IN-HOUSE TOM: SECTION 3.7 Trend 7 #lawyersbacks: a growing minority of lawyers are starting to, counter-intuitively, “have each others backs”

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IIN-HOUSE TOM: SECTION 3.7 Trend 7 #lawyersbacks: a growing minority of lawyers are starting to, counter-intuitively, “have each others backs”

The seventh, of seven trends, against which background in-house counsel must run their target operating models is that slowly and with maddening caution a growing minority of lawyers are starting to challenge the status quo and “have each others backs”.

The status quo, which I set out in detail earlier, can be summarised as the dysfunctional behaviour which most lawyers and non-lawyers acknowledge is prevalent in the relationship between law departments, law firm and the C-Suite.

While I say “most”, based on my anecdotal experiences over 15 years, I acknowledge that not all lawyers agree, are more than happy with the status quo and indeed a few have exhibited, what might be called in the animal kingdom, hostile noises towards me and others on these issues.

Those at the top of the profession, in-house and out, have no incentive to rock the boat. Why would they?

Even for those of their number who challenge the status quo the response can be negative. For example there was a furious response from some GCs when the UCL Centre for Ethics and Law in 2016 published its Mapping the Moral Compass Report in 2016 in which set out four categories of in-house lawyer:

  • the capitulators
  • the coasters
  • the comfortably numb
  • the champions

That list chimes with my experience of working with hundreds of in-house lawyers over many years.

“The Coasters”, the report said “…was the largest group by some distance…They had moderately low levels of perceptual moral attentiveness but moderately high reflective moral attentiveness…we speculate that this group is not yet being tested or testing itself in ethical terms”.

I see a correlation between in-house “Coasters” behaviour in relation to in-house ethics and their attitude to the ethics of the current house status-quo: they’re keeping their heads down.

But over recent years I have noticed three developments which suggest that there’s a growing minority getting ready to be ready to be ready (sic) to speak out:

  • The success of the #MeToo movement is encouraging more lawyers to believe that deeply embedded behaviour can be challenged successfully
  • More lawyers are becoming more and more comfortable airing their views about the dysfunctionality of the profession on social media
  • In-house lawyers who have been brutalised by “the business” are more willing to speak up, and help each other – at least in private. The recent outing of NDAs as instruments of mental torture has helped. In 2019 I ran a six month trial, which I called #lawyersbacks, to create a safe place for lawyers, in-house and out, to talk about their shocking experiences. The trial proved that a) there is a need for such support b) the support needed doesn’t exist currently c) the problems are systemic.

This delicate growth – against all their adversarial legal training instincts – of the value of helping each other, with the help of one or two high profile high EQ law firms and ESG-oriented C-Suites, will be the key to “disruption”in the legal profession, worldwide.

Once the numbers reach its tipping point – change, which has been gradual, will be sudden.

Watch this space.

Ciaran Fenton

IN-HOUSE TOM: SECTION 3.6 Trend 6 The well-being of lawyers remains a low priority; society pays a high price

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.6 Trend 6 The well-being of lawyers remains a low priority; society pays a high price

The sixth, of seven trends, against which background in-house counsel must run their target operating models is the fact that the well-being of lawyers, in-house and out, remains a low priority and society – which includes the legal profession, business and “the public” – continues to a pay a very high price indeed.

Paul Gilbert, CEO LBC Wise Counsel wrote in A report on the well-being of in-house lawyers (LBC Wise Counsel July 2015 p.3) “The ‘Crisis of well-being” article that I wrote in March 2014 and is republished in this report, had a very significant response…[that] spurred LBC Wise Counsel to conduct a survey…[which shows] a shocking picture…If these were physical injuries caused by machines in factories the businesses concerned would be shut down and directors prosecuted…It is unacceptable to inflict such harm and inexcusable to let it continue…Before it gets any worse worse we must act and act now”.

I have witnessed little evidence of sustainable action.

Horacio Bernardes Neto, President, International Bar Association wrote in Us Too? Bullying and Sexual Harassment in the Legal Profession (IBA May 2019) “…bullying and sexual harassment are widespread in legal workplaces. Some of us have experienced it ourselves. Many of us have witnessed it. Others have heard about it from colleagues. However, the plural of anecdote is not data. For the first time at a global level, this research provides quantitative confirmation that bullying and sexual harassment are endemic in the legal profession.”

The #MeToo campaign is making progress because people are working together for a shared purpose but the system which underpins the behaviour has changed not a jot, barring a few isolated exceptions.

One of the most revealing analyses of this stasis was provided by Professor Laura Empson, Director of the Centre for Professional Service Firms at Cass Business School, London, and a Senior Research Fellow at Harvard Law School’s Center on the Legal Profession in her BBC Radio 4 documentary (September 2018), available on BBC iPlayer.

Professor Empson told us nothing new and everything new.

We knew that the stress levels in professional services – and in legal services in particular – are unsustainable. I have seen it at close quarters over 15 years working with lawyers as leaders. Professor Empson’s stories and interviews are genuinely shocking, but won’t surprise any listener who knows that world.

