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

2 thoughts on “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

  1. Hegemonic masculinity, Avarice, unconscious envy and rivalrous inequalities all need to change in human society if your proposals are to bear fruit. I hope you are on the right track

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