How general counsel became the corporate ‘voice of conscience’
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
For in-house counsel, providing straightforward advice on a company’s compliance with the law is no longer enough. So-called stakeholder capitalism means companies are under pressure on all sides — from investors to clients, consumers and campaigners — to carry out business with integrity and transparency.
And it is senior in-house lawyers that are increasingly tasked with satisfying these demands, as a business’s voice of conscience.
General counsel are increasingly taking on responsibility for environmental, social and governance (ESG) policies, which encompass areas such as climate change, human rights and diversity and inclusion.
A study this year of chief legal officers by the Association of Corporate Counsel, a professional group, found almost a quarter of them are now responsible for ESG — an increase of 9 percentage points since 2020.
In the case of Peter Wexler, chief legal officer at French multinational Schneider Electric, the brief spans such diverse areas as data privacy, intellectual property, risk management, insurance, and export control and sanctions. In addition, other areas of the business — remuneration, for example — often call in the legal department at a much earlier stage than previously.
“Good legal departments have always been involved in this kind of work and providing their expertise but it has increased in visibility,” Wexler adds.
He himself has been deeply involved in handling Schneider Electric’s response to Russia’s invasion of Ukraine. In late April, the company announced its intention to sell its Russian operations to local management. The deal has now been signed and is awaiting regulatory approval.
Adam Woodhall, chief executive of Lawyers for Net Zero, a non-profit organisation that works with in-house lawyers to push for action on climate change, says colleagues increasingly expect general counsel to be the “moral compass” of the business and that the latter “can influence internally”.
“General counsel have a helicopter view of the business in a way only shared by the chief executive and chief financial officer,” he says. “Not everything is a legal issue, but it could be argued that everything is related to risk. General counsel have an opportunity to help guard against greenwashing and achieve legitimate net zero.”
Greenwashing — where companies make misleading statements about their environmental credentials — is increasingly regarded as a corporate risk, especially as tighter regulation is expected in the US and Europe.
In May, German police raided the Frankfurt offices of DWS and its majority owner Deutsche Bank as part of a probe into allegations of greenwashing at the asset manager. BaFin, the German financial regulator, and the US Securities and Exchange Commission have launched an investigation into DWS.
Senior in-house lawyers are also being tasked with scrutinising suppliers’ human rights records or green credentials. In the UK, the Modern Slavery Act requires certain businesses to report on actions they take to ensure there is no illegal exploitation of people in their supply chain.
“General counsel are increasingly expecting suppliers to tick all the boxes in the procurement process,” says Tony Williams, founder of legal consultancy Jomati. “The GCs driving this and taking it seriously are the ones saying, ‘tell us about your carbon footprint and diversity and inclusion policies’. They are expecting details, so it’s not just a tick-box exercise.”
Sonali Siriwardena, a partner and global head of ESG at law firm Simmons & Simmons, says general counsel increasingly advise on what is proper and ethical. “General counsel do not look just at whether something is legal or non-legal,” she explains, “but whether something will represent a potential and long-lasting risk to the viability of the business.”
For their part, general counsel are pressing harder on diversity at law firms. The General Counsel for Diversity and Inclusion initiative was set up in 2019 to represent in-house teams of big companies, including telecoms group Vodafone and miner BHP, that champion diversity and inclusion.
In 2020, Swiss pharmaceutical company Novartis told its law firms they must have 30 per cent of billable associate time and 20 per cent of partner time provided by women, ethnically diverse or LGBTQ+ professionals. Failing to meet this commitment would result in Novartis withholding fees.
However, at Coca-Cola a proposal in January 2021 by the then general counsel Bradley Gayton that at least 30 per of lawyers instructed on new matters should come from diverse backgrounds has not been implemented. The company says it remains committed to diversity.
Ultimately, however, the growing importance of ESG in the job of a general counsel seems unstoppable. Where once the legal department was a necessary cost centre for a business, Woodhall at Lawyers for Net Zero believes they now have the status and credibility to drive change on questions such as decarbonisation.
“People sit up and take notice of them,” he says.