What was new about Professor Empson’s programme was that she has moved the debate on, significantly, by tapping into the growing tolerance in the world of work for people making themselves vulnerable.

Moreover, what was riveting about this programme is that she – a former investment banker and strategy consultant turned academic – is a self-confessed “insecure overachiever” and speaks openly about her struggle.

And she manages to persuade “big names” in professional services to speak openly, frankly, and movingly about their experiences.

One story stands out: the managing partner who changed his shirt five times and pill-popped headache tablets all day due to the stress of an annual partners conference, who knew that he was perceived as cool but was dying inside.

Professor Empson’s engagement with vulnerability – her own and others – is new and part of a growing trend.

Several years ago, Richard Given – a client GC in the UK with extensive team leadership experience – gave me a copy of Brené Brown’s  Daring Greatly, a book which explains how the courage to be vulnerable works and dispels the myth that it’s a weakness and her Ted Talk is, rightly, in the Top Ten. In the spirit of the book, Richard spoke openly and refreshingly to everyone about his own tendency to overachieve.

Stephen Fry, Alasdair Campbell, and Ed Balls – all high profile figures in the UK – dared to speak openly about their issues. Paul Gilbert, a former GC and leader of UK’s foremost leadership programme for in-house counsel, has written for many years about the problem of stress in the profession and, movingly, about his own experiences.

The courage of Prof Empson and these people to speak out does us all an excellent service. It has an impact much more significant than perhaps some realise. It gives others permission to do so too. I now speak openly to my clients about my own experiences, and they theirs. Our shared work is enriched.

The arguments from interviewees in the programme who argued against vulnerability were as chilling as they were predictable: “if-you-can’t-hack-it-get-out…and “slavery was abolished…no one is forcing you to do it….and clients expect it…”

The problem with these arguments is that although factually they assume that everyone will persist with what Yuval Noah Harari calls in Sapiens the current “shared fiction” of the purpose of work in general, and the purpose of professional services in particular. Once we decide to change our shared purpose, all bets are off for the manipulators of “insecure overachievers”.

However, it hasn’t yet happened. And that explains, in part, the mystery of mostly zero disruption in legal services. There won’t be any substantive disruption in legal services, apart from technology-enabled change,  unless and until more lawyers accept that vulnerability isn’t a weakness.

One step that might help this process, not addressed in Professor Empson’s programme but hopefully in a sequel, is an examination of what in their formative years has led to them becoming “insecure overachievers”.

This one aspect of the program left me a little troubled. I’m uncomfortable with the coining of another new label – “insecure overachiever” – which some lawyers will use to self-flagellate and others as another secret elite badge of honour. I don’t believe this issue can be addressed without looking at the full arc of one’s life.

Professor Empson’s says in her closing words that although the feelings may diminish they “never go away…make your peace with them…recognise that you can be manipulated…channel it for you and not against you…your deepest fears may drive your wildest dreams.”

I don’t see it this way. For me, It’s not about making peace with the feelings or channelling them. It’s about making peace with their origin. Understanding what drove early overachieving decisions in your life and making a new decision. William Glasser calls this Decision and ReDecison.

Professor Empson asks frequently in the programme  – “who’s to blame?”

“Who?”, indeed. A great question.

Ciarán Fenton

IN-HOUSE TOM: SECTION 3.5 Trend 5 The “turf war” between Compliance and Legal is escalating, especially in rapid growth businesses

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.5 Trend 5 The “turf war” between Compliance and Legal is escalating, especially in rapid growth businesses, where these are separate

The fifth, of seven trends, against which background in-house counsel must run their target operating models is the escalating turf wars between the Compliance function and Legal function where these are separate.

Over many years I have witnessed in my work with in-house teams avoidable problems caused by this separation, particularly in rapid growth contexts where revenue pressures can create a culture “to keep Legal out of Compliance”.

According to an article, The compliance function at an inflection point published by McKinsey in January 2019 (Insights) “…The 2008 financial crisis brought compliance into sharp focus. At financial institutions worldwide, failures related to compliance led to fines and losses topping $300 billion in the ensuing years—damage approaching the proportions of crisis-induced credit losses. Compliance woes have not gone away since: recent McKinsey research indicates that most senior managers feel more comfortable with their credit-risk management than with their control of compliance risk. The reason for the discomfort is the inchoate state of compliance standards. Best practices for compliance risk are still emerging, few agree on the most effective organizational approach, and business ownership of compliance risk is weak.”

The article’s reference to the lack of agreement “on the most effective organisational approach” is the heart of the matter.

This is a serious matter and the problem is not new or unknown to all concerned.

The problem is further complicated by the fact that, apart from issues around compliance by organisations with laws generally referenced above, there are serious and unresolved matters regarding compliance by in-house solicitors with their regulator.

