Ethics and the General Counsel
My guess is that almost none of the people reading this blog consider themselves rich. Some are probably well off. Some are students, who don't, at least yet, have a great deal of money. Even those of us who think they're financially stable would probably class ourselves as relatively "ordinary". But compared to almost everyone who lived before 1850 or thereabouts, we are all fabulously rich, in terms of what we can afford and what we own. We've just come to take that fact for granted.
I'm typing this blog on an Apple MacBook Pro in the South of France. I flew here with my family on EasyJet. Each of you is reading this on an amazing piece of electronic equipment, maybe an iPad, a Dell PC, a ThinkPad, an iPhone or something similar. You own a mobile phone, along with almost everyone in developed countries and increasing numbers in developing ones. You've got a fridge, a washing machine, central heating, probably a car. You've almost certainly travelled more widely than any previous generation of your family.
How is this possible? You don't have the government to thank for all this. The reality is that the modern corporation has changed all our lives, including your life, by making extraordinary things available to ordinary people at prices they can actually afford. Collectively, companies perform these feats on a massive scale and their influence permeates our entire lives. Just think of your average day from start to finish. From the moment the electricity flows into the bedside light when you switch it on, through the tea you drink with your toast for breakfast, the clothes you wear, the newspaper you read on your way to work etc. I'll let you think your way through the rest of your day.
So many of the extraordinary things in your life are provided by companies that, by rights, half the stories in the newspapers ought to be concerned with their amazing achievements. But the people who write our papers are preoccupied with other matters. Some are obsessed by gossip and tittle tattle. Most are hampered by their poor understanding of science and technology. As an example of this, in 1989, at the time of the 200th anniversary of the French Revolution, a letter to one of the British papers asked "If you want to know who has had a greater impact on your life, Maximilien Robespierre or his contemporary Allesandro Volta, try reading all the articles about Robespierre in your Sunday colour supplement with the lights turned off". And finally, most are ignorant of and even hostile to business. If you doubt this, try starting your day with the business correspondent on BBC Radio 4's Today. You'd think from the tone that he'd been told he was interviewing known conmen.
Many people dislike companies. More people, maybe even most, are suspicious of them. This suspicion of private enterprise is very deep seated. Tales of private enterprises that are involved in wrongdoing are given a great deal of prominence. Just think of the stories of fraudulent Christmas clubs that have stolen a few tens of thousands of pounds from the hard up. Such incidents are deplorable, but they are not mirrored by equivalent moral outrage in the reports that the government has taken and wasted £12 billion from ordinary taxpayers in its failed attempt to create an electronic medical record for each of us within the NHS.
Before we get too far down this line, I will restate that the purpose of this blog is not to line up in a political debate or even to try to persuade people that their attitude to private enterprise is distorted. The purpose of this blog is to discuss the role of lawyers in business. Nevertheless, the context we've established - that companies are widely suspected of being venal, self-interested and untrustworthy - is important when it comes to asking the following question. What is the role of an employed lawyer, particularly the most senior lawyer, the General Counsel, in relation to ethics in a private enterprise?
This question is becoming more important for two reasons. First, there are increasing levels of legislation specifically aimed at compelling ethical behaviour by companies. The UK's new Bribery Act is a well-publicised recent example, while the USA's Sarbanes-Oxley and FCPA are other, more established, ones. Second, companies are relying more on their employed lawyers for advice and guidance. In relation to this second point, I'd encourage you to read the Deloitte Global General Counsel Report 2011 titled "How the game is changing" which you can find at this link: http://bit.ly/qmZZnC. The report is based on a survey of GCs and gives comparisons with data collected five years ago. I'll draw out a few relevant conclusions.
A greater proportion of GCs now function as a member of their company's senior management (62% compared to 47% five years ago). In the UK, employed lawyers are taking on more responsibility for ethics and whistle-blowing (56% compared to 25% five years ago) and risk management (61% compared to 36% five years ago). Companies now turn in the first instance more often to their GC rather than external counsel for advice on serious legal or regulatory risk (82% compared to 59% five years ago). Most tellingly, GCs now believe that their advice on such issues has more influence than that of any partner in an external law firm (71% compared to just 35% five years ago). These shifts are dramatic. I find them convincing because they reflect my own personal experience.
