Regulatory pressures push in-housers closer to management, says KPMG

The growing tide of regulation has pushed in-house counsel ever closer to management boards and pushed up demand for commercial nous, research from KPMG suggests.

The accountancy giant commissioned global research agency Meridien West to survey 320 in-house counsel from 32 countries for its global report.

KPMG said the research showed that many in-house legal advisers were moving away from their traditional roles to become business advisers as demand for regulatory advice increased.

One of the key findings was that, although just over one third (38 per cent) of in-housers sit on the main board of their organisations, 70 per cent agreed that giving commercial advice to the board is now just as important as giving legal advice.

Partner and chairman of forensic for KPMG’s risk consulting team Kathryn Britten commented that increased regulation had meant that complex commercial decisions needed to be taken with extra caution, putting demands on in-house lawyers.

She continued: “General counsel are increasingly being required to act as the barometer for their organisations, gauging the pressure and helping to scan the horizon for future threats.

“It’s clear that involving general counsel in commercial decision-making is now the norm for those companies that are successfully navigating today’s risk landscape”.

Of those surveyed 90 per cent put regulation as the lead risk to organisations over the next five years. For general counsel in the technology sector this is expected to play out in the form of disputes.

According to the survey around two thirds of general counsel are now more involved in business decisions than they were five years ago. However, there is clearly some way to go, with 80 per cent of general counsel claiming that their involvement can reduce the number of disputes and regulatory issues their companies face.

Britten commented:“The general counsel we spoke to told us that they must continue to adapt to meet the increasing expectations of their role, focusing as much on business opportunities as legal considerations or risks.”

In-house reaction:

Charlotte Taggart
Charlotte Taggart

Charlotte Taggart, partner and general counsel of Lockton Companies

It is all part of the regulators’ ‘credible deterrent’ strategy. The intrusive nature of regulation is what’s causing boards to sit up and notice. Our CEOs and our FDs are reading that there are an increasing amount of fines. The FSA’s levied £110m in fines in the last year alone compared to the £3m- £5m levels of 2004-05.

I see our role as very much protecting the organisation from these fines, but I also think it’s critical that boards take an interest in regulation. I don’t think compliance featured as highly on their radar as revenue. I think it’s one of the main items on the board’s agenda now, including things like financial crime. There isn’t a board that can afford not to have it on every agenda.

My role has increased in scope enormously. I continue to give legal advice, but back in 2009, 70-80 per cent of my role was legal advice, whereas now it’s probably 40 per cent legal advice and 60 per cent looking at risk management and regulatory issues.

Daniel Toner, general counsel and group company secretary at Spire Healthcare

Dan Toner
Dan Toner

Obviously, healthcare is already a heavily regulated and controlled sector, but I would agree entirely with the tenor of your article. Right now, in addition to our day-to-day relationship with our various regulators, including the Care Quality Commission, we are dealing with a Competition Commission Market Inquiry into private healthcare and wholesale regulatory reform of the provision of services to the NHS.

This includes the creation of a new NHS Provider Licence regime and Monitor becoming economic regulator to our sector: we’ve been involved heavily in the Government’s consultation process on these proposals.

Many of these developments have important strategic implications for our business, and pragmatic and commercial legal advice is key to minimising the risks, and maximising the opportunities, that these present.

Susan Mann
Susan Mann

Susan Mann, general counsel at Dealogic

As I see it, regulatory pressure only accounts for a part of the issues: banking has undergone increased regulatory pressure, but not technology at all, unless you’re talking about data protection.

I’ve been in-house for almost 30 years and it is a GC’s role to be a part of the commercial decision-making for a few reasons:

– In-house lawyers don’t work in a vacuum – their advice has to be flexible and commercial as part of serving the objectives of the company and its shareholders;

– Competition law, anti-bribery (FCPA has been in the US since 1979 and the UK has had legislation since 1889 and now the Bribery Act 2010) and export laws have been around for a long time and are all commercially based, so general counsel advise on these issues daily to keep the business running smoothly and stay out of the regulatory spotlight;

– There are in-house lawyers whose job is only to interface with a regulatory body such as in the telecoms business;

– And, general counsel are part of commercial decision making – that is the most fundamental difference between in-house and outside counsel.

Jonathan Jowett, company secretary and general counsel at Greggs

Jonathan Jowett
Jonathan Jowett

As Greggs company secretary I’m a part of the plc board team and am present at every meeting and committee. But perhaps more relevant is that fact that in Greggs, the general counsel has a full seat on the operating board that supports the CEO in running the business. In that respect, as well as providing a functional view, we are all expected to operate outside our functional comfort zones and act collectively in managing the company.

Richard Reade, assistant general counsel – international at WeightWatchers

Richard Reade
Richard Reade

In-house lawyers are becoming increasingly prominent as they find themselves, now more than ever, ‘gap filling’. Where nobody takes ownership of a role, lawyers are forced to step in to get the job done. In the case of a regulatory investigation this might mean a general counsel acting as a quasi-COO in the relevant part of the business for a month simply to ensure that everything is properly coordinated – and communicated.

It is unavoidable that commercial decisions will have to be made by the GC during that time in order to keep the business running. If the GC, or other senior lawyer, find themselves regularly in the same ‘gap-filling’ role they are either likely to recruit commercially minded lawyers to assist in that role (for example, bringing an ‘and business affairs’ title into the legal team) or they might object to ‘gap filling’ altogether.

The latter only usually happens when fresh resources are denied. Perhaps we are seeing the rise of the influence of GCs because companies are not denying these resources in light of regulatory concern.