Press: GCs speak up over corporate governance review

The Lawyer has covered our in-house group submission to the Financial Reporting Council - the UK corporate governance regulator - calling to close the historic omission in failing to put the General Counsel on a formal footing in corporate governance codes. The submission has grown in signatures, with a range of lawyers, academics and other interested parties adding their support.

The piece can be read in full here. With an extract below.

GCs speak up over corporate governance review

1 Sept 2023

General counsel from the likes of Cashplus, Sprints and Vodafone have come together to address what they consider to be a “historic omission” within the Financial Reporting Council’s consultation on the UK Corporate Governance Code.

Corporate governance is at the top of business priorities in a world that has become increasingly complex and seen a slew of scandals in recent years.

As a result, the FRC put out a consultation on how to strengthen governance and provide greater transparency and integrity in business. However, a group of 50 legal chiefs claim there has been a failure to recognise the key role that general counsel and in-house legal departments play when it comes to decision-making, risk management and corporate culture. This lack of recognition in regulation is something that many consider to be long overdue.

The group have signed a response to the FRC’s consultation on the UK Corporate Governance Code.

Within it, they state that “as corporate officers whose individual responsibilities and professional duties directly intersect with those objectives, we appreciate the opportunity to comment on this timely consultation.”

“The most significant observation underpinning our response is that the general counsel (or chief legal officer) of any company has fundamental professional duties that align with and reinforce the corporate governance objectives of the FRC and the Code. This is backed by our collective experience and academic research demonstrating the efficacy of in-house lawyers in risk mitigation.”

Speaking on the matter, GC turned business adviser and innovator Jenifer Swallow explained;

“Corporations have a contract with society, which is reflected in law. Corporate governance ensures they meet and demonstrate those commitments. With the greater societal call now for integrity in business, it only takes a common-sense eye to see the role in-house lawyers play is fundamental to corporate governance and thereby to responsible business. It is past time to codify that.”

Ed Boal, head of legal at Shieldpay and a signatory of the letter, added that he endorsed the response

“in support of the wider community of senior legal leaders whose task it is to monitor corporate risk, hold their organisations to account and preserve the rule of law.

“The role of GC has been around several decades, so it’s high time that the important part played by them is reflected in the Code.”

This shift in thinking is important for the fact that GCs’ roles have expanded rapidly in recent years. “The role of the GC has changed and grown in the past 10 years,” Richard Read, former general counsel of Coats Group said.

“More GCs are sitting on the board or reporting directly to CEOs, and they are also moving into doing more ESG and risk management. It makes sense that there ought to be some regulation to do with corporate governance for general counsels as the role has expanded so much.

“At the end of the day, in-house counsel are here to help the FRC further its objectives, as well as to help the business achieve its objectives. We don’t want management to see it as red tape, but as a toolkit to help them do things. It’s all part of building a positive culture and doing the right thing, which is rarely bad for business!”

The response sees in-house counsel suggest several items to the FRC. These include asking the Code to explicitly identify the key nature of an effective general counsel in support of the board, the audit committee and other functions in their roles in ensuring strong governance over risk management.

The response also asks that guidance is written to direct organisations to establish and maintain governance around the role of the general counsel to enable its fulfilment.

…

Solomon Osagie, GC of Cashplus commented that:

“Personally I agree that the historic omission of the GC’s role in risk management and general decision making requires a rethink. There is ample evidence that the legal function can have a significant impact in matters of ethics, monitoring mechanisms and in fashioning corporate adequate decision-making cultures.

“This influence has also been shown to present a dilemma for many of our colleagues. Proper risk management and the development and management of a healthy corporate decision-making culture requires that GCs and their legal depts need to have their roles recognised, supported and empowered if we are to achieve the intentions behind the Corporate Code. T

“This is an opportunity for the FRC to set the tone, help shape the future by enhancing support and recognition of what the GC can bring to the table, and I am immensely grateful to my colleagues for their efforts in getting us here.”

The response comes at a time when a trail of corporate misconducts have taken place, putting the question of effective corporate governance at the forefront of everyone’s minds.

Lucie Grant, GC of Dura-Line, agreed:

“In the light of the recent corporate scandals, we, as a group, observe that, despite the fact that our fundamental professional duties squarely align with the governance objectives of the FRC and our ability to reinforce the intended effect of the Code, our role has been overlooked both by the Code and its guidance.

“This must change if the stated aims of the FRC to increase corporate responsibility and transparency are to be achieved. Following the Post Office scandal, amongst others, now is the time for change.”

The response also draws attention to the risk they believe is brought when a general counsel does not have at least a joint reporting line to the chair as well as the CEO, or direct access to the board and its committees, as they are less able to influence and assure the strong governance shareholders and the FRC.

This in particular is something that the general counsels wish to speak further with the FRC on.

This isn’t the first time that GCs have gotten vocal, after voicing concern over the SRA’s in-house thematic review, which many felt made light of issues that ought to be a cause for concern.