Until now, the role of the employed lawyer in relation to ethical behaviour in a corporation hasn't been the subject of much scholarly study and in many ways has been poorly articulated by the profession as a whole. I remain an advocate for the view that our profession is most effective when all lawyers work together, barristers, solicitors, employed lawyers and others each playing their role. But I've been reminded this week that there are some who believe the only people in a position to give proper advice on anything relating to the law are external barristers or solicitors. I don't agree. Yes, they are independent and often fearless. But they don't, can't, know what's going on inside a company. Sometimes nobody outside a company does. Sometimes even many of the people inside a company don't know what's going on. I'll return to that in a moment.
Having said that there isn't a great deal of academic discussion on the topic of employed lawyers and their role in the ethical conduct of corporations, for those of you that have time to read them, I would recommend the following papers, which are reasonably recent and fairly digestible. Steven Vaughan's review of Robert Eli Rosen's "Lawyers in Corporate Decision Making": http://bit.ly/prOlkm. Christine Parker and Robert Eli Rosen's "The Two Faces of Lawyers": http://bit.ly/qgoX8L. Sung Hui Kim's "Gatekeepers Inside Out": http://bit.ly/qvk5Ps. Finally, and if you only have time to read one of them this should be it, Ben Heineman's "The General Counsel as Lawyer Statesman": http://hvrd.me/nYw5IF. Ben Heineman was, for many years, the GC of General Electric. I'm an alumnus of GE's legal team myself, and I find his paper very persuasive.
If you read these articles, you'll see they are by no means a one-sided argument that in-house lawyers are always good ethical gatekeepers for a company. I'm going to draw out the things which, from my own experience, I think are most important.
1. All business leaders own compliance with ethical standards. The General Counsel doesn't "own" ethics by himself or herself. Suggesting they do is like suggesting the CFO "owns" profitability, without reference to all those functions that influence it. An organisation that makes Legal own compliance with the law without involvement of everybody else, isn't going to create a culture of compliance. "Culture" has been described as "the way people do things when nobody else is watching" and is the principal factor in whether an organisation will successfully strive to adhere to legal and moral standards. The "tone from the top" must involve all business leaders, not the GC alone. On a more prosaic level, a GC mentor of mine once told me that the general manager of a manufacturing plant had asked him: "What are all the laws I need to comply with in running my factory" to be met with the answer: "I don't know. But I'm not running your factory. If you don't know the answer to that question, you shouldn't be running a factory at all".
2. Having said this, the GC does have a special role in providing an objective view on what's right. The perspective that comes with legal training should enable the GC to see the activities of their own corporation (and all corporations) in a wider context. Companies are just one group of actors in society. Lawyers are trained to understand how they function within the structures of company law, criminal law etc. The GC is also in a position to be more objective than some colleagues. Ordinarily, employed lawyers are not remunerated on the basis of specific deals or decisions (unlike, say, sales leaders), although they are often paid bonuses on the performance of the company as a whole. This should ensure they can adopt the necessary level of detachment in relation to any particular decision. (For those who doubt this, I'd point out that law firm equity partners are more directly financially dependent on the performance of their firm than GCs are on the performance of their company).
3. A GC needs to be able to define and build an infrastructure which supports integrity. Many lawyers spend long parts of their career specialising in one area of legal activity. That could be commercial contracting, it could be corporate transactions, it could be litigation. But at the level of GC, you need to be able to define and install a compliance programme in your company which meets certain criteria. Those criteria were largely established after 1991 when the US Congress enacted new US Federal Sentencing Guidelines on what constituted an effective compliance programme for institutionalising ethical and lawful behaviour in large organisations. Very similar concepts have recently been set out in the guidelines on "adequate procedures" accompanying the UK's Bribery Act. As a GC, it's your role to ensure your company has clearly defined statements of policy on compliance with law and ethics, clear communications from the top, training for employees on the content of the company's policies, ways for staff to raise concerns without fear of retaliation, due diligence on third parties you do business with, ways of monitoring and auditing compliance and appropriately independent response to policy violations. If you don't know what this kind of programme looks like, you aren't ready to be a GC.
