Comment | Spring 2016
Paul Gilbert argues too many corporate counsel fail to seize the risk agenda.
Barclays, Volkswagen and Tesco are three massive businesses in three significant, sophisticated and important business sectors. Each one of these successful and long-lived businesses has access to significant in-house legal expertise, each is capable of paying for the best legal advice money can buy, each has invested heavily in risk management. And all of them are now paying the price for poor decisions made by some senior people behaving badly, very badly.
Did these three companies have particularly poor managers? Recruit badly? Or deliberately turn a blind eye? My guess is almost certainly not; not systemically anyway. The fact is, however, that having sophisticated legal/risk management resources at their disposal did not help them avoid regulatory calamity and the accusatory attention of an impatient press to maul their reputations.
If we take this broad contextual summary as indicative of where boardroom heads might now be at, let me now take you into a conversation I had recently with a chief executive of a major company (not one of the three mentioned above). We were talking about the general counsel. The conversation I am about to describe took place over an hour, the words I have ascribed to the chief executive are mine, but are an accurate summary of our conversation:
‘He is a really good man. I feel he has my back and he knows the business really well. I am, however, frustrated. He wants to invest in some case-management technology for his team.’
‘Is that a problem?’ I asked.
‘No,’ said the chief executive, ‘it’s not an issue; I just don’t see the priority or the real value. If he invests in this tech he says his team will be 20% more time efficient, apparently the business might save about £1m a year. All good, of course, although I never believe those claims deliver what they say. It’s a sales pitch after all.
‘But here’s the thing: if someone does something idiotic in my business and a customer is hurt, or we fiddle the product price, overnight I could lose 20% from the share price. I might have to resign and potentially, suddenly, this business, with all our history and non-idiot employees, is vulnerable. That’s tens of millions of pounds, perhaps hundreds of millions of pounds.’ He drummed the point home: ‘I don’t need him worrying on minor tech projects that might save lawyers a bit of time and stress; I need him overseeing how we manage this business from a compliance point of view. The board does not care how many contracts we have under review; the board cares that we don’t kill a customer or a colleague.
‘The point is I am frustrated because he doesn’t want to do anything other than manage the team, or speak to me or attend the board. Which is okay to a point, but I don’t want a legal guy who micro-manages contracts. I want a guy who is across my whole business, asking bloody awkward questions and helping get the culture right.’
I asked the chief executive if he thought culture was his responsibility. He told me: ‘It is completely my responsibility, but I want his support, insight and experience to get it right.’
It was a fascinating exchange and while I won’t extrapolate a universal truth from a single conversation, I reflected on his words and on my frustration that in-house is not fulfilling its purpose at this time.
So here it is: I don’t think GCs are punchy enough when it comes to asserting the value they could bring to a business. Things are still played safe. I have now heard it said many times that ‘compliance’ and all that comes with it for reputation, shareholder value and the success (or otherwise) of executive and non-executive directors, is far more important in the boardroom than understanding how many contracts are under review. For at least a generation GCs have fought for their place at the high table. They have worked hard to be taken seriously, but they have rarely broken through in significant numbers, nor are they seen, in the UK at least, as having the equivalent status of the finance function. Right now – and I mean right now – there would appear to be a compliance gift for all legal teams.
My advice to any GC is to seize compliance and make it part of your function’s strategic purpose; let it help define your contribution, your value and the necessity for your proportionate, thoughtful, expert insight and intervention. This chance may never come again.
Paul Gilbert is chief executive of LBC Wise Counsel