How to present that damning internal report to your board 

Once upon a time, a client director commissioned a report by an external consultant on company operations which she then presented to board colleagues.

The report was excellently researched, mainly via extensive internal interviews. While the report contained some good news, it was mainly damning in respect of internal processes and conduct, especially institutionalised bullying.

Moreover, the perpetrators of the bullying were amongst the senior ranks and the process weaknesses exposed some of the directors. How should my client best present the report?

I advised that she opens with a restatement of the shared purpose of the business: before I present the outcome of the report I want to remind colleagues that we have agreed already that our shared overarching objective or purpose is X and our overarching strategy for achieving that purpose is Y.

Of course, it helps enormously if the board has taken the time to come to a shared view on X and Y.

Frequently this is not the case. And if you find yourself in this position I advise that you never present a damning report, or indeed any report, without first agreeing a shared PSB – Purpose (P) and Strategy (S) so that you can safely explore what Behaviour (B) is required to implement the strategy to achieve the shared purpose.

PSB, therefore, is the presentational tactic that will prevent your damning report from rupturing your board and will protect you from the anger of the listeners which invariably masks their shame and fear of being shamed.

And shaming is the mortal enemy of effective boards or indeed any team. One client, a racing yacht captain, has a zero-tolerance policy on his boat for shaming behaviour in respect of crew errors especially amongst male crew members whose internal self-loathing is fuelled by the tut-tuts of others with a disastrous impact on the race.

So your presentation is about fixing not pointing. It’s about behaviour, not people. Start with finding positive points in the report and genuinely celebrate their link to objectives. Do this slowly and not as a warm-up for a flogging. Tokenism will make things worse.

Don’t end the positive report with a “but”; end it with “and we should discuss how we can replicate this behaviour and celebrate those who model it”.

“However, given that we are trying to achieve X by implementing Y with behaviour Z, I feel alarmed that the report highlights significant weaknesses with processes A, B and C and I’m sure colleagues will agree that we cannot create an environment in which people will do their best work if we collude with bullying of any sort”.

The use of the words “I feel…” is part of the triad Feel, Need, Do which you can use effectively to protect yourself during the presentation from the accusation of pointing and not fixing.

In addition, the technique is very useful when dealing with the negative reaction of those who feel that the report appears to be fingering them. As the messenger, you can avoid being killed by using the following approach to the anger your message will generate.

Anger is a shallow emotion. Your job is to reveal, gently, the deeper feeling hidden by fury. Hurt and humiliation will not be far away. Try this:

“It sounds like the report has made you feel very angry. Tell me more”. Listen. Don’t interrupt, save to ask clarifying questions.

When you feel you have finished with your questions, dig deep and ask another. Often this last question is the one which will surface the need that goes with the feeling and what they want to do to meet their need, besides dismembering you.

Isn’t it time that in-house lawyers re-launched the legal function?

This blog was published recently by The Law Society here:

http://communities.lawsociety.org.uk/in-house/insideout-magazine/january-2018/isnt-it-time-that-in-house-lawyers-re-launched-the-legal-function/5064024.article

Ciarán Fenton says it’s time to redefine the role and purpose of the legal function to reflect the relationship between in-house lawyers and their business leaders.

 

Would it be reasonable for a curious Martian to ask in-house lawyers where they were when their business leaders took the decisions that led to their corporate scandals?

The stock answer is: ‘We were not in the room.’ Very often, they were not. But that does not explain, fully, why so many major brands with top class in-house legal teams still got into serious trouble, and continue to do so.

The relationship between legal functions and their boards is brittle, at best. In a 2016 survey of 400 in-house lawyers by the UCL Centre for Law and Ethics:

  • 10-15 per cent experienced ‘elevated ethical pressure’
  • 30-40 per cent ‘sometimes experienced ethical pressure’
  • close to 50 per cent agreed that ‘actions were sometimes taken against their advice on legally important matters’.

Furthermore, for 65 per cent, ‘achieving what the organisation wants has to be their main priority’.

