If GCs waived their long-term incentive plans, would boards make better decisions?

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This article was first published by The Law Society In-House InsideOut Magazine on April 30th. 2018.

If GCs waived their long-term incentive plans, would boards make better decisions?

Board effectiveness consultant Ciarán Fenton argues for a more independent in-house function to enable better board decision-making. 

 

‘The whole world is in a terrible state of chassis,’ says Captain Boyle in the last line of Juno and The Paycock (1924), the play by Sean O’Casey.

He used the word chassis to give the word chaos a more profound and broader meaning, and to capture the madness of the times.

And a state of chassis is an appropriate word to use to describe current times in the world of politics and business. Trust in business is low; corporate conduct is still routinely poor, and political uncertainty, and therefore business uncertainty, is the new normal.

This macro-context presents GCs with a rare opportunity to step into the vacuum created by extremes. They should do so now, before the world returns to the old normal, as it inevitably will.

The current vacuum at the centre of the political spectrum allows the extremes of left and right to set the agenda. But the vacuum also allows hitherto unheard voices to be heard: #metoo, gender pay gap, gun control and other conduct and environmental, social and governance (ESG) issues are being addressed in a manner unthinkable in ‘normal’ times.

Ultimately, these conduct and ESG issues will come to haunt the boardroom, in one form or another.

And now the boardroom turns to lawyers for help, only to find that in-house and external law firms – themselves merely an extension of in-house, hence the name ‘in-house’ – are not in good shape to deal with these problems.

Why? Because ‘the Business’ has neglected Legal for years, and taken all the advantages of having ‘friendly cops’ on the inside without confronting its responsibility to create an environment in which Legal can do its best work.

If anyone doubts the abusive nature that is the Business-Legal relationship, they should read UCL’s Mapping the Moral Compass Report (June 2016) into the ethical pressure that businesses exert on in-house lawyers.

I need no persuading, as I’ve observed it for myself at close quarters over ten years as a leadership and board effectiveness consultant.

But Legal has to face the fact that it has allowed this culture to develop by allowing itself to be bullied and bossed around by the Business, and that perhaps it is compromised in its collusion with performance management systems – the bell curve, in particular – and some bonus schemes and long-term incentive plans (LTIPs).

How can a lawyer be confident that they are not conflicted in giving advice, even unconsciously, if they are to benefit from the outcomes through bonuses and LTIPs?

When I raise this point with lawyers, the reactions are mixed: some counter it, and argue that being treated like everyone else strengthens their position when giving cautious advice, as if to say: ‘I could benefit if we did X, but I’m advising Y because it’s the right thing to do.’

Others feel strongly that they should be allowed to benefit from their contribution to their organisation’s growth like everyone else. But everyone I speak to displays a momentary flicker of panic at the inescapable logic that they may be compromised and at the unthinkable prospect of earning less money for the same work.

But Legal could now name its price, with higher salaries and without any LTIPs, if only it would tell the Business what legal counsel and process it needs, and at what cost to achieve its business goals, but within a defensible ESG framework and that it is non-negotiable.

Legal should present to the business its reframed purpose as follows: ‘To enable better boardroom and executive decision-making.’ Full stop.

Legal should build the function from a clean sheet and not be forced to play catch-up with the business. It should deliver specific interventions related directly to business strategy decision-making. In this way, its role and purpose would no longer be a matter of endless debate at conferences.

The debate could move on to how best to outsource legal process, and how to up-skill in-house lawyers as first-class advisers, some as great leaders of legal teams, even, where the numbers allow it.

The in-house community needs its own statutory body, (say) the Institute of In-House Counsel (IIHC) or something of a similar title, with its own rules, qualifications and procedures. Currently, there are no additional qualifications required to be an in-house counsel.

The IIHC would create an environment in which in-house lawyers could present a united front to businesses and a uniform model for the function, thereby creating an opportunity for lawyers to lead much more fulfilling, less stressful lives.

But this would require, however, a significant mindset change in three ways:

  • In-house counsel must acknowledge that they are different to everyone else in the Business: officers of the court first, business partners second, whose purpose is to enable better decision-making; who get paid top salaries, but no LTIPs. If you want to make money, stay in private practice.
  • Legal must tell, not ask, the Business what it needs regarding legal counsel and process to meet business objectives, and how much it costs. If the Business can’t afford it, then it can’t have it. No more ‘diving catches’ by lawyers.
  • In-house counsel must support each other in enforcing the highest standards of conduct in business, with zero tolerance for elevated ethical pressure. Lawyers and the IIHC would actively support colleagues who are being bullied. Businesses just wouldn’t dare try it on. The shocking ethical pressure percentages in the UCL report would be reversed.

Philip Wood QC, soon-to-retire head of Allen & Overy’s Global Law Intelligence Unit and author of The Fall of the Priests and the Rise of the Lawyers, once said: ‘… legal systems are in all their respects the most fundamental source of morality.’

This is not a rallying cry one often hears from GCs – not because they don’t believe in morality, but because they don’t believe they have the power to impact conduct, which is behaviour over time.

They do have the power. All they need to do is to use it. And if they don’t, society will start to call out much more often and much more forcibly than they do now: ‘Where were the lawyers?’.

As in, how could the lawyers let #metoo happen? Well, how? They must have known.

Ciarán Fenton

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