If only lawyers who lead could bill leadership by the hour…

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Economist Events

16th. Annual GC Summit

London

7th. November 2019

Ciarán Fenton

Leadership consultant

 

Focus and productivity: what are the key methods for focusing, and how can they increase your productivity?

 

Thank you to The Economist Events team for inviting me to speak this morning at their 16th. Annual GC Summit 2019.

 

They have set me a challenging topic.

 

It’s challenging because, whatever flaws lawyers are meant to have according to academic research, being unproductive isn’t one of them.

 

Over 15 years, I have worked with scores of lawyers – in-house and out: GCs, DGCs, Heads of Legal and their teams.

 

I’ve worked with managing partners, equity partners and partners in private practice.

 

I’ve even worked with barristers: silks, senior juniors, juniors and, even baby silks!

 

This pecking order alone suggests that lawyers don’t muck about when it comes to creating systems that ensure that, if you want to rise to the top, you have to work very hard indeed, and productively.

 

So while I have heard individual lawyers described as having this strength or that weakness never have I heard a lawyer described as “unproductive” in the realm of black letter law.

 

But leadership is an entirely different matter.

 

To be productive as a GC, you must know how to lead – assuming of course that you have a team to lead. I’m aware that many GCs have no teams. I’m referring to those that do.

 

Most in-house lawyers started off in private practice. Leadership is not valued in private practice because it’s not billable.

 

If only lawyers who lead could bill leadership by the hour they would be amongst the most effective senior executives in the business world.

 

Some years ago I was won a pitch to facilitate a three-day annual global legal leadership conference – about one hundred in-house lawyer-leaders drawn from a large legal function in a multi-national corporation.

 

It was a big opportunity for me. I wanted to make a good impression.

 

But on the morning of the second day of the conference after a sleepless night I announced that I had had a failure of courage the previous day – perhaps subconsciously fearful that I might not get another mandate – I announced that I should have called out the fact that I felt there was no energy whatsoever in the room for leadership, only for risk. There was an uneasy silence.

 

I asked for a show of hands from those who would admit that my impression that leadership was not top of mind at this, er, leadership conference was in fact correct.

 

To my great relief, most put up their hands. This was not an isolated incident.

So, what are the key methods of focusing as a GC and how can those methods help increase their productivity?

 

I propose one method and three tools that GCs can test for themselves if they haven’t already, to meet this need.

 

The core method I recommend is to write themselves a skeleton argument, as it were, to prove to their satisfaction the hypothesis that improving significantly their leadership capability – a combination of art and science – will, in fact, make them feel more successful and more capable as GCs.

 

The keyword in the method is “feel”. The skeleton argument starts as an intellectual process and ends as an emotional one.

 

GCs are, of course aware, intellectually, of the value of leadership training and programmes.

 

But they don’t feel as deeply connected emotionally to the art and science of leadership as they do, for example, to the art and science of litigation.

 

If perhaps they approached the skeleton argument as an exercise in proving or not that there was a significant gap in their legal education, they might come to see this exercise as a rewiring of their legal minds.

 

 

Even today there is no mandatory leadership module in law degrees, the GDL or LPC. The regulator doesn’t demand it because I suspect, the regulator doesn’t value leadership courses as highly as other courses in legal training, notwithstanding the fact that a large number of lawyers become leaders.

 

Then I suggest they test for themselves the three main components of leadership:

 

  1. Creating an environment in which the people they lead, thrive.
  2. Growing the legal function. By growing I mean making it increasingly relevant.
  3. Pleasing stakeholders. By stakeholders, I mean all of them, not just the CEO.

 

Taking these in turn:

 

First…

 

Creating an environment in which the people they lead thrive is productive behaviour and means spending time getting to know what motivates the people they lead. This varies from person to person.

 

As a test, GCs could list the psychological motivators of each of their direct reports and track how each direct report responds to the GC’s efforts at creating an environment in which those motivators were triggered.

 

At the end of the trial period, the GC would either be convinced of the approach if it worked or might need to look at raising their EQ if it didn’t work. Either way, the GC controls the tool and their own learning.

 

Second…

 

Growing the legal function is about focus. By growing, I mean making it increasingly relevant. There is only one way to make a legal function relevant, and that is to test its connection with business strategy, constantly.

 

The best tool to make Legal relevant is a business plan.

