General counsel as a corporate culture influencer
The topic of corporate culture has never been timelier. Australia’s financial services sector has been rocked by a series of scandals in recent years, highlighting cultural failures across the sector. Regulators such as the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have made it clear they consider poor culture to be a significant contributor to the incidences of poor conduct and mismanagement. They’ve also placed the blame squarely on the shoulders of senior management and boards. As a result, it’s more important than ever for all organisations – not just those in the financial services sector – to assess their culture and deal with conduct and management on a continuing basis.
In this new environment, general counsel have an important role to play in helping to set an organisation’s corporate culture. Many consider that it’s no longer enough for general counsel to provide legal advice when something goes wrong. To help manage risk and support an ethical corporate culture, general counsel must also be proactive strategic advisors across every aspect of the business. To do this, they must ensure they are seen to be approachable and ‘adding value’ to strategic decision making, so managers from across the organisation and at all levels see the wisdom of involving them from the outset. General counsel should also be prepared to act as a strong moral compass for their organisation, by posing the question “should we?” when everyone else is asking “can we?”
To explore the role of the general counsel as a corporate culture influencer, MinterEllison and the Association of Corporate Counsel (ACC) Australia sought the views of some of the nation’s top in-house lawyers. Their opinions are shared in this edition of MinterEllison’s General Counsel Insights Series. Roundtable events were held in Sydney, Brisbane and Melbourne in October and November 2019. The sessions were led respectively by Andrew Finch, general counsel, company secretary and group executive for Qantas Airways Limited; Tracey Moore, general counsel and board secretary for Queensland Urban Utilities; and Sarah Turner, general counsel and company secretary at REA Group.
What is corporate culture?
Corporate culture describes the values, beliefs and behaviours that tie members of an organisation together. A positive culture adds value to companies and non-profit entities by creating an environment that supports ethical behaviour. And it is also often the factor that determines whether an organisation can successfully implement its business strategies and achieve its organisational goals. As management guru Peter Drucker said, “culture eats strategy for breakfast”.
Although awareness of the importance of corporate culture is growing, many who attended our events had diverse views on what corporate culture is. According to a general counsel speaking at our Brisbane event, a successful culture might be one “where people are willing to innovate and take risks, feel safe enough to admit mistakes, and work collaboratively to find solutions”. Or it might be one where there are clear structures in place that “make it really clear to staff what is expected of them as an employee of the organisation and make it easy for them to raise issues up the line,” as an insurance sector general counsel added.
In Melbourne, a general counsel said that “when you try to put your finger on what culture is, it becomes quite slippery”. Another noted: “The challenge is that the most definitions of culture are around people and values and the way things are done in an organisation. That’s a layperson’s view. When you overlay the broader legal concepts of culture, it becomes about compliance and ethics.”
However, other participants argued that it is a mistake to think of culture purely in those terms, with one suggesting that “an organisation’s compliance culture is just one component of a broader set of values”. Another suggested that it depends on the interpretation of compliance culture. “Not everything is black and white,” they said. “Organisations have to decide every day how close to ‘the edge’ they want to sail. That’s something that is set by management and the board.”
While corporate culture is ‘set at the top’, participants agreed that when general counsel are able to contribute to strategic decision making from the outset, they can establish or reinforce practices underpinning a culture that values ethics and integrity.”
Add value organisation-wide
General counsel deliver more overall value when they are involved in strategic decision making than if they are simply called in to help mop up the mess after something goes wrong. Roundtable participants felt that being part of the executive team – or closely aligned with it – puts general counsel in a better position to understand what is happening in their organisations. It also enables them to identify potential problems, influence outcomes and sends a strong message that management is serious about legal risk and ethics.
If you don’t have a seat at the executive table, being seen to be approachable and able to “add value” is critical, according to several of the roundtable attendees.
“You need to be in a position where you get consulted early and are part of the pre-decision-making process so you can factor in legal and risk inputs,” said one participant. “The thing that made the biggest impact for us was having our team interact with people from across the business – for example, by putting up their hands to go to management team meetings of other groups. We’re now invited to the table much more regularly because senior management sees the benefit of having diverse input into decision making.”
Another general counsel suggested reaching out to managers a rung or two below the executive team. “We try to develop relationships with the people immediately below the senior executives,” they said. “Once the people who do the work see the value in the relationship, they’ll come to you and ask for help early. And eventually, after the executive decisionmaker sees solutions coming faster, they’ll get on board with it too.”
