisations, and thrown up new challenges for the legal department’s relationship with the rest of the business. As senior legal counsel at Barclays, Lara Oyesanya, points out: ‘In 2012 managing legal risks is very much our day job, it is now central to how businesses operate.’
That, Oyesanya reflects, means ‘as in-house lawyers we now have an open door’ to the rest of the business at the highest level. Risk has become, as Barings general counsel Sandie Okoro adds, ‘something very tangible’ for senior executives. Risk is ‘tangible’ not least because it now includes much heavier emphasis on the personal liability of senior executives and top managers. Through regulators like the Financial Services Authority and the Securities and Exchange Commission in the US, and the most recent Companies Act and Bribery Act, they can increasingly be held personally responsible for corporate misdeeds.
Dominic Bacon, former general counsel at a number of financial services businesses, and now director of risk consultancy Squaring the Circle, notes the focus of regulators is not just on ‘tick-the-box’ compliance exercises, but also on ‘culture’ – responsibility for which is harder to delegate. ‘That is a very exciting opportunity,’ Boston Consulting’s European counsel Anthony Kenny avers – ‘to be agents of change, to step out of our ordinary rules, and to guide the corporate agenda’.
But one aspect of this access, which Bacon points out has materialised after a long period of being ‘on the outside, pushing to get inside’, is a ‘double-edged sword’. The challenges of managing legal risk in a more heavily regulated environment are increasingly casting corporate counsel at all levels in a ‘control function role’, where the balance between their duty to the regulator on the one hand, and duty to the client on the other, has been shifted further towards the regulator.
As corporate counsel seek to demonstrate and improve their ability to be fully commercial members of the wider corporate team, that is a problem.
Where non-lawyer colleagues refer to the legal function as ‘the business prevention department’, corporate counsel find it harder to be involved in product design or corporate plans from the outset. That increases the likelihood that an idea to which there is a legal or regulatory impediment is only viewed by corporate counsel at a point when it is well-developed, and the opportunity to suggest alternative legal solutions has passed. Corporate counsel are thus put in the difficult position of saying ‘no’, and so playing to the ‘business prevention’ stereotype.
KPMG solicitor and director Christopher Arnull makes the point: ‘The business doesn’t like it – and it can give legal a bad name.’ In a more heavily regulated environment, the danger of acquiring that bad name is greater.
At the table were:
Eduardo Reyes, Law Society Gazette, features editor; Anthony Kenny, Boston Consulting Group, European counsel; Christopher Arnull, KPMG, solicitor and director; Dominic Bacon, Squaring the Circle, director; Ed Gretton, Hanson, head of legal; Sandie Okoro, Barings, general counsel; Catherine Baksi, Law Society Gazette, reporter; Lara Oyesanya, Barclays, senior legal counsel
The effort to break or prevent this cycle involves redoubling efforts to make both the law, and corporate counsel themselves, more accessible. Mastering the ‘art’ of choosing when and how advice is delivered therefore becomes ever more important. Ed Gretton, head of legal at Hanson, observes: ‘We all have to ask: as lawyers, are we doing a good enough job in efficiency? Are we really challenging the external advice? Are we making the right assessments of the complex legal and regulatory requirements? Or do we spend inordinate amounts of time on auto-pilot when every piece of new law and regulation comes into effect, without doing anything like a good enough job of simplifying and filtering out what does not apply to our businesses?’
He points out: ‘External law firms always talk up the latest compliance needs to their clients and to the media: it is their business model. But our advice and what we put in place needs to be practical and successful. It is our job as lawyers to cut through the complexity and deliver what is practical and effective for our stakeholders. I can think of many areas of law which the market has analysed in the smallest detail, but which have had little impact in practice.
‘And are we really making the assessments that are effective and actually change culture: there is little point in spending endless hours engaged in legal debate on risk management, compliance and the detail of the latest regulations, if it does nothing to deliver to your business the right culture.’
The dilemma introduced by a growing ‘control function role’ also plays out in the boardroom, raising questions over the ability of corporate counsel to progress to a main board position. As Kenny puts it: ‘It can be an uncomfortable position, where you are also forced to ask "what about my independence?".’ There may be situations, Kenny notes, where a lawyer needs to be sure that not only have they discharged their duty as a director, but also that they have complied with the Solicitors Code of Conduct. Commercial and legal ethics – both entirely legitimate – may be in conflict.
Such scenarios are further complicated by the lack of clarity which board members demonstrate as they switch between seeking either a purely legal or a more commercial judgement from a lawyer colleague. In some instances, a chief executive may be reluctant to make a purely commercial judgement, and look to the in-house lawyer to provide ‘cover’ for the decision. ‘That is an opportunity,’ admits Arnull. ‘Though it is also very hazardous.’
Okoro believes ‘you can do it’, but adds: ‘You need to be clear about the status of what you are saying. Commercial advice is not privileged, and you may need to involve an external lawyer to protect privilege.’ But managing the balance is ‘a central function of the role’, she argues.
And as Oyesanya notes: ‘It is very difficult to be in-house and say you don’t give commercial advice.’ The pressure to accept some responsibility for commercial decisions may be all the greater, several attendees note, where the in-house legal department and its members are the repository for the ‘corporate history’ or ‘institutional memory’ of the business, when other senior figures have relatively short tenures.
The task of managing the conflicts between a commercial and ‘control function’ role is made easier at all levels where general counsel have a structured plan for encouraging all members of the legal department to make the conscious effort to be socially and culturally integrated with other parts of the business. Lawyers need to understand the business’s products, their ‘USP’ [unique selling point], the behaviours and targets that are rewarded in other parts of the business, the business cycle and where the business derives its income from.