 

A business plan which sets out and fully costs a legal function’s relationship with delivering business strategy can’t fail unless of course, the GC doesn’t understand the business strategy or the business doesn’t understand legal strategy.

 

In respect of the latter and in my experience, the single biggest contributor to unproductive GCs is their failure to tell, rather than ask, the business what it needs in terms of legal counsel and process.

 

The most unproductive GCs are those who are hounded by their business. There are many recorded cases of these and far more unrecorded.

 

Third…

 

Pleasing stakeholders. By stakeholders, I mean all of them, not just the CEO.

 

The GC’s client is the board. Much has been written on this issue not least regarding the role of IHLs addressed in detail in Professor Stephen Mayson’s recently published interim report on his Independent Review of Legal Services Regulation S 5.8 the most arresting quote from which is where he states “in-house lawyers have to be able to sound alarm bells without the chilling effect of potential reprisal”.

 

He goes on to say in respect of in-house lawyers that “the public interest in effective and fearless legal representation is engaged in much the same way as it is with private practice”.

 

In that sentence, surely is a large part of what it means to be a productive GC: effective and fearless legal representation.

 

Perhaps the best focus and productivity tool available to GCs is to remember that they are Officers of the Court and not to wince, as some do when reminded of it.

 

 

Finally, at a macro level, there is an opportunity for GCs to contribute productively to the changing nature of how trading relationships are managed.

 

 

There is growing movement towards balancing shareholder value with ESG factors – environment, society and governance and it is in the area of business contracts that trading relationships receive their expression.

 

 

Earlier this week I spoke at the International Association for Contract and Commercial Management Americas IACCM Conference in Phoenix, Arizona about the impact of the 181 signatories of the Business Roundtable statement on the purpose of the corporation and other developments in ESG behaviour on boards and had an opportunity to hear the views of others on these developments.

 

 

Sally Guyer, the CEO of IACCM said in her opening remarks at the conference that “in an era where purpose has to come above shareholder value, where people want integrity…we see that it’s contracting that’s at the heart of these changes.”

 

 

And where there are contracts, there are lawyers and if GCs want to be productive at a macro level they should engage deeply in the debate around how contracting is changing to reflect new behaviour in trading relationships which increasingly have an ESG component.

 

 

If GCs want to be more focused and productive, they might consider first reframing their purpose in a changing world.

 

If they don’t, they will surely lose out.

 

If they do they will be at the heart of positive change.

 

And that’s where society wants its lawyers to be.

 

Thank you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ESGP decision-making: how boards can balance ESG and profit considerations

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Ciarán Fenton

Leadership consultant

IACCM Americas Conference

04-06 November 2019

Sheraton Grand Hotel at Wild Horse Pass

Phoenix, Arizona, USA

 

TRACK D

 

EXECUTIVE TRACK LEADING CHANGE & INNOVATION

ESGP: how can boards, in their decision making, balance the environment, society and governance with profit?

Earlier this year 181 American CEOs at The Business Roundtable issued a collective “statement on the purpose of a corporation” which abandoned shareholder primacy and pledged “a fundamental commitment to all our stakeholders”. Their announcement is just one of several from business leaders across the globe over the last few years and which has converted ESG into a “$31tn mainstream endeavour” (FT). But, if they mean it, how can this translate into a credible change in decision-making behaviour on main and operating boards across the world? Leadership consultant, Ciarán Fenton, offers a three-step process for discussion.

Ciarán Fenton Leadership Consultant, Ciaran Fenton Limited

Sally Guyer Global CEO, IACC

 

Good afternoon.

Thank you to Sally and the IACCM for inviting me to speak to you today here in Phoenix.

It’s a great pleasure.

My purpose is to propose three steps you, and your boards and teams might take in your decision-making to balance ESG and profit considerations and also to alert you and your boards, if not alert already, to the magnitude of the positive opportunities you can exploit at this unprecedented crossroads in our global economic history.

If there is anyone who still doubts that we are living through a time of unprecedented change in how business is being transacted across the world,

who still wonders if the focus on environment, society and governance issues is merely a fad which will soon fade,

who still questions the power of society to decide when pushed to do so, to create a new normal,

then part of their answer lies, even if they view it cynically, in the Statement on the Purpose of a Corporation signed last August by 181 Chief Executives of The Business Roundtable,

27 of which corporations are represented here at this IACCM Americas Conference 2019 in Phoenix, Arizona whose central theme is, fittingly, “to think ‘outside the rules’. “

Part of the answer to those who doubt also lies in Harvard Business Review’s statement which accompanied their publication recently of its prestigious ranking of the 100 best-performing CEOs in the world.