“We focus on understanding the business and being visible within it,” added a Brisbane-based general counsel. “Our lawyers sit at ‘hot desks’ within other teams and every quarter we invite people to socialise with us, to show we’re approachable. We also say to people, ‘Tell us what your plan is for the next 12 months so we can help with things you may be doing’.”
For one general counsel from the construction industry, donning a pair of work boots and a hard hat and going onsite did the trick. “Now when a worker sees me, he knows I’m approachable,” they said.
General counsel should also aim to build a relationship with their boards. Following the recommendations outlined in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry report, boards now have greater responsibility for culture and performance. That includes a responsibility to assess their entity’s culture and its governance, and how these relate to strategic achievement. With access to the board, general counsel are in a good position to help ensure an organisation is fulfilling these obligations. One participant added that general counsel must be able to bring controversial matters to the board’s attention even – if necessary – when that might be contrary to the chief executive’s wishes.
Ask ‘should we?’ as well as ‘can we?’
When included in decision making from the outset, general counsel are in a unique position to not only offer a big-picture perspective on a course of action, but also to consider the need to ask the question of whether it is the right thing to do.
As one general counsel pointed out: “The Royal Commission report is full of perfectly legal actions that don’t pass the moral test. It comes down to the culture of an organisation, including its legal team, and whether that is ethical and moral.”
“The overarching duty we have as lawyers is to the courts and the administration of justice,” pointed out one Melbourne general counsel. “This sets us apart from others in the organisation, in the sense that we have a duty to think about these broader issues and where the organisation’s actions fit in.”
I believe everyone around the executive table has their own moral compass,” said another roundtable participant. “But they may lack either the courage or the excuse to express those views. I want to be the person that has the courage to ask not just ‘can we do this?’ but ‘should we do this?”
With organisations subject to increasingly intense scrutiny from regulators, stakeholders and consumers, guests at the Sydney event agreed that reputational risk is general counsel’s greatest lever for encouraging people to consider factors beyond profit and loss.
As one participant said: “Encouraging executives to think about the impact of the organisation’s reputation and perceived trustworthiness on the future profitability of their divisions is a great way to introduce those ‘can we?’ and ‘should we?’ questions.”
They added that general counsel would be wise to consider the findings of APRA’s Prudential Inquiry into the Commonwealth Bank of Australia when offering advice to the executive team or board about these matters.
“APRA found that the bank listened very carefully to the ‘voice of finance’, to the extent that it drowned out the ‘voice of the customer’ and particularly the ‘voice of risk’,” the participant said. “They underinvested in risk management systems, and the allocation of personnel to the risk function was totally inadequate. Organisations need to find the balance between the voices of risk, the customer and finance.”
Facilitator Andrew Finch suggested that organisations must also address the growing ‘erosion of trust’ that the APRA report warned about. Trust goes to the heart of reputation for organisations, but according to the 2018 Edelman Trust Barometer, Australians are among the least trusting people in the world. More than 50 per cent of Australians don’t trust the institutions that hold society together, including non-government organisations, companies, governments and the media.
As one general counsel said: “Reputation and the trust of customers are a self-fulfilling cycle. When you build trust with your stakeholders it gives you permission to do things you wouldn’t otherwise be able to do.”
Think of culture as your ‘social licence’ to operate
Roundtable participants discussed the relationship between cultural reform and the apparent argument that more organisations now require a ‘social licence’ to operate.
“Are we saying that these considerations are only relevant for companies where there is an expectation that they must look after society, or do they apply to all organisations?” asked one general counsel in Sydney.
Another attendee working in the superannuation industry admitted that many people in the sector were surprised to learn that the Royal Commission considered them to have a social licence. “Is that where we’ve gone wrong?” they asked. “And does that mean we’ll see the social licence concept start to creep further, so that it becomes a corporate culture expectation right across the board?”
Others pointed out that it depended what people saw the term to mean. “If social licence means considering your customer and the impact you have, particularly when superannuation funds have such a long tail, then I would have thought that’s part of the warp and weft of having your members’ best interests at heart,” said one general counsel.
Ultimately, building a strong and resilient culture takes time and effort. There are no quick fixes and the journey will be different for every organisation. However, organisations that persevere are likely to see tangible benefits, as one general counsel whose team participated in a cultural change pilot explained.
“We learnt very quickly that we would not deliver on our strategic ‘light on the hill’ if our culture stayed the way it was,” they said. “You can’t be innovative or grow if you don’t have staff that are comfortable to take risks, come up with new ideas and collaborate.”