The general counsel debate: Walking the talk

Clare Francis, Pinsent Masons: We want to look at the change agenda and what that means for GCs, especially given the unprecedented events that have hit us over the last two or three years which have really disrupted business. Given that our clients are looking at things differently, having different priorities in the boardroom, and seeking to make progress in areas such as ESG and D&I [diversity and inclusion], it will be interesting in our debate to look at how that flows through into what you expect from law firms. To kick off, we thought it would be good to start by asking, what is high up on your priority list today and how have you seen that evolve over the last few years?

David Eveleigh, Serco: Definitely ESG. We at Serco do defence and immigration; if you take defence, this has been an area some investors have been reluctant to be associated with. You have this horrible situation with Russia and Ukraine now, and defence can suddenly be seen as a social good – you have funds that would never invest in defence, now saying defence stocks are investable. ESG analysts and investors may have a very different approach; one will say we are good while another will say we are awful based on the same data. It is probably the variability of ESG that is the biggest issue for us as a company and trying to understand, ‘What should you publish? What should you not publish?’

Anthony Kenny, GSK: That, plus the court of social media and the increasing importance and measurement of reputation as part of market cap. One of the issues with ESG is that it is the three topics: environmental and human rights perhaps being the most cited ones, and diversity and inclusion. We have different jurisdictions measuring those in different ways, and if you are a global company trying to keep track of all the legislation and all the ways ESG is being measured, it can get quite tricky. My hope is that, at some point, we will get a global standard we all can adhere to, but we are a way from that now.

Samir Patel, HANetf: We had the same problem on the investment side. We are trying to invest in companies that meet ESG standards, but they are not obliged to provide us with the data we need, and regulators haven’t provided clear enough guidance, which means we are at risk of being accused of greenwashing. Many ESG products use screening criteria, but most observers who are passionate about ESG would probably want product providers to do more to change behaviours in a wider range of companies.

Liam Foweather, Telford Homes: It is interesting that you say that. We are the UK’s most sustainable housebuilder, and that is measured by a well-established third party. Because it is quite possible to measure things like net carbon in the built environment quite easily, it is top of the board agenda. I do not think we have the same issues as companies wishing for more clarity; it is more about making sure that we continue the good work we have already done.

Alex Wilson, CBRE: Clients come to us about this as well. They are very hot on ESG because they can save money and it is a reputational gain. They can say, ‘Look at us. We are best in class, and this is what we do.’ Trying to have a one-size-fits-all approach does not work; a size that fits all invariably ends up fitting nobody, does it not?

Bea Miyamoto, formerly of Panasonic: You have that challenge between data for marketing versus data for oversight, and a lack of consistency that goes along with this. If you start to engage in arbitrage, you can get yourselves into real trouble. A lot of the ESG and D&I agenda is related to the transition to enterprise risk management. When I was at GE Capital, we were pivoting from thinking of risk as credit risk and financial risk to the broader enterprise risk mindset, with reputation and strategic risk being a massive part of that.

Catherine Odigie, ED&F Man Capital Markets: Going directly to the question of how roles change, you just hit the nail on the head from my perspective. Your role as a general counsel is not just looking at the substance or the commercial reality of a transaction. Rather, we are now veering more towards risk, because there is no clarity in terms of what they ought to be measuring, what they ought to be interpreting to measure and what facts they need to identify.

‘You are going to find that law firms are subject to much more external third-party scrutiny.’
Brad Duncan, Children’s Investment Fund Foundation

David Eveleigh: This is where the law firms can help. As for enterprise risk management, I am guessing the GC role is morphing into that, which is great because this is of far more tangible value to the business than a purely legal role. The challenge from my perspective is whether the law firms can adapt to that involvement.

Brad Duncan, Children’s Investment Fund Foundation: I do not think that I have come across a single law firm that has really managed to understand this from a client’s point of view. The ones that can help clients measure risk, and understand and report it, will be the real winners.