“Since 2015 [HBR says] our ranking has been based not only on financial performance but also on environmental, social, and governance (ESG) ratings.

For the past four years, we’ve weighted ESG scores to account for 20% of each CEO’s final ranking.

This year we tweaked the formula, increasing that share to 30%.”

As an aside – I wonder how meaningful, as others do, HBR’s percentages are. I mean, why not 33 and 1/3 %? Indeed why not 51% if ESG should, as I believe it will in time come first?

The statement continues:

“The shift reflects the fact that a rapidly growing number of funds and individuals now focus on far more than bottom-line metrics when they make investment decisions.

One sign of this changing sensibility [is]:

In August 2019, 181 U.S. CEOs who are members of the Business Roundtable signed a statement affirming that the purpose of a corporation is to serve not just shareholders but four other groups of stakeholders:

employees, customers, suppliers, and communities.”

And finally, part of the answer to those who doubt

is reflected in The Financial Times’ decision to launch, with a front-page wrap-around splash, in its 19 September 2019 edition

a campaign it calls The New Agenda with the headline in large font-size:

CAPITALISM.

TIME FOR A RESET.

And to help doubters, movements like B-Corp, Tomorrow’s Company and Blueprint for Better Business, to mention just three, have developed over recent years principles, frameworks and models to help businesses operate with a purpose other than purely for profit.

President Obama said, “Let us remember that, if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers.”

But, say the cynics, it’s all talk — a lot of grandiose words.

Nothing fundamental has changed.

Judge for yourself.

Just look at who’s talking.

The Business Roundtable,

Harvard Business Review

and The Financial Times

  • these are not apologists for socialism.
  • They are gladiators of capitalism, red in tooth and claw.

They’ve seen the writing on the wall.

The genie is out of the bottle. They know it and, as some might say in these parts, it ain’t going back in.

There’s plenty of evidence to support this theory.

According to the Financial Times, “ESG has moved from being a tiny cottage industry into a mainstream endeavour worth 31 trillion dollars, according to the broadest definitions”.

Since the 2008 Crash, Andrew Kasoy, one of the founders of the B-Corp legal framework which carries authorisation of the Delaware courts and which requires managers to measure environmental and social goals as well as profit, noticed that while many companies did not become B-Corps, they started to embrace the B-Corp metrics of their own accord.

Gillian Tett chair of the editorial board at The Financial Times wrote in a recent piece that

“ decades of shareholder primacy had – unsurprisingly – left labour losing out badly to capital…and [to] executives.

By 2007 CEO pay was 345.9 times that of the average worker, up from a ratio of 29.7 in 1978 – and labour’s share in the overall economic output in America (i.e. wages) had fallen steadily over the same period, even as corporate profits boomed”.

A Washinton Post piece in April stated that “Jamie Dimon, the CEO of JPMorgan Chase, made $31 million last year.

Which led to an interesting exchange between him and first-term Rep. Katie Porter (D-Calif.) …in a Capitol Hill hearing, when Porter asked [Mr] Dimon to consider the financial situation of a teller working at [Mr] Dimon’s bank in Irvine, Calif., the location of her district…

[A video of the exchange went viral]

The point is this [states the Post]

If you have a bank that’s making $9 billion in profit in a single quarter, with a CEO who makes $31 million a year, and yet people who work for that bank can’t possibly make ends meet, something is very, very wrong.”

Mr Dimon is one of the 181 signatories of the purpose statement of The Business Roundtable.

He is also its chair.

The purpose statement includes a commitment to

“Investing in our employees. [And] This starts with compensating them fairly…”

Mr Dimon’s challenge and the challenge for the 180 other signatories, who until now thought they were doing a great job and deserving of their bonuses according to the rules of Mr Milton Freidman, now find that society feels Mr Friedman’s views are not aligned with its future.

Mr Dimon didn’t make the rules, but he and his CEO colleagues can change them because if they have the power to come together and, with just one joint statement, throw Mr Milton Freidman “under the bus” then they have the power, in aggregate, perhaps more than any government, to go to the next logical step and have the courage to execute on their promise by reducing their earnings forecasts, by the cost of a properly costed ESG strategy.