Moorhead, Vaughan and Godhino wrote in In-House Lawyer’s Ethics – Institutional Logics, Legal Risk and the Tournament of Influence (Hart Publishing 2019 p.226) “…Entity regulation is applicable only to law firms, Alternative Business Structures…and those working inside the law firms…Even where a business might employ more than 1,000 in-housers, each solicitor in that team is regulated as an individual and there is no entity-based regulation…What this means is that in-house teams are not required to have the same systems and processes in place as a law firm or ABSs for managing compliance and reporting breaches: in particular they will not have a mandated COLP [Compliance Officer for Legal Practice]…ethical challenges pose risks that organisations are poorly placed to deal with, where the organisations themselves are the source of that ethical risk…it is probably most accurate to say that the distinctively different approach to in-house practice in the current Code is as much historical accident as it is a clearly thought-through policy position”.

And so the origins of the current compliance mess – and it is a mess – is a function of confusion.

Confusion because, as McKinsey points out in its article “the more recent view of compliance as a risk rather than a legal obligation…business ownership of compliance is still lacking”.

Confusion leads to matters missed because in-house lawyers who feel they should be “across compliance” are sometimes shut out of compliance issues as none of their business.

Moorhead et al sum it up well:

“Weigh the harms caused by SCB’s wire-stripping, or Rolls-Royce’s corruption, against the more standard fare of SRA enforcement (solicitors taking client money, misleading the court), and we are hard pushed to see that in-house practice is low risk.”

Weigh the harms, indeed.

I suspect that in the aftermath of COVID-19, during which decisions were taken which may later prove to be questionable but were not questioned.

Society will be less forgiving after COVID-19 of in-house lawyers and their regulators than they were after the 2008 Crash.

“Where were the lawyers and their regulators?” will be a question asked much more stridently and insistently.

“Where?”.

IN-HOUSE TOM: SECTION 3.4 Trend 4 Regulation: pressure for change is growing, albeit slowly

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.4 Trend 4 Regulation: pressure for enforcement and change is growing, albeit slowly

The fourth, of seven trends, against which backdrop the current in-house target operating model struggles is the growing pressure, albeit slow, to enforce current regulation in respect of in-house lawyers and to strengthen it in order to protect society which includes businesses and lawyers.

In the UK lawyers are subject to the same regulations, whether they practice in-house or out.

One of these is the principle of “independence” . Lawyers are expected to act in an independent manner with respect to their clients.

As set out at length earlier (see Index) this is almost impossible for in-house lawyers.

Everyone knows it.

Many years ago when I started to look into this matter first I posted a blog on the subject on social media. The responses implied that the regulations are not “really enforced” in-house. I was shocked.

Recently I asked the Regulator the same question who replied that it’s up to the in-house lawyer to “report” issues and to act independently.

I asked the Regulator had they ever carried out a Thematic Risk Assessment on the independence risks in-house since they are required under their Enforcement Strategy to assess “serious risks” to society. There is ample academic research and case law evidence to suggest there is a serious risk. They said “no” but I could request one. I did. Nothing has happened, yet.

I conclude that as a “non-lawyer” member of society I hold little sway in these matters.

But what surprises me is the fact that lawyers and academics who raise these issues are also, largely, ignored – so far.

For example, Professor Stephen Mayson published his Legal Services Regulation Interim Report in 2020. He deals with in-house lawyers in Section 5.8 on page 70. The section is notable as much for its implicit commentary on the current context in which in-house counsel operate as it is for its specific proposals and questions regarding changes in regulations.

In the second paragraph he states:

“Analysis of the legal services market shows that a significant and increasing volume of lawyers (about 20%) and legal services are now in in-house settings. There is little doubt that a tension is inherent in this relationship when the client for legal services is also the adviser’s employer, and the usual notion of ‘independent’ legal advice is often stretched.”

This paragraph raises several questions in the mind of, say, a curious Martian were they to land on Earth today and read the report:

  • If there is “little doubt that a tension is inherent in this relationship” why has this tension not been addressed before now?
  • If the “usual notion of ‘independent’ legal advice is often stretched, why has this “stretching ” not been investigated more frequently heretofore?
  • Since the “little doubt” of which he writes is supported by ample anecdotal and written evidence of which most interested parties are aware, not least the UCL Moral Compass Survey 2016 which detailed the extent to which in-house counsel experience ethical pressure, why have boards of directors and regulators not done anything about it? 

He goes on to say:

“Equally, those advisers who are professionally qualified would typically prefer to maintain their professional independence, ethics and standards and not bow to any organisational or commercial pressures to modify their advice to make it more palatable to their internal clients. In these circumstances, it is arguable that those with professional obligations might benefit from further regulatory support (see also the discussion of ‘inverse vulnerability’ in paragraph Version: IR Final2 71 4.5.3). This could strengthen their position when dealing with internal clients, and provide an independent benchmark or standard against which to justify their professional advice. In principle, they should not be at risk of dismissal or disadvantage simply for observing their professional obligations.”

The Martian might, therefore, reasonably ask:

  • Are in-house lawyers currently at risk of dismissal or disadvantage simply for observing their professional obligations, yes or no? 
  • If no, what’s the problem?
  • If yes, why have they not by now received “further regulatory support”?

Professor Mayson moves on to governance:

“Further, effective corporate governance should ensure that in-house lawyers are able to function effectively and are supported in doing so. This might entail express conditions in their employment contract, and a direct reporting line to the Board (or to the chairman or a senior independent non-executive director).” 