4. In order to be influential, a GC needs to be sufficiently embedded to be able to couch their input in terms of business goals. This is simply a reflection of the truism that nobody listens as closely to an outsider as they do to one of their own team. That fact isn't confined to legal advice. It's just as true in accountancy or in any number of other areas in which companies seek advice. If you are part of the team, trusted to be trying to achieve the same business objectives, rather than just laying out a risk analysis, then when you advise strongly in one particular direction, you will be much more carefully listened to.
5. A GC can be misused by a business that wants to "game" the system rather than comply. All lawyers are trained that it's their professional responsibility to make the best case for their client. As a result, lawyers develop a great deal of flexibility in being able to argue a case for any client, no matter how little they agree with it. I'm reminded of a line of questioning which an interviewer took with me when I applied to become a trainee solicitor. She asked: "Would you represent a surgeon before the General Medical Council if he or she had a communicable disease (for example AIDS) and was threatened with being disbarred from practice? Assume you had seen data that one in a thousand of this surgeon's patients would die as a direct result of this surgeon carrying out the operation." I trotted out the answer that everyone should be entitled to fearless representation. "How about one in a hundred?" she said and finally "Every other one?" In private practice you have the luxury of saying that there's a genuine distinction between you and your client. In-house, I don't think it's the same. You cannot be responsible for every action your company takes, but you are responsible for every decision in which you're involved. Yes you need to ensure your company can achieve its goals by legitimate means, but you mustn't allow your company to misuse your legal skills to enable it to do things you believe are actually wrong.
6. A GC has an overwhelming advantage in getting at the facts through formal and informal information flows. For me this is a clinching argument on why in-house lawyers are essential players in ensuring that large organisations understand and comply with the law. Internal lawyers are able to get to the underlying facts of a particular situation in a way no external lawyer can. This is true not just of lawyers but all external advisers, including accountants. It may well be that, in a serious case, the advice of external counsel will enable the in-house counsel to interdict non-compliance where they otherwise feel unable to. But even discounting deliberate wrongdoing, many large organisations suffer from a lot of accidental or ignorant non-compliance. Without someone in the position of the in-house lawyer, there is a much lower chance of reducing corporate non-compliance with law.
Wrapping all this up, in response to the question "Should the General Counsel be a company's moral compass?", I have to disagree. This statement goes too far. It implies that the GC has unique access to information which enables them to decide the correct direction to take and that others standing on the bridge with them don't. I don't accept that. But I do think the GC has a role in fearlessly stating when they think the direction is wrong.
For those that aspire to become a General Counsel within an organisation, there's an important lesson from the Deloitte report. Until recently, I don't think in-house counsel, particularly in British companies, have been nearly explicit enough in defining their role when it comes to risk. When you interview for a position where you will be the most senior lawyer in a company, the General Counsel, the people you meet are going to want to be confident of various different things about you. Let's distil two of those things. The executive management team, including the CEO, is primarily going to want to be satisfied that you understand and will help achieve growth. Those with a guardianship role, including non-executive board members, the chairman of the board and chairman of the audit committee, are primarily going to want to be satisfied that you understand risk and will help achieve compliance. Both groups will be experienced enough to know that you cannot succeed as the GC unless you can do both. If you misjudge the balance in either direction, you will fail to be influential in the way a company striving for both high performance and high integrity requires.
So, if you want to be a General Counsel, look hard at the experience you have gained so far in your career and are gaining in your current role. If your role isn't helping you build the skills needed to turn yourself into a "lawyer statesman", then you should consider changing jobs or changing the way you do your job.
I'm typing this blog on an Apple MacBook Pro in the South of France. I flew here with my family on EasyJet. Each of you is reading this on an amazing piece of electronic equipment, maybe an iPad, a Dell PC, a ThinkPad, an iPhone or something similar. You own a mobile phone, along with almost everyone in developed countries and increasing numbers in developing ones. You've got a fridge, a washing machine, central heating, probably a car. You've almost certainly travelled more widely than any previous generation of your family.
