Picking up the pieces – the risk debate gauges the #MeToo era

A clear focus on a number of #MeToo episodes among City law firms has led to a close examination of culture by risk teams as well as wider discussion of reputational damage and the extent to which this can be measured.

We gathered leading risk experts from some of the UK and international firms in the eye of the storm to debate what steps can be taken not just to deal with reputational fallout but to ensure it doesn’t happen again.

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Mark McAteer, Legal Business: How much have sexual harassment and gender inequality been a core focus for risk teams and how much of a threat have these been to reputational risk?

David Whitney, Bird & Bird: The agenda mentions the comparison between dealing with these sorts of incidents and IT risk. It seems to me that we have got to the stage where people are reminded constantly: ‘Don’t click on this link’ or, ‘if you get a suspicious email report it here,’ and it is almost every week. Perhaps the matters we are discussing need to be a constantly refreshed issue too, not necessarily focusing specifically on sexual harassment but about culture generally: ‘This is the firm we are. This is our ethics code. This is what we expect.’ It just becomes part of the normal.

Niamh Counihan, Matheson: It is not just about drafting and issuing a policy to staff. It is also about timely reminders with a consistent message delivered whenever you get the opportunity.

Nicola Gillespie, Linklaters: It is so important that messages about the firm’s culture come from the top. Our senior partner is really passionate about our culture, and there are regular communications about the way we are expected to behave and our ethical code, and it is really coming from a very genuine place.

Katherine Foran, Dentons: Much as I love the profession, we have an awful lot of people who are very focused on the technical side of the work and not quite so developed in people skills such that they tend to shy away from having those difficult conversations. So there is a piece around developing our leaders and our senior people as well.

Claire Larbey, Trowers & Hamlins: Some of the most effective training I have seen has been role-play training within the firm, which questions a person’s perception of an event. Although employees are told beforehand what a firm considers acceptable behaviour and what is not, when an employee is shown an actual scenario, we find that individuals may perceive the scenario differently and may not agree whether the scene they saw fell within the verbal parameters of what is and is not acceptable. There are many reasons for this, the quality of the messaging, the cultural location of an office. This is an important and often overlooked part.

‘Our new insurer was most interested in how we remunerate partners. When we said there were four criteria, and an absolutely key one is behaviour, they almost dropped their pens.’
Debbie Jukes, Eversheds

Nicola Gillespie: Do you run that training at all sorts of different levels in the firm?

Claire Larbey: Yes we do and it has been fascinating. You have an idea how a certain situation will be perceived and what people will take away from it. However, when you analyse their responses you realise that people have looked at the situation from slightly different viewpoints. Once this is explained to people and they are told how the firm would view the situation, they have a greater understanding and there is more consistency.

Mark McAteer: The firm is also being seen to be taking the issues seriously as well, and that sends an important message. Sandra, what is the sense you are getting from insurers about assessing reputational risk and the damage that that causes to the firm?

Sandra Neilson, Marsh: To be frank, insurers care about the claims firms face. They care about you managing your risk in terms of not getting sued. Of course they would not want to insure a firm with endemic problems, which ignored bad behaviour, but their main concerns are cyber security, drafting errors and being bullied by clients.

Nicola Gillespie: Insurers are increasingly interested in the culture of law firms. I remember a meeting with one of our most important insurers and hearing them say they were really impressed by what we said about the way we were instilling our culture in the firm, and that we were not focusing entirely on the firm’s financial position in our presentation to them.

Debbie Jukes, Eversheds Sutherland: Our new insurer was most interested in how we remunerate partners. When we said there were four criteria, and an absolutely key one is behaviour, they almost dropped their pens and said: ‘Forget everything else. Tell us about behaviour.’

David Whitney: There is a commercial link to reputation. The discussion should be widened out beyond partner or employee behaviour. Reputational issues can catch you out down the line too. If you have connections with clients now that are completely legitimate but which are spun in a particular way in future years, when those clients’ reputations become damaged, your connections with those clients may be judged retrospectively in a way that damages you. Others may question your connection and decide they do not want to do business with you.

Sandra Neilson: Culture cannot prevent a claim, but culture and a good firm with solid risk management can do a lot of damage control when you are facing your insurers and when you are facing your other clients.
Andrew Clark, Allen & Overy: Client selection is absolutely critical. I have been doing professional indemnity insurance for about ten years and what I notice now is that the biggest preventer of claims is the client relationship. There is a difference between acting for a client with whom you have a long-established relationship and a one-off client, for whom it is not an issue to sue you; it is a natural reaction of a disappointed client. If you have that client relationship, particularly in a large firm where they want to use you or, in some cases, may even need to use you, then they want to solve it.

Sandra Neilson: The professional liability insurance market for large law firms has changed so dramatically that it has taken us all by surprise. In October [2018] we were seeing rate increases of between 5% and 10%. Now we are seeing rate increases of between 10% and 30% and even as high as 40% in some cases depending on the claims record. It is not all driven by claims, although that is a large part of it. It is – at the higher excess levels at least – driven by a sense of entitlement on the part of the insurers because the pricing for this coverage had been going down for so long, now the market feels they are finally able to get some of their money back.