He references in the footnotes a paper for discussion about best practice: “In-house lawyers and non-executive directors” by Professor Richard Moorhead and others. 

The Martian, equipped as they are with instant access to all data on the subject, might ask:

  • Why do their current contracts not include “conditions”, given the acknowledged “vulnerability”?
  • Since currently, in-house lawyer’s client is already “the board” why has no-one challenged the widespread practice of GCs reporting to CEOs and even CFOs who have unlimited power over their salaries, titles, and performance reviews?
  • And in respect of the latter and in reference to “independence” above why are they allowed to take advantage of LTIPs and Bonus schemes?

It is the final paragraph in 5.8.1 that is most shocking and might take our learned Martian by surprise:

“These are not simply private or commercial matters. As we have seen recently, corporate failures can lead to consumer and societal detriment, and in-house lawyers have to be able to sound alarm bells without the chilling effect of potential reprisal. The public interest in effective and fearless legal representation is engaged in much the same way as it is with private practice.”

The Martian might be forgiven for asking in respect of recent corporate failures:

  • Did some in-house lawyers not “sound alarm bells” because of “the chilling effect of potential reprisals”? And in what instances? Do we know?
  • Did some in-house lawyers sound the alarm bells and in fact experienced the chilling effect of reprisals? And in what cases? Do we know?
  • Since “the public interest in effective and fearless legal representation is engaged in much the same way as it is with private practice” why in respect of recent corporate failures was the public interest not protected?

The report goes on to examine the merits of separate registration and other remedies. 

I would encourage boards, GCs, regulators, Larry Fink and the 181 signatories of The Business Roundtable and anyone else interested in ESG to pause at the end of Section 5.8.1 and ask the question that the Martian might, again reasonably, ask:

  • While we may need to wait for a final report to propose new regulations, it’s clear that the public interest remains unprotected today; surely that can’t wait? What are boards, GCs and the profession/regulator going to do about it?

The sentence in the report which stands out for me and should haunt us all is:

As we have seen recently, corporate failures can lead to consumer and societal detriment, and in-house lawyers have to be able to sound alarm bells without the chilling effect of potential reprisal.

How, against this background, is it possible for any law department to run anything approaching a workable target operating model?

How?

Ciarán Fenton

IN-HOUSE TOM: SECTION 3.3 Trend 3 #Legaltech “disruption” hopes fading; “Ryanair” moment rising; state intervention hovering; purpose of law needs fixing, first

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.3 Trend 3 #Legaltech “disruption” hopes fading; “Ryanair” moment rising; state intervention hovering; purpose of law needs fixing, first

The third, of seven trends, against which backdrop the current in-house target operating model struggles, is that the hopes that technology would somehow change the behaviour of lawyers leading to a “transformation” or “disruption” in legal services are fading; that this creates an opportunity for one or more parties to do what, for example, Ryanair did i.e. to see technology as an enabler, not as a driver, of change and that this might also be a good opportunity for the state to intervene and “encourage” accelerated change – after-all, lawyers are Officers of the Court and, ultimately, servants of the state – an inconvenient truth perhaps, but a truth n’er the less.

This is no surprise to “non-lawyers” who wonder what lawyers are doing noodling about “#legaltech” when their very purpose in society is unclear? Fix your “why”, and your “how”, including your “tech” revolution, will follow. Ask Simon Sinek for help.

“WHEN AI AND THE INTERNET MEET THE PROFESSIONS…

…This book sets out two futures for the professions. Both rest on technology. One is reassuringly familiar. It is a more efficient version version of what we have today. The second is transformational – a gradual replacement of professionals by increasingly capable systems” (Back cover of The Future of the Professions: how technology will transform the work of human experts by Richard Susskind and Daniel Susskind, Oxford University 2015)

The Susskinds must feel disappointed.

As must those who endorsed in the book: Lord Thomas, Daniel Finkelstein, Ian Goldin, Philip Evans, Hugh Verrier, Anthony Seldon, Nicholas LaRusso, Conrad Young, and Richard Sexton.

The Susskinds and their endorsers are bright, experienced and thoughtful people. How could they have got this so wrong? Have they got they got it wrong? Is it too early to say?

Well, so far no transformation. We’d know.

Is it likely soon based on current efforts? Don’t hold your breath.

Here’s what might break the logjam:

  • One ABS licensee led by a “non-lawyer”, or an a-typical lawyer, with deep pockets could “do a Ryanair” which used technology (online booking) to disrupt the no frills airline market
  • The state could intervene and insist that the profession wake up and smell the digits
  • One innovative GC + one inspirational Managing Partner + an onside C-Suite including, er, a CTO might one day get in a room with a flip-chart and some post-it notes and sort this out.

Have you ever seen GCs, Managing Partners and CXOs including, er, CTOs get together regularly in large numbers at conferences? If you have, please DM.

The Susskinds weren’t wrong. They just missed a step:

Humans, not technology, will transform the work of human experts and then they will use technology to enable that transformation.

But the first step is to clarify the purpose “of the work of human experts”.

That’s up for grabs, “big time”, in respect of lawyers.