How is this possible? You don't have the government to thank for all this. The reality is that the modern corporation has changed all our lives, including your life, by making extraordinary things available to ordinary people at prices they can actually afford. Collectively, companies perform these feats on a massive scale and their influence permeates our entire lives. Just think of your average day from start to finish. From the moment the electricity flows into the bedside light when you switch it on, through the tea you drink with your toast for breakfast, the clothes you wear, the newspaper you read on your way to work etc. I'll let you think your way through the rest of your day.
So many of the extraordinary things in your life are provided by companies that, by rights, half the stories in the newspapers ought to be concerned with their amazing achievements. But the people who write our papers are preoccupied with other matters. Some are obsessed by gossip and tittle tattle. Most are hampered by their poor understanding of science and technology. As an example of this, in 1989, at the time of the 200th anniversary of the French Revolution, a letter to one of the British papers asked "If you want to know who has had a greater impact on your life, Maximilien Robespierre or his contemporary Allesandro Volta, try reading all the articles about Robespierre in your Sunday colour supplement with the lights turned off". And finally, most are ignorant of and even hostile to business. If you doubt this, try starting your day with the business correspondent on BBC Radio 4's Today. You'd think from the tone that he'd been told he was interviewing known conmen.
Many people dislike companies. More people, maybe even most, are suspicious of them. This suspicion of private enterprise is very deep seated. Tales of private enterprises that are involved in wrongdoing are given a great deal of prominence. Just think of the stories of fraudulent Christmas clubs that have stolen a few tens of thousands of pounds from the hard up. Such incidents are deplorable, but they are not mirrored by equivalent moral outrage in the reports that the government has taken and wasted £12 billion from ordinary taxpayers in its failed attempt to create an electronic medical record for each of us within the NHS.
Before we get too far down this line, I will restate that the purpose of this blog is not to line up in a political debate or even to try to persuade people that their attitude to private enterprise is distorted. The purpose of this blog is to discuss the role of lawyers in business. Nevertheless, the context we've established - that companies are widely suspected of being venal, self-interested and untrustworthy - is important when it comes to asking the following question. What is the role of an employed lawyer, particularly the most senior lawyer, the General Counsel, in relation to ethics in a private enterprise?
This question is becoming more important for two reasons. First, there are increasing levels of legislation specifically aimed at compelling ethical behaviour by companies. The UK's new Bribery Act is a well-publicised recent example, while the USA's Sarbanes-Oxley and FCPA are other, more established, ones. Second, companies are relying more on their employed lawyers for advice and guidance. In relation to this second point, I'd encourage you to read the Deloitte Global General Counsel Report 2011 titled "How the game is changing" which you can find at this link: http://bit.ly/qmZZnC. The report is based on a survey of GCs and gives comparisons with data collected five years ago. I'll draw out a few relevant conclusions.
A greater proportion of GCs now function as a member of their company's senior management (62% compared to 47% five years ago). In the UK, employed lawyers are taking on more responsibility for ethics and whistle-blowing (56% compared to 25% five years ago) and risk management (61% compared to 36% five years ago). Companies now turn in the first instance more often to their GC rather than external counsel for advice on serious legal or regulatory risk (82% compared to 59% five years ago). Most tellingly, GCs now believe that their advice on such issues has more influence than that of any partner in an external law firm (71% compared to just 35% five years ago). These shifts are dramatic. I find them convincing because they reflect my own personal experience.
Until now, the role of the employed lawyer in relation to ethical behaviour in a corporation hasn't been the subject of much scholarly study and in many ways has been poorly articulated by the profession as a whole. I remain an advocate for the view that our profession is most effective when all lawyers work together, barristers, solicitors, employed lawyers and others each playing their role. But I've been reminded this week that there are some who believe the only people in a position to give proper advice on anything relating to the law are external barristers or solicitors. I don't agree. Yes, they are independent and often fearless. But they don't, can't, know what's going on inside a company. Sometimes nobody outside a company does. Sometimes even many of the people inside a company don't know what's going on. I'll return to that in a moment.