Jon Green, TLT: It has been illustrative to have conversations with new insurers. We have not seen too much of a difference in the rates offered by providers. That might be down to a good claims record – perhaps if we were more borderline in terms of risk profile with larger claims on our sheet, the story would be different.

Mark McAteer: How competitive is the market?

Sandra Neilson: A lot of insurers have exited the market, so if you are trying to place £300m, £400m, £500m of cover and people are exiting the market, you have no competition.

‘The biggest preventer of claims is the client relationship. For a one-off client it is not an issue to sue you.’
Andrew Clark, Allen & Overy

Stephen Morton, Marsh: If you look at historical context, with a 30% increase, you still might be at the second or third lowest insurance spend in the last decade if you map it against turnover growth for a bigger firm. A 20% movement could still be a very good deal in that context.

Sandra Neilson: It is good value. It has been a really wonderful long run. The big problem for you guys is that your management do not like surprises: ‘Oh, we were expecting this only to cost 5% more and now it’s costing 20% more. We don’t like that.’

Mark McAteer: What are your main priorities as risk managers for the next six months?

Jon Green: Being mindful of the agenda that is being set by the regulator. We are seeing a far more uncompromising stance from the SRA, certainly around issues like anti-money laundering [AML].

Andrew Clark: That is about to get worse as well.

Nicola Gillespie: As the SRA is becoming more assertive, the regulatory picture is evolving quite a lot and lawyers’ understanding of how we are regulated needs to move with that. Many still think we are regulated by the Law Society.

Jon Green: Yes. Or it is something that risk and compliance do.

Danny Pollard, Irwin Mitchell: Our enterprise risk management initiative will be my primary focus this year. Bringing all our different siloed streams of risk management together into a more unified, broader and more integrated approach. We have plans in place ahead of Brexit and controls in place to prevent or respond to other risk events that may lead to reputational damage. We have regular audits to provide assurance that the controls operate and we continue to improve them, making them more efficient.

Claire Larbey: Our focus is on putting centralised AML and conflict systems into place. The infrastructure is being built and training is being rolled out across all of our offices. It has been great to be able to focus on these important areas.

Debbie Jukes: The SRA is more active, but what I am also seeing is that our regulators in our other European entities are doing the same. The German Bars appear to be pulling our partners in for individual discussions.

Nicola Gillespie: On what?

Debbie Jukes: On file opening; how you have managed the client. So rather than the SRA doing it in their thematic visits, they are simply writing to partners individually, asking them about their own matters. It is not just us. I have checked that. For us that is a good driver – a fireside chat with the regulator always focuses the mind.

‘As the SRA is becoming more assertive, the regulatory picture is evolving quite a lot and lawyers’ understanding of how we are regulated needs to move with that.’
Nicola Gillespie, Linklaters

Katherine Foran: Sanctions have certainly been very high on our agenda for the last couple of years. I am trying to get a grip on building our global privacy function and pulling together all the talent we have around the firm that is involved in both data privacy and data security.

We have an enormous amount of demand from our clients in that area, so making sure we are responding to our client audits, that we are giving correct information, that as we bring in these new systems we are doing our privacy impact assessments, making sure we have appropriate security in place and we can respond appropriately to our various regulatory requirements in relation to data is challenging.

Andrew Clark: Much of what I will be doing will depend on what partners decide to do in terms of the growth of the firm, particularly in the US. Elsewhere, we have got a relaunched initiative for client engagement. One thing that changed the accountants’ liability position was their refusal to negotiate engagement terms. They would turn the work away rather than take it on. I doubt there is any chance of any of us being able to persuade our partners to do that.

Sandra Neilson: But you could be a little bit more robust.

Nicola Gillespie: Certainly when you are advising alongside an accountancy firm, from our experience.

Andrew Clark: Definitely. You will pick up their liabilities as well as yours. Elsewhere, sanctions is a big and increasingly difficult issue, and the need to invest in economic crime generally is becoming more urgent for us. There is a big SRA AML initiative, which will mean even more AML due diligence.

David Whitney: We have had three regulatory AML audits around the world. The SRA’s latest is the last, but we have been audited in Singapore and in DIFC, and I just see that as an increasing thing that we need to be ready for in other jurisdictions.

We are trying to ensure that partners do not see risk and compliance as being the only people in the firm who need to think about risk. We are saying to them, ‘You need to take responsibility.’ The slogan we use is ‘right clients, right matters, right terms’. We are saying: ‘Think about who you are engaging with. Think about what you are doing for them and be careful about the terms that we are engaging on.’ We are trying to make partners own that. It is a work in progress, but that is the aim.

Mark McAteer: That’s seems a good place to pause. Thank you all very much. LB

mark.mcateer@legalease.co.uk