COVID-19 CEOs: “resilience” isn’t code for “suck it up”

Picture from consulting firm’s EY’s website: EY: Ten ways to enhance firmwide resilience

Here we go again – another crisis another “in-word”.

After a previous crisis the word ” engagement” which, by the way, was code for you engaging with us, not the other way around – was all the rage.

Now it’s “resilience”.

You can’t turn a page, scan an online newspaper or website without the R-word screaming at you. And I don’t mean that other R-word, the virus reproduction rate, I mean “resilience”.

To be fair, most writers use of the word is well intentioned.

For example, if you Google “resilience”, first up on my browser at least, after the adverts – and all credit to their SEO people – is Deloitte with:

Combating COVID-19 with resilience: Leaders like you are responding to one of the most sweeping crises in recent memory, calling for both empathy and action to guide your people and businesses through uncertain times. This page gathers Deloitte’s global insights to help you not only respond to this crisis, but recover and thrive.

https://www2.deloitte.com/global/en/pages/about-deloitte/topics/combating-covid-19-with-resilience.html

I’m sure Deloitte didn’t mean that it had found a cure for coronavirus, which a literal interpretation of its headline, but that resilience will help your business “recover and thrive” by guiding your people with “empathy and action”.

What’s wrong with that, you ask? Isn’t Deloitte’s purpose to sell consulting services and are they not merely demonstrating how much they are in touch with the zeitgeist and needs of their clients?

Boston Consulting Group takes a similar approach. Its website on the subject says:

How Mindfulness Can Boost Our Adaptive Resilience to COVID-19: COVID-19 is having dramatic impacts on our world. While the coronavirus inflicts damage on health, society, and the economy, it also exerts a strong emotional impact on individuals…If we let ourselves be hijacked by what we classically call negative emotions, we risk reacting blindly and impulsively.

https://www.bcg.com/en-gb/perspectives/244889

Similarly EY notes in its “Ten ways to enhance firmwide resilience”:

10.   Promote a learning, resilient culture In the end, resilience is about having the organizational discipline and nimbleness to develop — and constantly enhance — the firm’s plans and capabilities to deliver services continuously. This requires a culture that is open to learning from past mistakes and events — those of the firm and its peers — and that promotes timely and effective remedial and enhancement activities. This focuses attention on changing human behaviors — making employees appreciate their important role because resilience is very much in their hands. It is not someone else’s job. If successful, this creates the necessary conditions for a resilient culture.

https://www.ey.com/en_us/financial-services/ten-ways-to-enhance-firmwide-resilience

Is EY wrong?

No. Of course not. All three world leading management consultancies are making what they feel are valid points.

My concern is the danger that the underlying purpose of the focus of consultants and CEO’s on resilience will shift quickly from people’s needs to business needs, exclusively.

There are hints of this in the extracts above. EY gets to people and culture in detail only in their last point, Point 10. The earlier nine “ways” are great but they are mainly about business process. BCG’s excellent article feels it necessary to use a metric, presumably because they feel they must: “The 31 teams that participated in a ten-week mindfulness program showed an average 13% increase in their collective intelligence.” One has to wonder about the value of that metric. And Deloitte is quick to point out that leadership focus should expand from a “very inward (and entirely appropriate) focus on employee safety and operational continuity to also include embracing a return to a market-facing posture”. Note the brackets.

The dictionary definition of resilience is:

“the ability to be happy, successful, etc. again after something difficult or bad has happened”

https://dictionary.cambridge.org/dictionary/english/resilience

It’s a noun. The verbs used with it give it force. In the extracts above we have Deloitte “combatting with…resilience” and BCG “boosting with resilience” and EY abandons the noun altogether and uses the adjective form as in a “resilient culture”.

This use of language assumes that everyone has the same ability to recover. It’s as if resilience is a bench-markable thing that anyone can achieve with the right processes. A bit like “engagement”. And look how long that fad lasted.

If your purpose is to build a resilient culture after COVID-19 I’m afraid you’re a bit late to the party. Now is not the time to be building a “resilient” culture that recovers when a crisis happens. It’s too late, mate. The crisis has happened. The horse has bolted.