Having said that there isn't a great deal of academic discussion on the topic of employed lawyers and their role in the ethical conduct of corporations, for those of you that have time to read them, I would recommend the following papers, which are reasonably recent and fairly digestible. Steven Vaughan's review of Robert Eli Rosen's "Lawyers in Corporate Decision Making": http://bit.ly/prOlkm. Christine Parker and Robert Eli Rosen's "The Two Faces of Lawyers": http://bit.ly/qgoX8L. Sung Hui Kim's "Gatekeepers Inside Out": http://bit.ly/qvk5Ps. Finally, and if you only have time to read one of them this should be it, Ben Heineman's "The General Counsel as Lawyer Statesman": http://hvrd.me/nYw5IF. Ben Heineman was, for many years, the GC of General Electric. I'm an alumnus of GE's legal team myself, and I find his paper very persuasive.
If you read these articles, you'll see they are by no means a one-sided argument that in-house lawyers are always good ethical gatekeepers for a company. I'm going to draw out the things which, from my own experience, I think are most important.
1. All business leaders own compliance with ethical standards. The General Counsel doesn't "own" ethics by himself or herself. Suggesting they do is like suggesting the CFO "owns" profitability, without reference to all those functions that influence it. An organisation that makes Legal own compliance with the law without involvement of everybody else, isn't going to create a culture of compliance. "Culture" has been described as "the way people do things when nobody else is watching" and is the principal factor in whether an organisation will successfully strive to adhere to legal and moral standards. The "tone from the top" must involve all business leaders, not the GC alone. On a more prosaic level, a GC mentor of mine once told me that the general manager of a manufacturing plant had asked him: "What are all the laws I need to comply with in running my factory" to be met with the answer: "I don't know. But I'm not running your factory. If you don't know the answer to that question, you shouldn't be running a factory at all".
2. Having said this, the GC does have a special role in providing an objective view on what's right. The perspective that comes with legal training should enable the GC to see the activities of their own corporation (and all corporations) in a wider context. Companies are just one group of actors in society. Lawyers are trained to understand how they function within the structures of company law, criminal law etc. The GC is also in a position to be more objective than some colleagues. Ordinarily, employed lawyers are not remunerated on the basis of specific deals or decisions (unlike, say, sales leaders), although they are often paid bonuses on the performance of the company as a whole. This should ensure they can adopt the necessary level of detachment in relation to any particular decision. (For those who doubt this, I'd point out that law firm equity partners are more directly financially dependent on the performance of their firm than GCs are on the performance of their company).
3. A GC needs to be able to define and build an infrastructure which supports integrity. Many lawyers spend long parts of their career specialising in one area of legal activity. That could be commercial contracting, it could be corporate transactions, it could be litigation. But at the level of GC, you need to be able to define and install a compliance programme in your company which meets certain criteria. Those criteria were largely established after 1991 when the US Congress enacted new US Federal Sentencing Guidelines on what constituted an effective compliance programme for institutionalising ethical and lawful behaviour in large organisations. Very similar concepts have recently been set out in the guidelines on "adequate procedures" accompanying the UK's Bribery Act. As a GC, it's your role to ensure your company has clearly defined statements of policy on compliance with law and ethics, clear communications from the top, training for employees on the content of the company's policies, ways for staff to raise concerns without fear of retaliation, due diligence on third parties you do business with, ways of monitoring and auditing compliance and appropriately independent response to policy violations. If you don't know what this kind of programme looks like, you aren't ready to be a GC.
4. In order to be influential, a GC needs to be sufficiently embedded to be able to couch their input in terms of business goals. This is simply a reflection of the truism that nobody listens as closely to an outsider as they do to one of their own team. That fact isn't confined to legal advice. It's just as true in accountancy or in any number of other areas in which companies seek advice. If you are part of the team, trusted to be trying to achieve the same business objectives, rather than just laying out a risk analysis, then when you advise strongly in one particular direction, you will be much more carefully listened to.
