Just remember, GCs, Enron thought it was all perfectly legal

Stefan Stern argues these days a legal defence alone can prove no defence.

Last month the 67th annual oil and gas conference was held by the Center for American and International Law in Houston. Lucky delegates got to hear from a special guest speaker – CFO magazine’s chief financial officer of the year, 2000. The speaker displayed the trophy he had received for his work, and then held up another item – a red prison ID card. He had been given both these things, he remarked, for the same activity – doing deals for Enron, the collapsed energy company.

The speaker was Andrew Fastow, the former CFO who served five years in prison following a conviction for fraud. His work had been given the okay by accountants and lawyers, both in-house and external. He wasn’t so much a chief financial officer as a chief loophole officer, Fastow said. Boom, boom!

Enron is an extreme example. But it stands as an enduring reminder that declaring something to be technically legal may be inadequate as a piece of professional counsel. The messy and contested realities of life involve more than the letter of the law.

Remember the startled and apparently uncomprehending face of Matt Brittin, president in Europe, the Middle East and Africa for Google, as he sat before the Public Accounts Committee in Westminster earlier this year. The company’s assertion that its tax position was 100% legal proved about as unpersuasive as it was possible for any argument to be. It did not matter that it was true. The context was broader, and the issues at stake bigger than mere technical legality.

And for a real life and death dispute, the ongoing row between Apple and the FBI in the US over getting access to data on the iPhone belonging to Syed Rizwan Farook, who killed 14 people in San Bernardino, California in December, could hardly bring matters into sharper relief. Of course, there is a principled civil liberties argument about preserving the privacy of individuals and their personal data. But in the wake of a terrorist attack it takes a plucky lawyer to maintain that line of argument. And now that nice Mr Trump, the unexpected front-runner for the Republican Party presidential nomination, has called on Americans to boycott Apple products until the company co-operates with the Feds. Life can be complicated sometimes.

For all these reasons and more the pressure on in-house lawyers to give not only technically accurate but also politically robust advice has become a practical reality of business life in a manner that it frankly wasn’t 15 years ago. If CEOs are left bleating helplessly about the strict legality of their position, while around them the public are howling with outrage, general counsel have failed in their task. A more rounded view of the world, of human nature, of commercial risk and reputation, is needed to provide the best possible advice.

The power of the law is one thing. A big thing but increasingly not everything. Influencing public opinion – which in practical terms involves the considerable challenge of being able to step outside the corporate ivory tower to gauge the popular mood – has become the other part of the brief. GCs have to recognise that narrow legalistic arguments may not survive the blunt scrutiny of the media and the wider public. For most professionals charged with management risk, that realisation remains a work in progress.

Which is not to underestimate the importance of getting the law right, nor to belittle the role of GCs. Even law firms – stuffed full of lawyers and compliance professionals – have themselves concluded they need a good GC. Simmons & Simmons being just the latest to do so, joining a distinguished list which includes Clifford Chance, Allen & Overy, Linklaters, Freshfields Bruckhaus Deringer, Ashurst and Herbert Smith Freehills.

From my years of dealing with major corporates and bluechip leadership, it is clear that giving timely and challenging advice to CEOs at moments of high drama is not easy. It takes a rare combination of persuasiveness, courage, skill and judgement to pull it off. But brave is the wisest course to take. In the age of social media and the one-click memo leak, a legally watertight defence in isolation can end up as much a part of the problem as the solution.

All advisers want to be listened to, to be taken seriously, to become that trusted and indispensable figure forever by the boss’s side. But closeness to power has to be earned. It would have been better if Andrew Fastow’s lawyers at Enron had advised him forcefully to change his methods sooner, before he ended up losing both his liberty and his reputation – even if he got to be CFO of the year.

Stefan Stern is a management writer, columnist for The Financial Times and a visiting professor at Cass Business School.