Those organisations who invested time and money in building kind cultures where people learned to be kind to themselves and kind to each other – these are the organisations that will recover faster.

The “resilience” fad will be shorter lived than the engagement nonsense because some CEOs will quickly become frustrated and resilience will become code for “suck it up…get your act together…and if you can’t we can find people who will” thereby wiping out any incentive for their people to give the discretionary effort absolutely required for organisations to recover and the use of the word resilience will be seen for what it is.

And no money will buy that discretionary effort.

What’s needed is not resilience but kindness in helping people to recover from a trauma. And if you think that’s a bit wet, go ahead, see how much “discretionary effort” you get from bullying already scared people.

So, CEOs:

  • take your time
  • acknowledge that people have different rates of personal recovery. Help them. One size doesn’t fit all.
  • and be kind, for kindness sake.

Then and only then will you have a chance of recovering from this crisis and building a resilient culture for the next.

Ciarán Fenton

Why #COVID19CEOs should remember Chilcot’s criticism of “sofa style” decision-making

Chilcot report pic

When The Chilcot Report into the Iraq Inavsion was published in November 2016 The Guardian newspaper reported that:

“…Giving evidence to a parliamentary committee, Chilcot said “sofa government”, in which ministers were not consulted on crucial decisions, reached a high point …on several occasions between 2002 and 2007 “things were decided without reference to cabinet”.

https://www.theguardian.com/politics/2016/nov/02/tony-blair-psychological-dominance-key-in-uk-joining-iraq-war-says-chilcot

The rights and wrongs of the Iraq invasion or the strengths and weaknesses of Mr Blair are not my focus here. How decisions are made by what I call COVID19 CEOs – those CEOs unlucky enough to be in charge during and after the COVID-19 crisis – is.

Andrew Hill at the time of the report observed in the Financial Times:

“…What does this report tell us? The same old corporate and political story of how an excess of certitude at the top can lead to catastrophe…If chief executives know little else, they know they have to take decisions… The report advocates wider and deeper discussion in cabinet and committees, separation of risk assessments from policy decisions, and independent audit of strategy as it is implemented — all good advice for CEOs considering important strategic moves… It casts doubt, for example, on Mr Blair’s predilection for sofa-style government…where many leaders draw strength and advice from an inner circle…The sofa where a few intimates discussed strategy was exceedingly comfy…Mr Blair seems to have had a strong need for “cognitive closure” — an instinct to “make a judgment and then stick with it” — described in Charles Duhigg’s book Smarter Faster Better. Many successful decision makers eventually over-reach.”

https://www.ft.com/content/8465df96-44e6-11e6-9b66-0712b3873ae1

So, The Chilcot Inquiry criticism of “sofa” style decision-making is a grim reminder of the importance of good corporate governance that encourages challenge by dissenters. But how many leaders are emotionally equipped to encourage this?

I recall, as a young divisional managing director, and a member of a group Executive Committee being told by an old hand who whispered to me at my first meeting “you can always tell who the new people are at ExCom meetings”. “How’s that”, I asked.  “They’re smiling” he said. “They sure as hell stop smiling after their first public slap” as I learned for myself, painfully,  in due course.

So, what’s to be done by you, you COVID19 CEOS?

Leadership101 is my answer:

How about old fashioned meetings with an agenda, motions, pros and cons discussions, permission to have “Devil’s Advocates” in the room, votes or, at least, shows of hands and above all, Minutes written after, and not drafted before, the meeting?

The problem is that the very personality traits that propel some leaders to the top, including you, are the ones which will prevent them from changing behaviour  to accommodate dissent.  But there is a chink of light here: apart form utter psychopaths – and I acknowledge that a few of these stalk the corridors of corporate power – most dysfunctional leaders are merely playing out, as the experts tell us, behaviour patterns established in their formative years.

So, if they – you – can be brought to see that even small changes in behaviour – e.g. listening to a contrary view just 10 times more out of every hundred interactions – that’s only 10% behavioural change, this can lead to improved outcomes for them – for you – as an incentive to change.

But we must face these issues now in the thick of COVID-19 since, as day follows night, there will be a COVID Chilcot-type Inquiry. Already we are getting some insights into the horrors that the report may contain.