Surely, the priority of an in-house lawyer must be to provide, in their professional opinion, the best legal counsel and process appropriate to the objectives of the business? Surely, the lawyer must tell the business what legal services it needs? Surely, lawyers should not experience ethical pressure of any description whatsoever?

The authors of the survey found that there were four categories of in-house lawyer: the capitulators; the coasters; the comfortably numb and the champions. While the category names speak for themselves, the Martian might reasonably wonder why there are four, and not one.

But had the Martian attended in-house legal conferences and workshops over the last ten years, they would understand the cause of the problem. These conferences are, usually, dominated by three questions, which are never fully answered.

1. How can the legal function reduce costs?

The favoured phrase is ‘how can we do more for less’, as if their default position is to do less for more.

2. How can we demonstrate value to the business and ensure a seat at the table?

If lawyers have to work so hard to demonstrate their value, is it a surprise that they were not ‘at the table … in the room’ when the fatal decisions were made?

3. How can in-house lawyers become more commercial – business people first, lawyers second?

Some years ago, one in-house counsel who spoke on this topic to hearty applause from peers was later forced to reverse that order when the business he worked for was embroiled in a major scandal. It was ‘lawyer first’ then, no question.

Meanwhile, business leaders feel frustrated. After all, they say, the legal profession created this class of lawyer who happily takes their salary, annual holidays and pensions, but is often ‘not commercial enough … lack leadership skills … and don’t understand the business’.

They struggle to understand why the legal function should not behave exactly like like the other main functions – finance, marketing, sales, operations, IT and HR. Why, they might reasonably ask, don’t the accountants call themselves ‘in-house accountants’? What’s so special about lawyers?

As one CEO said, in exasperation: ‘All I want the legal function to do is to anticipate risk.’ Another reportedly quipped, somewhat tongue in cheek (though not entirely): ‘Your job is to make what we do legal.’

A new understanding

This dysfunctional, conflicted relationship serves no one. It’s time to reframe the role and purpose of the legal function to reflect the relationship between in-house lawyers and their business leaders in a new memorandum of understanding. This MOU would be based on three principles.

First, all parties would acknowledge that in-house lawyers are officers of the court working within the business for its protection, at all times. They are special. They are different.

Second, the legal function should tell, not ask, the business what legal counsel and services it needs, and seek to find the best price it can to deliver those services.

Third, since businesses will inevitably wish to spend less on legal services than the legal function needs, they must accept the risks in doing so. In-house lawyers must stop doing work they are not paid to do.

This last step would be the greatest hurdle because, despite their public perception, lawyers are trained to ‘get it done, no matter what’. High stress levels are common.

I set out the ideas above at a speech to the GC Futures Summit 2017, and was surprised by the strength of response. The video of my speech on LinkedIn has received over 15,000 views and extensive comments. Clearly, there is interest in this issue.

But will anything change? Not unless and until the legal profession starts the painful process of re-launching the legal function, which emerged, incrementally, from a private practice model.

One way to accelerate this is to increase the number of conferences at which there are an equal number of business and lawyer delegates. I have launched The GC-CXO Forum as my contribution to this process.

Sooner or later, the legal function will have to confront the nature of its contractual relationship with the business. It may have already compromised itself: for example, by participating in some performance incentive schemes. Surely, lawyers cannot be said to be acting independently if they are giving advice on contracts that could impact on their bonuses?

These are inconvenient truths, but they must be faced, and in a manner that a curious Martian might understand.

 

Ciarán Fenton

 

Why law firms should burn their clocks before they must

800px-Simplex_Time_Recorder_2

Why law firms should burn their clocks before they must

The managing partners of law firms should burn publicly, and with photographers present, a full-colour printout of a screenshot, appropriately redacted, of their most recently billed hour.

Then they should issue a press release, complete with the clock-burning pictures, stating that they have billed their final billable hour and that from thenceforward they will negotiate with customers on a case by case basis a fixed fee for providing specific legal counsel and processes which help their clients achieve their objectives. Statement ends.

