In-house counsel are playing an increasingly critical role within private and public companies. He or she is now often responsible for many functions/departments such as risk, compliance, intellectual property management, restructurings, corporate secretarial, etc. General counsel in particular are almost invariably members of the senior executive management team, and are required to forge a very close working relationship with the CEO, COO, CFO, and the board of directors.
In-house counsel are required to balance legal obligations towards the corporation as well as towards its stakeholders (i.e. its employees, shareholders, and the communities within which it operates). This means balancing responsibilities with regard to the day-to-day management of the corporation and at the same time always acting in the best interests of the stakeholders and preserving the corporation’s assets.
On the one hand this new mantle is of tremendous benefit to corporations and its stakeholders. Operational knowledge makes inside counsel all the more integrated, informed, and valuable. Counsel is likely to have more timely access to information before matters have gelled and have the ability to influence the direction they will take when changes can still be made. By being at the helm counsel is better positioned to ensure that the vectors taken by the corporation are spirited along by appropriate ethical considerations and that the corporation, management, and the board are correctly carrying out their legal obligations and acting in accordance with business policies and procedures.
On the other hand the balancing act required of in-house counsel to perform these expanded roles and responsibilities is often precarious, and ethical and legal quandaries are an almost daily occurrence.
i. Independence and objectivity
Being part of the senior management team potentially compromises inside counsel’s ability to remain independent, and objective. The perception of being solidly a member of senior management can cause mistrust amongst fellow employees, executives, and the board and effectively stifle counsel in his or her dealings with a sizable portion of the corporation or the board if he or she fails to act appropriately.
ii. Confidentiality and privilege
The ability of inside counsel to maintain confidentiality and privilege is challenged when inside counsel wears a business hat.
iii. Corporate secretary
When acting as corporate secretary he or she is in a very special relationship vis-a-vis fellow executives, the CEO, and the board. The role requires acting as a confidant and adviser to both constituents. In many instances he or she will have conflicting duties and will be privy to confidential information which it cannot share freely. A misstep may very well sever one or both of these relationships irreparably.
iv. Doing the right thing
Whereas in the past in-house counsel may have provided guidance as to what the corporation or board “could” do, today the full expectation is that he or she provide advice as to what it “should” do, based not only on legal considerations but also competitive, social, financial, geopolitical, and other factors. When these broader factors are assessed it may very well be the case that the purely legal answer of what “could” be done would in fact have been the wrong course of action to pursue. It is important that this paradigm shift be clearly communicated to others who may still be holding on to traditional notions of the role of in-house counsel.
Practical strategies for navigating the challenges
There are a number of courses of action which can be taken to assist inside counsel with balancing these new roles and heightened expectations.
Hire the right team
It is no surprise that in the last two decades the quality of general counsel has improved dramatically. Larger corporations are hiring partners in specialized fields such as litigation, securities, mergers and acquisitions, and intellectual property and some, especially in the United States, are former public prosecutors.
Candidates who are being headhunted tend to be business-savvy, respected for their integrity, and specialized in fields of law which are critical to the organization’s survival and growth.
Embrace reputational risk
Due perhaps to the increase in successful class action lawsuits and/or shareholder activism, corporations have become mindful of the importance of safeguarding their reputation. A failure in this area can be as catastrophic as a bankruptcy or insolvency, signalling the end of its existence. The unthinkable business failures we have seen in the last 20 years due to financial improprieties and the destruction of corporate brands resulting from a lack of product quality control have been staggering and unsettling. It is fortuitous that inside counsel has now taken on broader responsibility for managing risk. He or she is well positioned to manage reputational risk given that we intersect with risk and client groups across the company.
Set the right tone
Too often clients avoid internal legal advisers or come to them for their “quick blessing” in regard to a given matter. Inside counsel can bring this behaviour onto themselves by not providing timely or informed practical advice. There should be an essential balance between risk-taking and economic risk management. To ensure that clients continue to proactively engage with the legal department early in the process it is important to bring a sharp tactical sense to the table. This flows from taking into account long-term implications, not just focusing on short-term goals. Charting a future course of action down the road will make you an effective tactician.
In-house counsel have welcomed new roles and responsibilities, requiring both a broader approach to providing legal services as well as specialized skills and knowledge. These new tasks give rise to conflicts and challenges which need to be addressed and mitigated. This article suggests a few measures which can be taken to assist in balancing some of those conflicts and challenges. No doubt this is an area which will evolve for many years.