As risk and corporate governance continue to hold the attention of the legal and financial communities general counsel are moving away from their traditional role of adviser to one of risk manager.
General counsel at FTSE 100 companies have responded to the mounting legal regulatory risks to their businesses by forming a new group to share best practice in relation to the law, risk management and compliance.
The General Counsel 100 Group (GC 100) was formed earlier this month and its membership already boasts senior in-house lawyers from 50 FTSE 100 companies. Practical Law Company will act as the GC 100’s secretariat.
Barclays general counsel Mark Harding, who chairs the GC 100, argued that the role of an in-house lawyer is now more demanding than ever before.
“With the change in the regulatory climate, there’s a great deal more emphasis on the role of the general counsel,” Harding told The Lawyer. “The days when general counsel can simply react are gone. Now they have to be ahead of the game, which is difficult to do and requires a different mindset.
“People have realised that there are serious consequences of poor governance and risk management. A lot of those consequences can be mitigated by getting good legal advice.”
National Grid Transco’s (NGT) company secretary and group general counsel Helen Mahy agrees with Harding. Mahy, who is joint vice-chair of the GC 100, says: “Risk and compliance is an integral part of managing a company. My job is to ensure that it’s being done properly, and legal risk is just one part of that.”
The changing role of general counsel also raises the question of whether they should be board members? Harding says it is possible to combine the two, but that general counsel should act as an adviser to the board and not take executive decisions.
Mahy concurs with Harding, arguing that it would be inappropriate for her to be a board member. “Personally, I think that there can be governance issues with the general counsel actually being a member of the board. However, it is essential for FTSE 100 boards to have the general counsel present at all meetings as a trusted and important adviser,” she says.
Harding says one of the major issues facing Barclays and other companies in the banking and financial services sector is the changes that will be introduced by the new Basel Capital Standards.
One of the main changes the new capital adequacy framework will introduce is the requirement on banks and financial institutions to hold capital against operational risk. Because legal risk is one of the components of operational risk, one of the challenges Harding faces is how Barclays should adjust its approach to the way it uses lawyers to produce a way of measuring legal risk?
Another area of concern for the banking and financial services sector is the raft of legislation, such as the Markets and Financial Instruments Directive (ISD2), coming out of Brussels. Harding claims ISD2 will revolutionise the way European stock exchanges operate and the way in which financial products are sold.
Meanwhile, like many other companies that are listed both in the UK and the US, NGT must comply with the Sarbanes-Oxley Act. However, Mahy argues that this has not caused any difficulties for NGT because the company operates in a sector that has always been heavily regulated and is therefore used to it.
Nevertheless, she argues that if there is too much regulation it may, at some stage, become counter-productive. “The main challenge that in-house lawyers face is to ensure the company is compliant with all applicable laws and regulations, but in the midst of this there’s also a business to run and the creation – as well as protection – of shareholder value,” explains Mahy.
She adds: “If the law is too onerous, then companies will get tied up in red tape and this may result in the destruction of shareholder value.”