When I suggest this to managing partners, their CFOs and sales and marketing directors the reaction I receive, from all but the most innovative amongst them, must be similar to the look received by that hapless person of old who suggested the world was round: a mixture of disbelief, horror and borderline disgust.

Those who do not turn away but engage with me on this matter bring all the force and power of their litigation training to bear in defence of their clocks.

Their skeleton argument consists of three parts. First, they are keen to come across as “disrupters” and acknowledge “that something must be done…yes, the billable hour probably has had its day…fixed fees are the future…in fact, we do blended pricing already…”

When I ask if they’re going to go the whole hog, they then roll out the second part of their argument with gusto: “…we will, absolutely…we are after all a leading edge firm…but we’re not bleeding edge, and we need to find a solution which ensures that we know the cost of work delivered or else how can we drive margin?…this is a journey, not a destination…”

So, I ask, if the only thing stopping them, therefore, is internal cost control and not the fact that the billable hour is linked to remuneration, PEP, and law firm rankings? At which they wince, briefly, and then they wheel out their final, and to them, their killer argument:

“…no, no, it’s the market that keeps that system in place, not us. The best lawyers cost the most and clients want the best because they’ll get into trouble with their bosses if they don’t and in any event, it’s about individual relationships with the brightest lawyers…and brightness costs, a lot…”

I see. It’s the customer’s fault. Those annoying customers keep on insisting on paying massive fees. Consequently, the lawyers must keep track of billable hours since that’s what’s measured. And people will deliver what’s measured. It’s the way it is, or so the argument goes.

My counter-arguments are as follows. First, since they agree that the number of disenchanted customers is growing, then the “Big Mo” cannot be far off. That is, the irreversible momentum achieved when the number of disgruntled customers is more than the number willing to stay quiet about a system that is agreed by all to be dysfunctional.

What, I ask, will your firm do if it finds itself on the wrong side of the Big Mo?

Second, many professional services firms who manage perfectly well to track, sensibly, all the direct and indirect costs of delivery are not obsessed by it because it’s not linked to their remuneration. Instead, they are obsessed with helping customers achieve their objectives. They’re selling pain relief, not time.

Moreover, an increasing number of senior executives in professional services firms are not “on the clock”. They are nevertheless part of the cost of delivery.

No one asks the CEO or the CFO to account, precisely, for their time about each contract because the best PSFs have fixed overheads which are recovered in multiples.

They drive deep value from their fixed overheads by investing over the long term in relationships. Their people are trusted to use their instincts to ensure that customers feel that “delivery” is not underresourced. If anything, the current cheese pairing system leads to inconsistent quality of delivery.

Even if billable hours were not linked to remuneration the tracking of internal cost of delivery on a contract by contract basis, to manage margin, would still be of limited value, if the firm is maximising profit over the life of each relationship, which every modern professional services firm should be doing. The customers want relationships over time, not piecemeal deals that support PEP.

Finally, what if in due course the market comes to believe that a significant proportion of billable hours are overpriced while acknowledging that some lawyers on some matters should, rightly, be paid top dollar?

This is what happened in the airline sector. Once upon a time, British Airways was “the world’s favourite airline”, with eye-watering seat prices, until one day a few disrupters decided that it was possible, enabled by new online booking technology, to deliver the same value – transporting someone safely from a to b – at a fraction of the price charged by BA.

British Airways almost collapsed, and the low-cost carriers even managed, in time, to compete with each other with premium offerings.

Their strategic challenge was “to train” the market not to expect anything other than a safe flight. This they achieved by taking a no-nonsense if, at times, a downright offensive attitude to the travelling public. The strategy paid off.

I’m not suggesting that no-frills flying and legal services are comparable. Heaven forbid. But the context is identical: an unhappy market, sustained by entrenched behaviour until one day someone says: “We can deliver the same value at a significantly lower price for non-premium activity by training the market what to expect in a manner – unlike low-frills airlines – they will tolerate, and that we can also provide premium services at premium prices which are still less than the current “rip-off” prices”

The “market training” required in legal services lies in the gap between the needs of General Counsel and the needs of the businesses they serve.