Imagine there’s going be a Chilcot-type inquiry into your behaviour as CEO during COVID-19. How will you emerge from that?

You can decide today. Either behave as you usually do and you will almost certainly err, or stretch your behaviour during these stressful times and do what athletes do – strive for peak performance.

But you don’t have to suffer half as much as athletes do, just listen to others before you make decisions. How much can that hurt?

Andrew Hill puts it well in his FT piece:

“The test of their greatness is how willing they are to consider the alternatives to what may appear a clear course of action before making a bold executive order. Duhigg tells the cautionary tale of the Israeli general Eli Zeira, who failed to spot the imminent Yom Kippur war of 1973. Years later, the ex-officer admitted that, before making his fateful decisions, he should have referred to a talismanic note he carried. On it were written three words: “And if not?””

Ciarán

COVID-19 crisis: should you oust your narcissistic CEO now?

Nick Cohen’s piece three years ago in The Observer (Jan 5, 2017) was mainly about Mr Trump but, to my mind, it was also one of the best general essays on leadership I have read and remains highly relevant.

A flavour of the piece:

“No one in the West has seen Trump’s kind of triumph…But look around your workplace…little Hitlers…They exhibit all the symptoms of narcissistic personality disorder…less likely to engage in the hard work of innovating…”

Nick Cohen The Observer (Jan 5, 2017)

His premise was that “compulsive liars can create compulsive believers”. Their peers “believe the stories,” these leaders tell about themselves.

“People are on a continuum — there’s a range of narcissism,” W. Keith Campbell, Ph.D., head of the Department of Psychology at the University of Georgia and co-author of The Narcissism Epidemic: Living in the Age of Entitlement, explained in a HuffPost piece. “Most people are sort of in the middle, though some are more extreme than others.”

Zlatan Krizan, Ph.D., an associate professor in the Department of Psychology at Iowa State University in the same HuffPost article says” “If you do something to [the narcissist] that he doesn’t like, it means you’re against him, or you don’t understand him”.

But what do you do if your current CEO is an extreme narcissist and is the worst type of leader in a crisis?

I propose three steps:

Step 1: Frame any challenge to your CEO in the context of a wider purpose: “Do you still agree that our organisational purpose is x and our strategy for achieving it is y and our plan for implementing that strategy is z as already agreed by the Board?”

They can’t refute this, unless they are proposing a change and in which case that change must be approved by the board or if they are bloody minded they will obfuscate and in which case they’ve got to go, or you’ve got to go, especially in a crisis.

Step 2: “So, do you agree that our behaviour, in broad terms, to implement x, y & z should reduce risks and maximise the opportunity of achieving that outcome?”

If you keep your description of the desired behaviour unthreatening in tone, they are likely to agree, and if they don’t, then you can legitimately challenge their logic.

Step 3: This is the tricky step: “Since you agree to the behaviour we need to achieve our goals can you see why those of us, including you, who behave contrary to that agreed target operating model need to amend that behaviour?” The use of the term target operating model may help as it’s a well known model which encompasses behaviour but you feel its use will irritate your CEO, don’t use it.


I acknowledge that these steps are like walking on eggshells but many people I meet working with extremely narcissistic CEOs spend most of their time doing precisely that already that so why not walk on egg shells with a better purpose?

But I agree, it’s no way to live.

Nick Cohen believes that the solution to dealing with narcissistic people is to work hard on converting the people who support them. Once they are starved of that attention only the seriously ill will resist.

And in that instance, you have a choice to quit and find someone less damaged with whom you can work and find fulfilment or, in a crisis, you may need to oust your CEO before they bring everything down.

But what if your are “the CEO” in a crisis and you are as, Dr. Campbell believes, “somewhere in the middle” of the narcissistic scale like the rest of us and not at the extreme end then you should confront this behaviour in yourself first, then help your top team do the same and then agree a new shared purpose, strategy and behaviour plan.

Do it today or you may find that you are ousted, unfairly.

Ciarán Fenton

For more information on my programmes for CEOs please email me at cfenton@ciaranfenton.com

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