Nigel Paterson, Currys: The ESG focus is partly driven by the investor community, but the pandemic has led to companies really focusing on their corporate culture as well. There have been different conversations over the pandemic, a more empathetic way of managing people. Given the war for talent, this is extremely important. We have also been grappling with hybrid working, looking at this partly through the lens of how to attract a diverse workforce. If we are looking at moving the question towards what we are looking for from our law firms, we must be much more focused on whether the law firm we want to work with shares our values.

Joe Boswell, The Legal 500: Nigel, how do you test that? Between law firm A and B, how are you able to measure whether they fit with your values?

Nigel Paterson: I agree that collaboration is a difficult thing to measure. If it is on an individual matter, we look at how our law firms collaborate with different levels of the organisation, assess that, and get feedback. Sometimes law firms are good at communicating with the legal teams and bore the brains off the commercial teams, which they therefore cannot engage with. That’s one way to gauge how collaborative they are. We also ask our law firms to provide diversity and inclusion statistics for all the people who work on our matters, so we hope to be able to demonstrate that we take D&I very seriously.

Samir Patel: Can I just ask, is that the law firm or is it the lawyer you are working with? If you find a lawyer that you particularly like, not everybody in the law firm is going to be at the same level, right?

Nigel Paterson: No, but if we are starting a major project, we hopefully sit down with our external team and we talk about what the expectations are and can align. If you measure these things over time, you can ascertain behaviours and get a better fit.

Richard Foley, Pinsent Masons: This is an interesting subject. Lawyers in particular like to prove points and see evidence; if you talk a good game about an inclusive organisation, that diversity and equality is important to you, great, but in many cases you might have a meeting with that firm with five white, male lawyers in attendance. There is no data analyst insight, no computer scientist, no knowledge engineer, no diversity and inclusion consultant, no experiential diversity around the table at all and no evidence that you are actually an inclusive employer. Sophisticated clients absolutely pick up on this.

Bea Miyamoto: It’s easy to fall into tokenism, though. If we look at a snapshot of where we are today, there is a finite number of lawyers from a diverse background. If we keep shuffling them around from pitch to pitch, that does not help diversity necessarily. If I have data points in front of me saying there has been a 10% year-on-year improvement in diversity, I would be happy with that, rather than a firm that has presented me with the right mix just for a pitch.

Brad Duncan: You are also going to find that law firms are subject to much more external third-party scrutiny. It will not be a matter of doing your own diligence on what is presented to you at a meeting; you will see reports that are not commissioned but are made independently by NGOs.

‘You are not going to an external law firm just for technical advice now, but to partner with them. The relationship is inevitably closer, and, because it is closer, reputational risk is greater.’
Catherine Odigie, ED&F Man Capital Markets

Quentin Zentner, The Phoenix Group: Surely it should come from the firm itself, rather than externally? Each business should set their own level of commitment and then disclose against that. I guess law firms have been in a place where it is an option as to what you want to do and how much you want to put yourself out there in a particular way.

Alex Wilson: That is a really important point. We must acknowledge that all law firms are at a different place along the journey of creating a more diverse culture. Exactly as you say, if a law firm holds out the standards they adhere to, then they are suddenly accountable. Historically the legal profession in the UK has been white and male, so certain firms will be further along than others in achieving that shift in mindset and creating a diverse culture.

David Eveleigh: I remember about four or five years ago there was an FT article about the gender pay gap, and some law firms were noticeably downplaying it. The whole legal profession came out of it badly because they were standing behind a very weak argument. Those law firms that succeed are the ones who lean into it.

‘We are trying to invest in companies that meet ESG standards, but they are not obliged to provide us with the data we need, and regulators haven’t provided clear enough guidance.’ Samir Patel, HANetf

Richard Foley: The customers are the burning platform that mean that change is inevitable; it is not just hot air. When all the things we are talking about genuinely start driving buying decisions is when you see the change. The law firm model assumes the customer base is not changing, and you have to listen to the conversation we are having now, and also issues like the Ukraine crisis, to see that the customer base can change rapidly.