There is nothing complex about the principal methods of achieving this, those around the table agree. But too often, the combination of a full workload and the instinct to operate in one’s ‘comfort zone’ means opportunities are missed. Both the ‘permission’ and direction to make the time for such efforts should be made explicit to all corporate counsel.
Arnull suggests finding time to join training meetings for staff in other departments to gain insights on their role and priorities. Bacon suggests general counsel should encourage lawyers to make friends with colleagues who are ‘at their level’ in other departments, so they feel properly part of a broad cohort who move up the organisation together. The best business intelligence can be gained outside meetings, in social situations, it is suggested.
It may also involve what Kenny calls regular ‘homework’; tasking legal department members with finding out exactly how the business makes – or loses – money. There was general agreement that where the working environment allows for it, it is important for corporate counsel to spend time ‘out of role’ on the business’s ‘frontline’. That may include stacking shelves at a retailer, or being at the teller’s window in a bank or building society. In some financial services businesses, where risk and reward are derived from activities on the trading floor, understanding the pressures and incentives of such an environment is key to effective risk management.
There is a skills and training side to achieving this too, Okoro suggests. To relate better to the rest of the business, and to have a properly commercial input, lawyers may need to become more skilled at reading a balance sheet. Many lawyers, several attendees note, instinctively put an inaccessible aura around financial matters. This may be because they start by wanting to know ‘why’ accounts are drawn up the way they are, and to understand exactly how a balance sheet is put together. Instead, Okoro urges, ‘understand the importance of a balance sheet and how it can help you understand the financial state and well-being of the company’.
She adds: ‘It’s like electricity – you don’t need to understand how the magic gets in the wire. But you do need to know what it can do for you.’
Learning from best practice
General counsel should encourage lawyers to make friends with colleagues who are ‘at their level’ in other departments, so they feel part of a broad cohort who move up the organisation together.
Set lawyers ‘homework’ – tasking legal department members with finding out exactly how the business makes, or loses, money.
Delegate opportunities to ‘stretch’ more junior members of the team.
To relate better to the rest of the business, and to have a properly commercial input, lawyers may need to become more skilled at reading a balance sheet.
A positive contribution that in-house lawyers can make is to accept that lobbying could become part of their role – responding to consultations through the public affairs department, industry bodies or the Law Society, for example.
The best business intelligence is often gained outside meetings, in social situations.
Up or out?
The knowledge gains afforded by such efforts can be part of the answer to a perennial problem for in-house legal departments: how to offer career development and progression opportunities in a department that cannot always offer the linear ascent of a career in a traditional law firm. Even in substantial businesses in-house legal departments may be small, and career advancement can often be dependent on departures – the ‘dead men’s shoes’ problem. In particular, in the current economic climate, most legal departments have remained static in size, or grown only slightly. As Arnull acknowledges: ‘It can be really difficult.’
It may be wrong, or impossible, to try to replicate the opportunities for progress that private practice can provide. Wrong not least because ambitious corporate counsel might have moved in-house as a conscious rejection of the traditional ‘route to partnership’. And by moving in-house, many accept they will need to move between businesses to move ‘up’.
Gretton suggests one can work within these restrictions: ‘Every business and legal department ought to have a talent management programme. But there will be limits that apply in every business. It is just as important to ensure the lawyers in your team remain happy and motivated, if you want them to deliver the best possible legal services and strategies.’
‘It’s all about the stretch,’ Okoro agrees. Providing, of course, attention is paid to delegating opportunities properly: ‘If they see you doing all the big stuff, if it is never them the CEO comes to ask about something, they will not feel like they are growing in role.’ Other department members in this scenario will therefore come to feel their own role is not developing. Even in a department where positions and responsibilities are relatively rigid, Bacon says opportunities to develop can still be provided by periodically reorganising responsibilities.
Kenny concludes that, despite the relative scarcity of opportunities for linear progression, a small team that is composed of ‘generalists’ allows for the sort of non-hierarchical structure within which all team members can have a more equal role. ‘There is a tension,’ he says, ‘between creating "centres of excellence" and preserving the more general roles. But there is strong pressure to preserve the more general roles that allow people to move on or up.’
Off the high horse
The changed, and changing, landscape in which corporate counsel operate continues to pile new demands on the role at all levels – challenging both the principle of legal independence, and commitment to commercial values and wealth creation. But the in-house sector is not alone in facing such conflicts. As Oyesanya points out: ‘In the context of the Clementi reforms of legal services, arguments about the significance of lawyers’ independence were seen as anti-competitive.’
While there are real ethical, regulatory and commercial issues that need to be worked through for lawyers, Oyesanya cautions against hiding behind arguments based solely on ‘independence’ or any sort of assumed professional difference. ‘Lawyers in business need to ensure they deliver in their role activity within their professional conduct rules, but get off their high horse,’ she says, ‘and accept their role in the business.’
Kenny argues that the growth in regulatory and legal risk has also afforded an opportunity for lawyers to make a greater strategic contribution to the businesses in which they work: ‘A positive contribution lawyers can make is to accept that lobbying could become part of our role.’ Whether that is through their own business’s public affairs department, or through contributing to Law Society responses to policy consultations, this is a way of turning legislative or regulatory knowledge into a recognisable asset for the business. That is one crucial way in which, Kenny concludes, corporate counsel can be ‘more important and more in demand’.
- The views expressed by roundtable attendees are entirely personal.
Eduardo Reyes is Gazette features editor
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