Have you been Enron-ed?

January 1, 2005

Once upon a time in-house lawyers were thought to have a cushy number…nine to five, nice office, nice pension and if anything tricky came along they could always outsource it.

People used to talk about refugees from law firms, looking for “quality of life” and a slower, less pressured existence. While often repeated, I am sure such views were never close to reality. In-house lawyers up and down the country know that they are often under resourced, undervalued and expected to work minor miracles on behalf of their business colleagues almost every day.

And now, just to add to a cup that already overflows, a new word has entered the legal world’s vocabulary…ENRON.

ENRON is a deeply resonating word precipitating a neurotic state or condition that will no doubt become known as the ENRON factor or syndrome. It reveals itself when “without any warning or preparation whatsoever, one’s own innocuous actions are construed negatively by others, and with applied 20-20 hindsight, so that all the ills of the world are shown to be attributable entirely to a thoughtless disregard for being born a fallible human being”.

The trouble is, I do not buy the idea that by shrugging our collective shoulders and saying there, but for the grace of god, go all of us, is good enough. The world-imploding trauma of what has happened at ENRON, and possibly in other global businesses, must not excuse any inactivity or a non-acceptance of responsibility in our own more gentle lives. If in-house lawyers want to be players in their businesses, whatever size or scale, they must step up to the mark and be counted as strategists and not transactionalists.

Busy yourself just with contracts, employment and litigation matters etc (important though this work is) and, as we all know, we are seen as legal doers, existing in the corporate pecking order somewhere between Procurement and Facilities Management.

Why are there’so few legal department heads on the main boards of their companies? Perhaps because they do not make a strategic, value-adding contribution, perhaps because in reality they are simply managing a process that doesn’t warrant a place at the top table.

Yet…as solicitors the Law Society practice rules we all have to comply with (incidentally when was the last time you looked at them?) state that it is the duty of every solicitor to act in the best interests of the client.

To act in the best interests of the client.

Think about those words.

The rule does not say, “to act in accordance with your job description” or “to act to the best of my ability, given the resources I have and the fact that half my team are off sick, on holiday, or grumpy about their pay review”.

Nor does the practice rule have any qualification such as “to act in the client’s best interests unless told otherwise by the less than competent sales/marketing/HR/IT (etc) director or their dopey staff”

The point is obvious isn’t it? The client is the corporate entity, it’s best interests have to be understood and managed, and as an in-house solicitor the duty is particularly onerous, perhaps even 24/7.

Many of the businesses I consult with have in addition to their legal department, a secretariat, a risk management function, a strategic planning team, an internal audit department, a compliance department and external auditors.

The problem therefore is not one of coverage. It is that in too many of these companies no one in the legal team has a clear idea of how he or she fit into the corporate governance regime, whether they are actually discharging their professional obligation, or whether someone else is doing it in their organisation.

I don’t think this is good enough.

When businesses of every size and complexity are subject to the most complex regulatory obligations and laws; when reputational risk is a real issue today with brands valued in multiples of tens of millions of pounds; when something so elusive as “confidence” can knock billions of dollars off stock exchanges around the world and when real people can lose their livelihoods and their pensions overnight, do you not think that having a professional duty to act in your client’s best interests might actually warrant a little strategic thinking?

For too many years now lawyers have equated being busy with adding value.

It’s a big mistake. Busy is good, but adding value is better. In-house lawyers in the UK have had a big wake up call thanks to ENRON.

Many should now be considering at least some of the following actions:

  • Ensuring as a priority that there are no gaps in corporate governance between all the various risk management functions. This means an in-depth and thorough investigation with an ongoing programme to monitor and manage
  • Ensuring that the head of legal regularly reports on how the client interests are being best served by his or her intervention and the role performed by the legal department
  • Ensuring that reputational risk is actively managed and is at the heart of the legal team’s thinking.
  • Ensuring that the legal team has an explicit ethical framework within which it operates to leverage integrity in every transaction, report, memo or email.

Being an in-house lawyer was never a soft option. Now it is potentially as onerous as any role that can be imagined.

Excellence now will not just be judged by how much work is done, and how busy the lawyers have become but on how well those lawyers can manage the client’s best interests in every facet where risk potentially undermines reputation, brand, shareholder value, compliance and governance.

Good luck.

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