Corporate Execs Offer Recipe for GC Success: Counsel who lead from the front with legal insight and business acumen exceed expectations

Tuesday, October 4, 2016 - 14:53

There was a time, not all that long ago, when a company’s general counsel was expected to weigh in on purely legal issues from the sidelines. No more. In a new report based on interviews with business executives, “Through the Looking Glass,” KPMG details just how broad the GC role has become – and how challenging. Below, one of the report’s authors, KPMG partner Bryan Jones, discusses the expectations of the modern GC and the tools needed to meet them. His remarks have been edited for length and style.

MCC: KPMG’s global study of the role of the general counsel is a “180-degree change in perspective” from your 2012 and 2014 reports, which were based on the GC’s views. For this report, you sought the perspective of business leaders. Why did KPMG turn the tables?

Jones: The legal function serves the needs of the rest of the enterprise. In the earlier reports, we heard from those delivering legal services – general counsel. This time we wanted to hear from non-legal executives on how general counsel meet or exceed their expectations. We wanted an independent assessment of the value senior executives feel they’re gaining from the GC. We wanted to hear about their requirements as the GC’s internal client, how their expectations will evolve over the next 10 to 15 years, and what GCs must do to exceed expectations.      

MCC: In his recent book, The Inside Counsel Revolution, former GE general counsel Ben Heineman talks about the “partner-guardian” tension inherent in the GC role. In your report, you talk about something similar, the GC as “enabler of value” and “protector” of the organization. Please give us your take on the tension at the heart of the GC role.

Jones: Speaking as a CPA who works with general counsel (as I am not an attorney)the phrase “partner-guardian” is a clever way to summarize the first tension, which arises from the varying interests of the people with whom the general counsel interacts with day to day. The GC counsels the board and executives but doesn’t represent them but rather the company. That creates tension, as Heineman pointed out. A second source of tension is the amount of ground the general counsel has to cover. There’s so much to learn, and the expectations are higher than ever. Third, the technical skills required of GCs have become more demanding, particularly surrounding technology and the need to understand how the enterprise uses technology, and its risks. So one of those tensions arises from balancing the roles – whom does the GC represent – and the other two are about how any one person can possibly get all this done.

Let’s take one scenario: responding to a government investigation. You’re the GC and the company has received a subpoena from the Department of Justice seeking a bunch of records because they have credible allegations of an illegal act. First, the general counsel has to represent the company in its interaction with the government and, in all likelihood, manage outside counsel to get that done. The GC also has to help minimize the disruption of an investigation, manage the company’s public image if and when the news gets leaked, conduct an internal investigation without interfering with the government’s investigation, find and remediate gaps, negotiate toward a settlement, perhaps deal with issues around internal discipline if wrongdoing is found, and so on. You can see just how much ground you have to cover in that one scenario and how the roles the GC plays don’t necessarily overlap.

If that’s not enough, there’s another noteworthy tension that has emerged: individual liability. When the government believes there have been failures related to anti-money-laundering compliance programs, it has made clear it’s going to take a hard look at the performance and actions of compliance officers. As indicated in the Yates memo, the DOJ expects prosecutions of corporations to include an evaluation of the culpability of individuals. That means the GC now has to be concerned about the corporation’s interest in identifying culpable individuals while at the same time working with those executives to keep the organization from being distracted because it still has to run a business. And the GC could even be a target if the government’s investigation suggests some culpability. That’s a tension I haven’t seen discussed much, but I have to believe it’s going to get on the radar in corporate internal investigations.

 

MCC:  Your report includes a road map of attributes for a successful GC: business leader, risk manager, technology champion, key communicator and builder of corporate culture. Are any of these more important than others? How can a GC assure these attributes work in harmony?

Chums: I believe one GC can incorporate and harmonize these attributes. While I don’t believe any one attribute is more important than another, I do think it’s important to look at some basic characteristics that are foundational to the five attributes we synthesized.

One is legal skill. That’s just assumed. Second is communication skill, which is even more basic than being the “key communicator.” I’m talking about speaking, writing, pitching to your audience, explaining things in plain English, being a good listener. A third is integrity – and recognition as a person of integrity. Finally, the GC has to instill confidence in everyone with whom they work. With that foundation, you can exhibit the other attributes.