I’d love to read a book by the Susskinds on that topic including their take on society’s shift towards ESG investing, which in my view, will be the key “disrupting” factor in the legal sector.

Ciarán Fenton

IN-HOUSE TOM: SECTION 3.2 Trend 2 Law firm hubris: no incentives to change; gleeful at the disruption desert but “airline-type” big bang looms

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.2 Trend 2 Law firm hubris: no incentives to change; gleeful at the disruption desert but “airline-type” big bang looms

The second, of seven trends, against which backdrop the current in-house, law firm and C-Suite relationship languishes is the increasing and understandable hubris in law firms who have no incentives to change their broken models, are gleeful that, while AI may be an oasis in a desert of legal services disruption, “New Law” hasn’t “caught on”, is frequently viewed as an LLP respray and in any event the “billable hour” is alive and ticking in most firms, save for a few “outliers”.

But hubris, which in Greek tragedy meant excessive pride and defiance towards the gods leading to nemesis, in law firm terms means a defiance towards the “god” of society which is telling the legal sector that it is unhappy. Very unhappy. An while unhappy markets can sustain for long periods – sometimes very long periods – sooner or later trends collide to enable one or more players to say “enough is enough”.

This happened in the airline sector. Once upon a time flying was for a certain class of person, was massively overpriced and the service provided inconsistent across the range of that service category’s benefits.

Southwest Airlines, Easy Jet and Ryanair put an end to all of that. Their stories are now part of business disruption folklore. But before they did what they did the market was incredibly unhappy but resigned to the status quo.

The legal services market is in the same position now save for one factor: the disruption required in the airline industry was about services whereas the disruption required in the legal sector is not about services but about lawyers and their behaviour.

Legal services doesn’t need disruption. Lawyers do.

Broadly speaking legal services are fine and will improve when they become more customer focused and enabled by technology. That’s not difficult. Time, money and innovation will sort that.

Disruption of lawyers will take longer.

But a combination of one courageous law firm, one a-typical law department and one innovative ESG focused CEO/C-Suite could bring the entire commercial law edifice tumbling to the ground.

The managing partner of a law firm which has reached a “glass ceiling” and is currently failing to break into “the next level” of corporate clients might lead the revolution or maybe a managing partner of a “top firm” who fears such an outcome might do so too.

A GC who combines a brilliant legal mind, with proven leadership skills and exceptionally high emotional intelligence might one day be the “Herb Kelleher” of commercial law’s Big Bang or maybe, a “respected GC” with the smarts to read the runes and the relationships and convening power to facilitate change might do so too.

Or perhaps a young well educated, rounded, well adjusted, emotionally intelligent CEO of a “something-tech” successful and trendy business who cares about ESG as much as money might lead this or maybe a crusty old CEO who sees the tumbrils coming down the track decides to act and help lawyers help themselves.

Or maybe all three, all six or a combination. Who knows.

Either way and whoever does it, as sure as water flows downhill, this will happen.

Covid-19 will accelerate it.

Ciarán Fenton

IN-HOUSE TOM: SECTION 3.1 Trend #1 #ESG: Lawyers will be required to enable the relaunch of capitalism, whether they like it or not

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 3.1 Trend #1 #ESG: Lawyers will be required to enable the relaunch of capitalism, whether they like it or not

In Section 1, I set out the weaknesses in the current in-house target operating model and in Section 2, the steps to building a new one.

In Section 3, I will set out seven trends which form the context in which in-house lawyers will operate. These make a new model not only unavoidable but also achievable.

The first is the unstoppable trend towards the relaunch of capitalism via a focus on environment, society and governance (ESG) in investment decision-making. This is now a multi-trillion dollar business.

Skeptics point to inconsistent metrics, shallow motivations, and no fundamental change in company law on stakeholder holder value despite movements in that direction.

But Covid19 has squashed any remaining doubts that Milton Friedman’s manifesto for the primacy of shareholder value will be consigned to history, despite the protests of the right that state interventions are “temporary and not socialism”.

They miss the point. The loudest noises for a relaunch in capitalism are coming, not from traditional socialists, but from capitalists red in tooth and claw: Larry Fink, The Financial Times, and the 181 CEOs of The Business Roundtable to mention just three.

Society has had enough of trickle-down economics, stagnant wages, high dividends and unjust executive pay.

Until now some ESG rhetoric has been a fig leaf for making more money by by having a “purpose” other than making more money. That goose is truly cooked by Covid19 because it assumes that business will do this voluntarily. Pigs will fly.

Society will bring a big stick to business and will use it in anger, because it is furious and. sooner or later, history tells us that if society “gets mad” and decides to change its mandate it will be sudden and brutal.

It’s mandate to business will change. I call the new mandate ESGP: you must make as much profit as you can (P) because if you don’t we won’t be able to fund hospitals, schools and the police nor will we be able to entice people to risk their capital but you must do so but only after you pay a significant cash contribution to protecting environment, society and the cost of running a business ethically (ESG).

That means business will make less money. That means growth forecasts will have to take account of ESG costs. That means the stock markets will have to reset their expectations on ROI.