Jeremy Barton, KPMG: After Covid, there is a much greater propensity now to listen to your people and maybe that is the factor that is going to help secure real change. On the subject of legacy law firms, an interesting bid I did three or four years ago included a pitch from a Magic Circle firm but we eventually instructed one outside of that group. The feedback that we gave to the Magic Circle firm was to say, ‘You were not chosen because your team did not gel’, and to give feedback around some of those intangible tests that we have already talked about. The test now will not just be around whether the team gels, but will be around whether the values are shared, which will come into the D&I question as well.

Anthony Kenny: Jeremy raises a critical point. It is about the customers, absolutely, but it is also about the people in the business who are here already and the future employees as well. What do they see in the organisation in terms of values? How I really test a law firm is by asking: ‘Are they an extension of our team? Can they be an extension of our team?’

Catherine Odigie: I was just going to say, just drawing from the points raised earlier about the change in the scope of the role, to my mind it seems that since we are veering more towards the enterprise risk management style of leadership, it just means that whatever law firm you work for, or choose to work with would be one that you would have to engage with [more] closely than you would in the past. You are not going to an external law firm just for technical advice now, but to partner with them. The relationship is inevitably closer, and, because it is closer, reputational risk is greater.

Brad Duncan: When you engage a firm, you want good people working for you. If law firms are not doing the sort of stuff we have been talking about – addressing D&I, and climate concerns for instance – they are not going to attract good lawyers. They are going to attract the lawyers that could not get a job at one of the more responsible firms.

Jeremy Barton: It would be quite interesting to find out whether anybody around the table has blacklisted a law firm or taken a positive decision not to use a particular law firm. I don’t believe I have. My perspective on this is that we are in an ecosystem, and I suppose my contribution to it is to try to help it thrive in a healthy way. That recognises there are limitations, because it is difficult to work out where to draw the line. It is not only climate, is it? This also encompasses doing business with governments who may have different values from us.

Sharon Kahanov, Siemens: It can also backfire because people will want to measure you against an impossible standard. Are we that perfect that we are allowed to measure our supply chain without reflecting? If so, this can backfire, and we all need to appreciate that this is a long journey that we must make the best of.

Richard Foley: At a gender level, our leadership representation is really good. At partnership level, it is still nowhere near where it needs to be, but the percentage of promotions in this year’s round was about 42% female to male. It should be the other way around, but it has moved a lot from where we were three or five years ago.

David Eveleigh: Show progression. Nobody expects law firms to be perfect immediately, but just show progression.

Bea Miyamoto: Definitely. The base is the base. You cannot change that, but you can keep improving it.

‘In terms of digital knowhow or how organisations are structured – agile working, D&I, the whole lot – it just seems like law firms are a decade behind.’
Katya Dunitz, Nemetos

Anna Hart, Bank of China: What does that translate into in terms of your policies or your culture? I imagine it is a complicated issue to tackle. Aside from positive discrimination, how are you going to get those women or under-represented groups into partnership or more senior positions?

Clare Francis: It is a great question because, as a female as well, you do not want to feel you were promoted just for that reason. I was promoted because I am good at my job. You have to give people the right support so they can come through, and part of that is having female role models in the business. If I cannot see it, I cannot be it. That is really important. It is the same with race and ethnicity as well, about actually changing the way we do the work.

Katya Dunitz, Nemetos: There is a time lag in terms of how law firms can improve. I am a GC in a small digital agency. In terms of digital knowhow or how organisations are structured – agile working, D&I, the whole lot – it just seems like law firms are a decade behind. Perhaps if there was more flow back and forth from industry to law, and less of this career private-practice lawyer, rather than law firms operating in a predominantly white British ivory tower in London, you might get more commercially representative, culturally-attuned advice. LB

joe.boswell@legalease.co.uk