The general counsel can get all of this accomplished – it is a tall task – through the recognition that every attribute is shared with other executives. In other words, the general counsel is not the only business leader. For example, risk management is shared with the CFO, the chief audit executive, the chief compliance officer. As a technology champion you have a CIO. The GC isn’t doing any of this alone. He or she exercises the five attributes in conjunction with others, who must allow the general counsel to contribute. That requires an environment where the general counsel is valued as a member of the executive team, communicated with, and whose views are listened to beyond purely technical legal matters.

MCC:  It wasn’t very many years ago when technology and cyberrisks were IT matters. Now, as your report indicates, tech is right in the GC’s lap. That’s a big change and quite a challenge.

Jones: The board is now looking to the GC to be an interpreter of dense technical issues such as explaining the gaps that could make the organization vulnerable to a cyberattack or internal misconduct through the IT system. Simply explaining what those vulnerabilities are in laymen’s terms is a challenge, as is understanding the company’s obligations. The board looks to the GC to decipher this and put it in plain English – even to do the analysis behind it so the board can properly consider the risks and opportunities. We are way past the days of this being something the CIO handles alone. There is constant change in the risks and opportunities because of constant change in the technology. It’s part of the strategy of the company, not just a support service. The general counsel and the rest of the C-suite can’t pass it off to IT.

MCC:  One area where you got some mixed sentiment in your interviews was the GC’s relationship to the board. Many GCs are not only in the boardroom but are becoming the central player there – what you called in the report being “pervasive” in their companies. What are the benefits?

Jones: There’s a real strong benefit to the board when general counsel helps them understand and balance risks and opportunities because of their insight and their ability to articulate and weigh it. A second benefit is that the GC, because of legal training and experience, is often one of the most effective executives in helping board members understand, analyze and think through difficult decisions, even decisions that are not primarily about a legal issue, such as a major transaction or hiring a senior executive. Attorneys are used to studying subject matter that is new to them and then applying critical thinking skills and asking tough questions. That helps the board get better answers. The third benefit comes from something I see consistently: general counsel coaching the board and their fellow executives to do the right things the right way. The conscience of the company is often in the chief legal officer because he or she knows the rules, the standards, the values and has the skills needed to apply them to specific and challenging situations. Those kind of tough ethical questions land on the GC, who is the conscience in the room, which is very valuable to the board.

MCC:  The report talks about how important it is for GCs to be on top of the regulatory environment, but with an interesting twist that suggests the GC’s knowledge can turn a threat into a business opportunity. Talk about that a little.

Jones: That came home to me when I was interviewing a CEO who explained that his general counsel manages a really intense balance between safeguarding the company and what the company needs to do to grow. The general counsel can measure risk, not just identify it, and weigh it so that a business opportunity can be pursued with confidence. It’s one thing to identify a risk. OK, but how big a risk? How likely is it? What could happen if things went wrong? Let’s weigh the risk against the business opportunity and figure out how to balance them.

In addition, the general counsel who can foresee risks that threaten existing ways of doing business can identify a line of business that needs to be exited. Maybe the regulatory environment is changing and the profit opportunity will decline over time. At best, the enterprise will treat that line of business as a cash cow and exit it at some point. That helps the enterprise to maximize value. The enterprise should invest in other opportunities where the regulatory road is clear.

Finally, there can be a market advantage in the eyes of the public if a company is able to go out and say there’s a practice in our industry that we’ve figured out is not in the best interest of our workers or our customers or the environment, and we’re making a change and here’s how we’re doing it. That can give the company an advantage if they foresee it and address it before anyone else does.

MCC: In talking to executives about the GC role, was there a specific comment from an interviewee that really stood out to you?

Jones: I’ll paraphrase from one interview: “Modern GCs cannot make impartial, purely legalistic decisions from the sidelines. They must exercise judgment on risks and opportunities from the front, harmonizing legal insight with business acumen to help guide their company through the big decisions.” That’s what I consistently hear when I talk to CEOs and board members about their expectations of general counsel. That quote says it all.

Bryan Jones is a partner in KPMG’s Forensic Advisory Services practice in Dallas. He can be reached at bhjones@kpmg.com.