If a law firm can insert themselves into that conversation and add value by helping the GC manage their relationships with the CEO and the board better, then they can find out how to reduce costs substantially on non-premium services and noticeably on premium services in that particular organisation which will have its unique target operating model.

The problem is that many lawyers don’t understand what a TOM is and why they should care. The winners in this game will have the humility to acknowledge what they don’t know about business and listen to those who do. It’s isn’t rocket science, but equally, it’s not law. And lawyers mainly know about the law. Not business.

This does not mean that law firms should do, as many have done, which is to collude with the commoditisation of services by demeaning them using terms like “BAU matters”, “low-value activity” and the “crap we don’t want to deal with”. This sort of language has been a huge own goal.

“Risk-sharing” arrangements which sound pleasingly disruptive, are also unwise, except where a law firm wants to experiment with new services with the support of the customer as an R&D project. You can only share risk if you are allowed to share control of all the inputs and, especially, behaviour and few if any law firms would be allowed or able to do that.

The low-frills airlines never demeaned their offering: they continued to honour the challenge of getting tons of metal up into the air and down, safely.

So, don’t say “we can automate your NDAs”. You don’t need fancy technology to do that. Just duplicate them in a photocopier, if they are boilerplate. But as soon as an NDA needs marking-up, you are adding value. Don’t demean that value. But don’t overprice it either.

The question now is: which few law firms will muster the courage to confront their internal demons, break ranks and give the market what it craves: problems solved, not billable hours?

Ciarán Fenton

www.ciaranfenton.com

 

 

 

 

 

 

 

The Post: Why your board should watch it, altogether

Screen Shot 2018-01-29 at 12.21.49

At the end of your next board meeting I recommend that you and your fellow board members should all go out to the cinema, watch The Post, and then have dinner together to discuss it.
 
I feel certain that when your CFO reads my justification for such wild extravagance they will be convinced of the ROI.
 
First, The Post contains all they need to know about sexism in the boardroom and what they can do to fix it.
 
Some people will wince when they watch this film. At one board meeting all the men talk over the woman who owns the business, The Washington Post.
 
At the climax of the film, Speilberg manages to convey sexism at its most bullying by arranging all the men around Meryl Streep’s character who is seated, with them hulking close and over her as she is trying to make a crucial business decision.
 
He then has a wide shot of her breaking free, physically, of her so called board “colleagues” and then she takes her decision, with great courage.
 
Second, for the price of a few cinema tickets, some popcorn and a Nando’s your board could learn the importance of having a shared purpose and how that is probably the best hedge against business, legal and reputation risk that money can buy.
 
The film appears to be about The First Amendment, but it’s deeper message is about wholesome shared objectives. If the word wholesome makes you feel queasy, then get used to it. Because wholesome is back in fashion, big time. Just clock the reaction to The
President’s Club shenanigans last week.
 
By wholesome I mean: an ethical focus, which goes beyond the bottom line, to address society as a whole.
 
By shared I mean just that: everyone around the board room table goes through the pain of figuring out what sentence they are all willing to sign up to that makes their endeavour worthwhile.
 
And there are no marks for saying it’s about making money. Making money in business goes without saying. It’s like saying people must breath. And any idiot can make loads of money if you screw enough people. T’was ever thus.
 
That’s why the kid running a protection racket in the playground was rich. But was he clever? No, just a little thug.
 
And there are lots of thugs in business. Are you one of them? If not, are there thugs on your board? If so get them off. And this film might help.
 
Because there’s one thing a thug can’t stand and that’s consensus on a matter of principle.
 
Their narcissism and cowardice are wholly exposed when faced with the light of a shared objective, which stacks.
 
Does your board have a shared objective beyond making money which stacks? If not you should put that fact at the top of your Risk Register.
 
Some say Carillion went under, not because it ran out of cash, but because it lost its sense of shared purpose which led to it running out of cash.
 