5. A GC can be misused by a business that wants to "game" the system rather than comply. All lawyers are trained that it's their professional responsibility to make the best case for their client. As a result, lawyers develop a great deal of flexibility in being able to argue a case for any client, no matter how little they agree with it. I'm reminded of a line of questioning which an interviewer took with me when I applied to become a trainee solicitor. She asked: "Would you represent a surgeon before the General Medical Council if he or she had a communicable disease (for example AIDS) and was threatened with being disbarred from practice? Assume you had seen data that one in a thousand of this surgeon's patients would die as a direct result of this surgeon carrying out the operation." I trotted out the answer that everyone should be entitled to fearless representation. "How about one in a hundred?" she said and finally "Every other one?" In private practice you have the luxury of saying that there's a genuine distinction between you and your client. In-house, I don't think it's the same. You cannot be responsible for every action your company takes, but you are responsible for every decision in which you're involved. Yes you need to ensure your company can achieve its goals by legitimate means, but you mustn't allow your company to misuse your legal skills to enable it to do things you believe are actually wrong.
6. A GC has an overwhelming advantage in getting at the facts through formal and informal information flows. For me this is a clinching argument on why in-house lawyers are essential players in ensuring that large organisations understand and comply with the law. Internal lawyers are able to get to the underlying facts of a particular situation in a way no external lawyer can. This is true not just of lawyers but all external advisers, including accountants. It may well be that, in a serious case, the advice of external counsel will enable the in-house counsel to interdict non-compliance where they otherwise feel unable to. But even discounting deliberate wrongdoing, many large organisations suffer from a lot of accidental or ignorant non-compliance. Without someone in the position of the in-house lawyer, there is a much lower chance of reducing corporate non-compliance with law.
Wrapping all this up, in response to the question "Should the General Counsel be a company's moral compass?", I have to disagree. This statement goes too far. It implies that the GC has unique access to information which enables them to decide the correct direction to take and that others standing on the bridge with them don't. I don't accept that. But I do think the GC has a role in fearlessly stating when they think the direction is wrong.
For those that aspire to become a General Counsel within an organisation, there's an important lesson from the Deloitte report. Until recently, I don't think in-house counsel, particularly in British companies, have been nearly explicit enough in defining their role when it comes to risk. When you interview for a position where you will be the most senior lawyer in a company, the General Counsel, the people you meet are going to want to be confident of various different things about you. Let's distil two of those things. The executive management team, including the CEO, is primarily going to want to be satisfied that you understand and will help achieve growth. Those with a guardianship role, including non-executive board members, the chairman of the board and chairman of the audit committee, are primarily going to want to be satisfied that you understand risk and will help achieve compliance. Both groups will be experienced enough to know that you cannot succeed as the GC unless you can do both. If you misjudge the balance in either direction, you will fail to be influential in the way a company striving for both high performance and high integrity requires.
So, if you want to be a General Counsel, look hard at the experience you have gained so far in your career and are gaining in your current role. If your role isn't helping you build the skills needed to turn yourself into a "lawyer statesman", then you should consider changing jobs or changing the way you do your job.
Really interesting piece. It must be of some concern that in a number of areas the law is developing against enabling in house counsel to take such a strong role in compliance. In particular, the Akzo case had the ECJ taking a very antagonistic line towards in-house lawyers, trashing their independence from their employers in the EU competition context and I've read a number of commentaries on the Bribery Act which suggest that it is not safe for in-house lawyers to consider their communications with internal clients on anti-bribery compliance to be privileged even under English law (I disagree but that the possibility is even seriously raised is a concern).
ReplyDeleteAnother risk for in-house lawyers in an ethics compliance context is that of becoming "too" embedded in their business. Perhaps this is weeded out at GC level, but I've known rather too many employed lawyers to "go native" and pressure on them to do so (it was one of the reasons I didn't want to stay in the Government Legal Service). We all like to think that we can retain our professional and lawyerly detachment, but ultimately everyone is fallible. While it is important to ensure that senior management buy into and live the ethics that they want their business to adopt to make sure that they send the right messages and instructions down (and react the right way to whistleblowing), in practice, most employees are far removed from the senior management - the culture also has to be built from the bottom up. Behaving ethically has to be seen to be the better and more productive way of working even for the lowliest employees - often, in my experience, this is best done by using little or no legal or compliance language and just demonstrating how the (unlabeled) ethical behaviours are better. Everyone's eyes glaze over when you trot out the wording of Art 101 TFEU - salesmen get the idea when you tell them that they should have an attitude of liking and trusting their customers far far more than their competitors.