In-house Lawyers: Governance, Transparency & Accountability

In-house Lawyers: Governance, Transparency & Accountability

What has corporate governance ever done for us?

It has given us a framework, a language, and a basis for explaining things to the powers that be in our organisations. We can summon in support our own regulatory framework, and also that of the Combined Code, the Nolan Principles, and the other Codes and principles that give us the vocabulary for our discourse on governance, on transparency and on accountability.

The world’s first listed company also gave us the first corporate governance dispute. In 1609 the Dutch East Indies Company’s shareholders and directors came to legal blows. The story is told in Accounting by the First Public Company: the Pursuit of Supremancy by Funnell and Robertson, 2014.

Today, issues of corporate governance, executive pay, corporate taxation, the gender pay gap, all preoccupy in-house lawyers. Compliance has become a growth industry. And the role of the in-house lawyer in navigating the waters of governance becomes ever harder.

And, as an Association of Chartered Certified Accountants blog post put it, what has corporate governance done for us?

Transparency is often in the news, whether regarding the Freedom of Information Act, or Stock Exchange disclosures, or most recently LuxLeaks and other tax revelations. And the Association of Corporate Counsel has warned that the extension of the senior managers’ regime to in-house lawyers could create a climate of fear.

What, then, is the Just Lawyer to do?

Transparency and governance are not “tick-box” issues – obstacles to be cleared so our clients can achieve their goals. They drive how our clients operate at every level – ensuring they are accountable for their impacts and results – not only internally but also in society more widely. They will ensure that the reputation of our client remains intact. As lawyers, we have a key role in establishing a framework based on these concepts. We are also bound by additional rules which give us that all-important ‘independent’ eye and can ensure that, whilst remaining solutions- focused, we’re thinking about what’s right in the long-term.

Our professional rules provide a good starting point. For example, the SRA Principles state that, as well as upholding the rule of law and the proper administration of justice, and acting with integrity, the solicitor must not allow her independence to be compromised; must behave in a way that maintains the trust the public places in her and in the provision of legal services; and must comply with her legal and regulatory obligations and deal with her regulators and ombudsmen in an open, timely and co-operative manner.

Likewise, the Bar Standards Handbook sets out the Core duties, including honesty, integrity and independence. The Employed Bar has a high profile in corporate governance.

CILEx Code of Conduct likewise mandates that members must not compromise their independence.

So the issue of independence is a common one to all sections of the legal profession.

Next, the in-house lawyer is often regarded as the first port of call for compliance issues. Lawyers need to be careful not to fall foul (no pun intended) of the ostrich theory, the string of cases in the USA where in-house lawyers are held to account for sticking their head in the sand and, while suspecting criminality by their client, take deliberate steps to avoid learning the truth. Suspicion also has ramifications in English law, for example in relation to the Proceeds of Crime Act and the Terrorism Acts.

In-house lawyers are the technical experts on their organisation’s rules, whether company law, public law, regulatory, or the organisation’s own internal codes. They should not be seen as solely responsible for compliance; this would let the Board and senior management off the hook. But the in-house lawyer is certainly part of the picture, and can help to create a climate in which compliance is seen not as a problem but as part of the solution. This is as important when things appear to be going well as when they are not.

The just in-house lawyer sees an opportunity here to help create a culture which values compliance not necessarily primarily as a legal good in its own right, but as a good because it is the right thing to do, in that it supports right action. Under the Companies Act this could be seen as part of the directors’ duty under section 172 to have regard to the needs of others (employees, the environment etc). But in turn this is an application of the social contract, and the fact that limited liability is a privilege afforded to companies in return for playing an important part in society.

Tensions can no doubt arise where the lawyer is put under pressure to optimise some returns regardless of the social contract. Here the lawyer’s professional duties are important. It is prudent to remember that we are here as advisers to the organisation, and not to the people who make up the control of the company for the time being. We cannot perform our functions as professionals without being aware of our duty of independence.