Finally, the film is a textbook study on how organisations should work with their in-house counsel: the latter should be fiercely independent and the former required to justify constantly their actions to the in-house counsel.
 
These reasons aside, your CFO should approve the jolly if only because this writer loves Streep. She can do no wrong. And if she’s in a film it must, by definition, be worth seeing.
Tom Hanks isn’t bad either. And Spielberg knows a thing or two about pointing a camera.
 
What’s not to like?

Progressive boards: why not use the Jacinda Arden story to revolutionise “mat leave” in your business?

Screen Shot 2018-01-22 at 13.25.09

“Woman at work with a baby” should not be headline news. Work in the 21st Century must be about integrating home and work life in a manner that does not put work higher than the society it serves. The issue is: how will her employers best support her and her family because they should and not how Prime Minister Arden will cope being prime minister, as if having a baby is somehow an inconvenience.

I posted the paragraph above on LinkedIn last week along with a link to the news story and one person commented as follows: “Work does not ‘serve society’ other than (perhaps) under communism.”

That wasn’t the general view as many people “liked” the post, but I suspect that any talk of work serving society will elicit the communism/socialism challenge from some.

However, these challengers will become increasingly marginalised as the number of high profile “capitalists” write openly about the needs of society. Larry Fink, CEO of BlackRock, for example, has recently said that “society is demanding that companies, both public and private, serve a social purpose” (The Daily Telegraph, 17th Jan 2017). He is one of many.

It’s now possible to talk about society and business in the same sentence without being branded “a red under the bed”. However, all of this talk will remain just that – talk – until we address the tricky issue that in the current system capital takes priority over all other needs. There must be a mid-point between winner takes all capitalism and the perils of the proven disasters in far left models.

Now the Jacinda Ardern story may give progressive boards the excuse to confront this conundrum head-on. Why not abandon the concept of “leave” altogether? By that I mean, all leave: holiday, compassionate, sick, and that most horrible of all abbreviations “mat (and pat) leave”. The whole concept of being at work versus not at work, which is nonsense. People are people, whether at home or at work.

Why not give everyone a fixed price contract with a job specification that focuses on adding as much value as possible to the organisation? Why not make every effort to create an environment that maximises their chances of doing that? What better way to do that than to understand the personal issues of each employee and to do everything possible to make their lives fulfilling?

What better place to start than to abandon the “working day” to allow people to work with unlimited flexibility depending on their circumstances? Home life would not be a drag on work life – it would come first, with the blessing of the business. Does this sound utterly fanciful to you?

If it does, is that because a) you would like it to be, but believe it can’t be because no one would allow it or b) you believe it can’t be because capital is king and it would all cost too much or c) you believe that work and non-work should be completely separate?

If your board is progressive and wants to experiment with new ways of working because the old ways are no longer fit for purpose I would encourage you, as others have done successfully, to try out new models.

If you and your board feel that capital is king and profit will always trump society’s needs, I understand your view but your board should, if only for risk management reasons, reflect on why the likes of Larry Fink and others are using the “s word”? Do they see something on the horizon that you don’t?

If you and your board feel that the boundaries between work and home life should not be porous, then you must accept that you can’t have it both ways. If you want people to bring their “whole personalities” to work, then you must take their whole lives into account.

If you don’t, they will leave a large percentage of their value “at Reception”, and you will be losing out even before they start working for you. How can you justify that to your board?

Could a Devil’s Advocate process prevent a Carillion situation in your business?

Business cartoon showing people in a meeting, including the devil, and a new idea on the chart.  Devil says, 'I would like to play devil's advocate on this idea also'.It’s easy to throw rocks at Carillion. As some of the reasons for its collapse are emerging, so are the grim implications for those immediately affected. These problems will have been complex and only those involved know the truth.

But all of us, in business, are affected and implicated, are we not? Do we all not stand in the same corporate governance glasshouse that we have jointly constructed, rocks at the ready? Could this, or a similar catastrophe, not easily happen in your business, your department, or to your board? None of us should feel entitled to schadenfreude.