Ergo, board decision-making processes will change beyond belief. Since the board is the law department’s client, it follows that the role and purpose of the law department in enabling better ESGP decision-making will become of paramount importance to the organisation because one of biggest ESG risks for business is “conduct risk” which is defined as behaviour over time and the business will need their law department and their external law firm advisers to advise carefully on how to mitigate conduct risk and on internal legal process which can also lead to conduct risk.

If a GC wants to concentrate the minds of their client Board they might ask the following questions:

  • Do you want to be on the front pages for damaging the environment?
  • Or for a #MeToo incident, flagrant unequal pay or tax dodging (which could have paid for ventilators)?
  • Or for serious unethical behaviour?
  • Or any of the above which break laws and could land you in jail?
  • Or perhaps someone you know died of Covid-19 and you now believe in ESGP or you have changed your mind for another reason?
  • Or perhaps you genuinely feel that while you want to make money you also want to contribute to society or at least not damage it?
  • Will you now, please, get out of our way and let the law department do its job which is to enable better ESGP decisions?

How far fetched or far off do you honestly feel that line of questioning is?

Ciarán Fenton

IN-HOUSE TOM: SECTION 2.7 Step 7 Defy law school training; use the F-word; accept the GC as CEO of Legal

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 2.7 Step 7 Defy law school training; use the F-word; accept the GC as CEO of Legal

The seventh, of seven steps, in building a new in-house target operating model is for in-house lawyers to defy their law school training when it comes to leadership processes because law schools don’t value leadership only because law firms don’t value them because they can’t bill them by the hour; for in-house lawyers-as-leaders to use the F-word – Feeling – much more frequently that the T-word – Thinking, because legal training eschews feelings which may work in the practice of black letter law but is disastrous when lawyers have to lead, as so many of them do and, finally and crucially, by ensuring that fellow in-house lawyers accept that one of their number – the GC – is in fact the CEO of Legal, whether they like it or not, and the GC must lead and they must submit to leadership. It’s an action, not a thought.

Leadership is a strategic process

Every target operating model consists of three minimum components:

  • needs
  • strategic resources
  • strategic processes

Leadership is a strategic process. Without it the strategic resources cannnot be applied to meet the needs of “the business”.

The leadership skills of the GC and other in-house lawyers-as-leaders are strategic resources. If these are weak then they cannot meet needs of “the business” effectively.

All leaders do three things; so must lawyers-as-leaders

  • Create an environment in which the people they lead thrive
    • Lawyers-as-leaders struggle with this. They are litigators trained not only to win, but to ensure that the other guy loses, bigly. The notion that they might help someone else win does not compute. It’s counter intuitive. That’s why GCs must pay more attention than they think to leadership development – their own, particularly.
  • Grow and develop whatever they lead
    • GCs must grow and develop the legal department as a business because money is involved. One GC I worked with felt this characterisation of Legal-as-a-Business was “far too simplistic”. I understand this view and its etymology. Legal training promotes brilliance in legal practice to a God-like status whereby lawyers vie with other to be the “brightest in the room”. Small wonder therefore that they find themselves so frequently left outside “the room” in “the business”. In-house lawyers would help themselves more if they tried to be less snooty about the art and science of business and leadership and more aware that it’s hard work leading well and is a skill to be cherished, not ignored.
  • Please stakeholders – all of them, not some
    • In-house lawyers-as-leaders must please
      • The Court: they are Officers of the Court although I find that many don’t like to be reminded of this inconvenient truth. It sits uneasily with the nonsensical “pragmatic business partner” trope encouraged in recent years at in-house conferences. You’ll never hear a CEO facing the possibility of being fitted for an orange jumpsuit talk about lawyers-as-business-partners. They’ll be desperate for that “privileged” conversation, which privilege (sic) is granted to in-house lawyers by the Court.
      • The Board: the Board, not the CEO, is their client. The board also pays the law department’s bills.
      • Society: people died in trenches to allow lawyers to practice in a free democracy. Society expects lawyers to bear society in mind when advising “the business”. This expectation will intensify as businesses realise that ESG – environment, society and governance decision-making – is here to stay. It’s not a fad.
      • “Direct Reports” – Lawyers-who-lead have a duty to the people they lead. It’s a duty, not an option.
      • Other functions: people who work in other functions in “the business” look up to Legal to model behaviour: “If Legal isn’t worried, why should I”?
      • Regulators – Legal and other regulators are key stakeholders. It’s unfortunate, however, that legal regulators fail to help in-house lawyers with their “independence” challenges more than they do.

The GC is the CEO of Legal

Sadly, all but the most a-typical of in-house lawyers and fortunately there are a few of those, struggle with the notion that one of their number must lead them.

Being led doesn’t sit easily with these heroic soloists.

What if GCs and lawyers-as-leaders were to take Charlie Munger’s famous advice:

“Never, ever think about something else when you should be thinking about the power of incentives”.

So what’s the incentive for in-house lawyers to change their behaviour when they have resolutely failed to “disrupt” anything in the last five years and they show no signs of doing so now?

I recall giving a speech to an in-house legal conference many years ago setting out the arguments in this book. There were about 180 in-house lawyers in the room. Less than ten showed any active interest. I think I said: you are all here on expenses, with your five weeks holidays, pensions and LTIPs. Why should you care? Where’s your pain? Why don’t we stop the session and go and drink pints? They laughed.