They will need courage and each other’s backs because they will encounter ferocious opposition.

The Council of Institutional Investors is outraged at The Business Roundtable and thinks that “accountability to everyone, means accountability to no one”.

And some of the names on the BRT list might give rise to an arched eyebrow.

Some of the signatories have fallen off the HBR top 100 CEOS list because they didn’t move the needle sufficiently on the ESG dial last year.

It will be interesting to see how many of the 181 make next year’s HBR top 100 list with high ESG scores. That will be a test of sorts.

So, meanwhile, where does that leave senior leaders on main and operating boards, executive committees and function teams who have to get stuff done on a day-to-day basis?

all change leaves them: with a choice.

They must decide if this Well, it leaves them in the same place that stuff is for real or not and whether they believe, or not, that the direction of travel is towards ESG and not away from it.

And if they do here is my proposed three-step ESGP decision-making process on boards and teams:

Step 1: ESG Devil’s Advocate

Appoint an ESG Devil’s Advocate, by rotation, at every board and team meeting at which you are taking critical decisions giving them explicit permission to call out in detail the impact of each decision on the environment, society and governance.

By rotation, I mean that the designated Devil’s Advocate should change at each meeting, so everyone gets a chance to learn how to articulate ESG impact

For example, let’s say Decision A leads to $100 profit by disregarding ESG issues completely.

That’s what I call a P-Decision.

A profit-comes-first-decision.

In a P-Decision, the approach to ESG is “If we can do ESG stuff for free, great because that’s good for business too”

Let’s say Decision B delivers $90 profit because your board decides, like St. Augustine, that you really want to be good but not just yet, and so you choose to take only a partial ESG hit of $10.

That’s still a P-Decision because some aspect of ESG is negatively affected.

Let’s say Decision C results in an $80 profit having charged $20 for the cost not damaging the environment, or the cots of paying people fairly, or the cost of behaving ethically with good governance.

That would in my terms be an ESGP Decision.

ESG issues come first. Profit second.

So, these are your choices. You’re the Devil’s Advocate. Your job is to chair the setting out of these choices at the meeting.

Then your board can take a final decision taking full responsibility for the consequences of its impact on ESG.

Had businesses taken this approach coming up to 2008, a Global Financial Crash might have been avoided.

But the business and individual decision-makers would have made less money. They didn’t rub their hands in glee and say, “wow, let’s do that ESG thing and let’s make a killing.”

There’s no money in ethics. If there were, everyone would be falling over each other to behave ethically.

And while there’s an understandable trend to soften this message by making a causal link between ESG and better business results over the long term, the truth is that if we’re serious about ESG, our cost base will have to increase.

Because taking care of the environment, society and observing good governance properly and not in a half-hearted manner will cost money.

Step 2: Insert a line in your management accounts – i.e. your internal accounts which are not published externally – to track profits before and after ESG costs.

In the example above if your board took decision A then profit before and after ESG costs would be the same.

If your board took decision B then the profit before ESG costs would be $100 and after $90.

In decision C, the ESGP Decision, $100 profit after ESG costs would be $80.

What if all 181 signatories of the Statement on the Purpose of a Corporation together committed to this internal confidential exercise for one year?

Imagine what would happen if they then came together and announced to the stock market that they were downgrading their next year’s earnings by their estimated ESG costs. Now that would be interesting.

If shareholder value is measured in stock prices, logically these must go down if shareholder value is no longer to be maximised at the cost of ESG. Surely that makes sense?

Step 3: Agree “unwritten behaviour contracts” with your colleagues on your boards and teams to create an ESGP environment.

It’s fitting that this IACCM conference is focused on the art and science of contract and commercial management because the changes that society clearly wants in the license it gives businesses to trade with each other will only come about if people on boards and teams give each other permission through unwritten behaviour or “soft” contracts to experiment with new ways of working, without the chilling fear of reprisals from the CEO or punishment in their incentive schemes.

If the CEOs of the 181 corporations, including the 27 at this conference, gave their senior teams permission and incentives, soft and hard, to take ESGP Decisions then their Statement on the Purpose of a Corporation will be sure to go down in history…

… not as a cynical marketing exercise as some say it is

…but as a historic turning point.

THANK YOU.