The situation reminds me of the film Sliding Doors, in which we are presented with two alternative outcomes: one in which the main character just makes it through the closing doors of a train and the other, they don’t. The movie proceeds to document the implications of these two alternate realities, popularising the expression: ‘a sliding doors moment’. It’s a powerful image.

I wonder how many sliding door moments occurred at the main and operating boards at Carillion and in the meeting rooms of the contracting government departments? What decisions were taken when and by whom? Decisions that, in aggregate, led to this nightmare.

Or, what decisions were not taken, or conversations not had, or horizons not scanned and by whom? But crucially, was it safe to speak up?

Many will say that’s the role of the non-executive directors: to ask the hard questions. But the power of NXDs is limited by the culture of the board, how much they’re told and their own courage.

Or you might say that this is market forces properly, if brutally, at work. Cash is king. You can lose money forever but run out of cash only once. And, dress it up any way you like, Carillion ran out of cash. This is capitalism working. The strong survive. The weak go to the wall. Another gladiator bites the dust in the coliseum that is the City of London.

And technically you would be right, except that this analysis ignores one factor: society gave Carillion a mandate to trade and without that mandate, it could not have traded, or run out of cash.

So I say again: are we all not responsible for this? For the creditors, who will be lucky if they get a penny in the pound? For the families whose lives will be wrecked? For the further erosion of trust in business?

So what to do? Well, you can do nothing and nothing will change; or you can decide at your next board meeting that you want to put in place processes that would reduce these risks for your business.

Is your reaction that it can’t happen to your business? That yours is too risk averse? That your corporate governance is perfect?

If that’s what you think, stop reading this now, although you might benefit from reading How The Mighty Fail by Jim Collins. Hubris is reason number one.

But if you choose to take a courageous step and suggest change then you will be forced to confront the reason why all businesses go bust or experience, as the lawyers euphemistically like to call it, ‘a major risk event’.

Businesses run out of cash because of the decisions taken that result in the owners of cash pulling the plug.

There is no mystery here. The cause of failure will be in the decision- making processes unless it’s a force majeure event. And even then, shouldn’t force majeure be on your risk register?

So how can you ‘de-risk’ the decision-making processes in your boardroom, particularly on your operating board or ExCo where you have access to more information and real decisions are made?

What if at every main and operating board meeting in your business one member, by rotation, were appointed as the Devil’s Advocate for that meeting with permission, nay the expectation, that they can say the unsayable, speak truth to power and challenge, for the sake of it, every key decision?

I suspect, if done properly, many key decisions would be either reversed or amended. But more importantly, many important matters – especially risky conduct, which is risky behaviour over time – would be called out.

But your Devil’s Advocate would require a mandate to represent all stakeholders – not just shareholders and the banks, but creditors, large and small, employees, their families and the environment.

No chance you may say.

It matters. Why is Larry Fink, CEO of BlackRock, of all people, saying that “society is demanding that companies, both public and private, serve a social purpose”? (The Daily Telegraph, 17th Jan 2017).

Why did Philip Augar write, regarding the governance at one FTSE company that’s in trouble, that “none of the right questions had been asked”, and that “The alternative, carrying on as before, has already led to a fractured society…”? (FT, January 4th, 2017).

Why did Merryn Somerset Webb, the editor in chief of Money Week, write only last month (also in the FT) that since “most adults in the UK have a stake in the listed UK sector, they should know that – be able to act upon it”?

The reason these three are saying what would be unsayable ten years ago is because the zeitgeist is changing. Women are standing up to predatory men at work. Electorates are defying age-old voting patterns. And investors are seeing the writing on the wall for old processes.

They see that the current model isn’t working. They also see that it’s not a binary solution – capitalism versus socialism, but a midpoint which gives all stakeholders a say in matters which affect them.

Perhaps the term should be Stakeholder Advocate and not Devil’s Advocate.

But if these arguments do not persuade you to implement a devil’s advocacy process at your board meetings you might ask yourself why?

Is it because you’re afraid? If you are, then the seeds of self-destruction are already sown in your organisation.

It’s only a matter of time.