I don’t/didn’t blame them.

There’s only one incentive that will move lawyers to action: that’s peer pressure.

When a-typcial lawyers-as-leaders connect with the “boiling frog” reality of legal services they will act. Their peers will respond. They’re not stupid. They’re “bright”, remember.

What will make a-typcial lawyers act?

Society.

“Changes in the macro-environment” is the “in” phrase.

That’s what the next section of this book, Section 3, is about:

Why the legal frog should jump out of the warming waters, before it’s too late.

Disrupt on their terms rather than be disrupted on the terms of others.

Either way, just like the parent who says to a child at bedtime: “Would you like the blue teddy or the brown teddy?” [But you’re going to bed] – society will, unless lawyers act, tell which lawyers which teddy they will have, like it or not.

Allowing the water to boil isn’t “bright”, is it?

Ciarán Fenton

IN-HOUSE TOM: SECTION 2.6 Step 6 Negotiate a business plan which meets business needs but honours Legal’s purpose

I’m writing a book with the working title: IN-HOUSE TOM: a new model for the law department, law firm & C-Suite relationship – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 2.6 Step 6 Negotiate a business plan which meets business needs but honours Legal’s purpose

The sixth, of seven steps, in building a new in-house target operating model is to negotiate a breakeven law department business plan which meets reasonable business needs but at the same time must honour the purpose of any law department which is to enable better decisions using excellent legal counsel and process.

By “negotiate” I mean to negotiate a deal with the Board where you agree to deliver “seven things for seven dollars not ten things for seven dollars.” (Ibid).

This requires selling skills, covered earlier, and negotiating skills ensuring the business feels that this approach is in its long term interests.

By “business plan” I mean a plan which allows you to run Legal as a business, not like one, over the next three to five years.

You can use any business plan template.

I have developed this one tailored for legal departments:

Legal Department Business Plan Executive Summary Template (and notes)

  1. Definitions [To Be Agreed with “the business”]
    1. “Legal” The legal department…
    2. “The business” The Board…[not the CEO]
    3. “The needs of the business” : See Appendix A
    4.  “The budget”: See Appendix B
    5. “Foresight” [Not a crystal ball…]
    6. “Legal counsel”: legal advice
    7. “Legal process”: all processes which have a legal component
    8. “Lawyer-Leaders”
      1. Lawyers who lead teams and need to develop appropriate leadership skills
    9. “Exclusions” Appendix C
      1. The list of services that the business needs but which cannot be funded within the budget therefore not part of this plan.
  2. The Purpose of Legal (Why)
    1. “A vibrant, independent legal profession is an essential element of any democratic society committed to the rule of law… lawyers also owe overriding specific duties to the court and to society, duties…which may require lawyers to act to their own detriment, and to that of their clients.” Lord Neuberger
    2. “The lawyer has a duty to the court which is paramount….He owes allegiance to a higher cause. It is the cause of truth and justice…. He must disregard the specific instructions of his client if they conflict with his duty to the court” Lord Denning Rondel v Worsley 1967
    3. Work with the business to foresee risks
    4. Provide excellent legal counsel and process
    5. To develop in-house lawyers and lawyer-leaders
  3. Legal Strategy to achieve this purpose (How)
    1. The primary strategy to achieve its purpose will be to focus on communicating how scarce resources are being exploited to foresee top end emerging risks and to provide essential counsel and process
  4. Legal Behaviour (Approach)
    1. Operating as an independent breakeven business
    2. Emphasis on maxmising personal and team performance and fulfilment
    3. Best practice in internal marketing and operational management of scarce resources
  5. The Agreed Needs of “the business”
    1. Foresight
    2. Visible/vanguard
    3. Engaged in the business
    4. Excellent legal counsel
    5. Excellent legal process
    6. Value for money
    7. Within budget
    8. See Appendix D
  6. The opportunity
    1. To demonstrate that “foresight” can be delivered to and with the business
    2. To have a new conversation with the business which matches needs to resources
    3. To create an environment in which lawyers and non-lawyers can thrive
  7. Internal Marketing Plan
    1. Internal marketing, not just communications, is a key component of Legal strategy. All Legal Operating Board Members need to understand what Internal Marketing is and how it is works in practice. The Plan will follow standard marketing principles i.e. ‘The 4 Ps”:
      1. Product (Service)
        • Foresight
        • Counsel
        • Process
      2. Price
        • The Budget
      3. Place (Delivery)
        • 1-1
        • 1- many
        • In writing
      4. Promotion (internal marketing)
        • Legal “brand”: Professional, High quality
        • Reliable: forward looking, risk managers  etc.
        • Seminars led by Legal team members
        • Relationship marketing – stories
  8. Operations Plan
    1. Business need
    2. People
    3. Resources
    4. IT Plan
    5. Finance Plan
    6. Behaviour Plan
    7. Cost
  9. People Plan
    1. Legal Operating Board
      1. GC as “CEO”
      2. CFO from Finance Department or external
      3. COO
        1. Practice Heads
      4. CTO from IT Department or external
      5. CMO from Marketing Department or external
      6. HR
      7. GC to Operating Board
    2. Risk Committee
    3. People Committee
    4. The Organisation Chart is set out in Appendix E
    5. Legal Operating Board will set out, in conjunction with HR, its own People Policy particularly in relation to the creation of a culture of excellence for lawyers and those who support lawyers
    6. A separate Policy document will be agreed by Legal in respect of external counsel and in particular the use of “new law” providers.
  10. Target Operating Model
    1. Taken together, the  sections above constitute the Legal Target Operating Model (TOM), which is about how, ideally, the law department would like to operate. The components of the TOM are needs, strategic resources and strategic processes:
    1. Need: The agreed needs of the business
    2. Strategic Resources: People, External relationships, Knowledge
    3. Strategic Processes: Operating Board, Risk Committee, People Committee, Workflows, etc
  11. Finance
    1. Detailed Budget: See Appendix
    2. Financial Reporting processes
    3. Monthly management accounting reports with variance analysis and narrative to be presented to the Legal Operating Board
  12. SWOT & Mitigation
    1. Strengths:
    2. Weaknesses:
    3. Opportunity:
    4. Threat:
      1. Mitigation
        1. A
        2. B
        3. C

Busieness Plan Steps

  • Debate and agree Draft 1 at Legal Operating Board meetings
  • Full Legal Operating Board to present Draft 1 to the business
  • Debate
  • Review and agree Draft 2 at Legal Operating Board Meetings
  • Re-present Draft 2 to the business
  • Repeat as required
  • SIGN OFF
  • DELIVER

Ciarán Fenton

IN-HOUSE TOM: SECTION 2.5 Step 5 Invest cash in innovative providers to help close the C-Suite gap & end the in/out myth

I’m writing a book with the working title: IN-HOUSE TOM: a new target operating model for law departments – initially as a series of blogs.

You can follow the full index of the blogs as they build here: IN-HOUSE TOM: INDEX

IN-HOUSE TOM: SECTION 2.5 Step 5 Invest cash in innovative providers to help close the C-Suite gap & end the in/out myth

The fifth, of seven steps, in building a new in-house target operating model is to fix what’s broken with “out-of-house” by abolishing the vanity of “panels”, investing cash in long-term relationships with innovative suppliers of legal counsel and process, allowing them access to your C-Suite so that they can help you close the yawning “gap with Legal” and in doing so end the myth that in-house and out are in any way different save that in-house should be “in the room” by right.

Bjarne Tellmann quotes Sun Tzu in his book “Building an Outstanding Legal Team” (Globe Law & Business 2017 p.155): “If you do not seek out allies and helpers, then you will be isolated and weak.”

He’s right and, although I don’t agree with all of his views on out of house relationships, he makes a crucial point that “it [outside spend] is likely to comprise the largest component of you legal spend”.

Why then do law departments not exploit, positively, this awesome buying power on “eat all you can for a fiver” joint venture deals over three to five years instead of over-priced “à la carte” legal menus offered by panels?

Law firms’ business models are constructed and thrive, at least financially, on the current dysfunctional relationship between in-house, law firms and the C-Suite.

As one equity partner explained to me: “…we advise businesses how to get from A to B. This involves counsel and process. We undercharge for counsel and overcharge for process. But it nets out ok in the end…”

It may “net out ok” for some law firms, but business and therefore society is underserved.

The cure is painful and demands courage but would put law departments in the driving seat of “legal disruption” with innovative providers up front with them:

  • abandon panels: time-wasting, expensive, vanity beauty contests
  • invest cash in innovative providers: help them fund their target operating models over several years so they can de-risk yours
  • be confident enough to allow them access to your C-Suite: they can help you develop and sell in your Legal Business Plan
  • make them part of your team; invite them to your operating board meetings
  • help them build businesses which have good people but not reliant on any personalities
  • have the courage to avoid the “none got fired for instructing a “Magic Circle” law firm hamster wheel by helping your joint venture suppliers invest in talented lawyers as good as the best
  • end the “magic circle” myth once and for all; it isn’t magic

The magic circle myth perpetuates the in/out myth which is that there is an unbreakable caste system in law: in-housers are perceived by some as a tad intellectually inferior to law firm lawyers; that they have taken “the corporate shilling” and pay law firm’s exorbitant bills only because their in-house relationships with the C-Suite are so dysfunctional they dare not as they need substantial air-cover.

This merry-go-around serves no-one. Not even the big law firms who know that their models are disintegrating because their billable hour cultures are not sustainable.

Soon the matter will be taken out of their hands as society wakes up to the over-priced mess that is the legal services sector which still allows corporations to go under while employing law departments the size of law firms and with no ABS obligations and “light touch” regulation and who were not “in the room when that decision was made” but, strangely, were in the room when that “legal privilege moment” was urgently required. Officer of the Court one moment, “blocker”, the next.

The water is getting warmer around the frog.

Clever law firms and providers should “get in there now” and help sort out this mess before the “revolution”.

Clever law departments should invite them in.

Ciarán Fenton