Today’s GCs and in-house teams have a daily challenge in balancing the legal versus ethical conundrum: how do businesses seek competitive advantage, while creating an ethical business and managing their reputation in a world where the media, social or traditional has a louder voice than ever before.
Mills & Reeve and The Lawyer gathered 14 general counsel and heads of legal from a spectrum of industries to discuss the impact that this ever-blurring line is having on the role of GCs and their legal teams in managing business reputation when the legal answer does not always meet the ethical position. The discussion was facilitated by The Lawyer editor Catrin Griffiths and Mills & Reeve’s head of client care Kirsty Shenton and partner Jayne Hussey, who specialises in supply chain contracting.
Shenton launched the roundtable by referring to a comprehensive study Mills & Reeve carried out at the end of 2019 with 100 clients. Titled “Building Resilience”, it asked GCs and in-house legal teams what the biggest issues they faced over the next five years.
Shenton noted that ethics and the law was one of the most prevalent issues, driven by a shift in consumer and investor conscience and an increasing awareness of the impact of business on society. However, this sentiment doesn’t yet appear to be swaying business decisions. From the supply chain perspective, Hussey added that she was alarmed to find only 14 per cent of businesses said that ethical and sustainability considerations were key to purchasing decisions in a recent (March 2021) You Gov poll commissioned by Mills & Reeve.
Griffiths tested to what extent ethics was now part of the panel’s business as usual role and the power of society and external factors. Operating at the intersection of law, ethics and human rights, most of the legal heads saw their role as having influence over their businesses on ethical and reputational issues. However, their experiences and expectations differed according to their individual sectors, which included art, automotive, engineering and defence, consultancy, food and drink, outsourcing, philanthropy and sport.
Alongside his role as legal counsel, one of the delegates from within a drinks business acted as a local ethics officer for the geographies he oversees. He noted that it is a natural position for a lawyer to inhabit.
“We are seen as the right point of contact for internal policy questions – can an employee give a gift, go to a particular event or recruit a friend. As a trusted sounding board, as lawyers we can give a useful steer.”
As legal is seen as the keeper of corporate conscience within a business, it is expected to be present when problematic questions arise.
“Issues we find challenging are when legal compliance and legal permissions conflict with ethical values or human rights principles. That’s definitely where legal needs to be in the room” stated one of the delegates.
A GC from a philanthropic organisation regulated by The Charity Commission observed the link between ethical issues and regulatory oversight. Through the organisation’s external operations, including supporting medical interventions for adults and children, there is a heavy safeguarding and regulatory component.
He discussed how his team were responsible for creating a culture of compliance throughout the organisation – “we have the regulatory stick hanging behind us” – and this involves bringing the board into all issues, as well as training and specific events so that they are able to make the correct decisions.
Though the panel engaged on ethical matters on a day-to-day basis, they were all in agreement that the matter needed to be driven from the very top down.
“You can write the best policies in the world and explain them to the business, but unless the message comes from the top and there’s a culture of ethical values, it’s very difficult for staff to understand and to comply” argued one of the delegates.
The board, as well as ethics committees and responsibility and sustainability teams, often lean heavily on legal and compliance. A delegate from within an engineering firm explained that his team carried out regional ethics and compliance workshops for leaders and were now targeting the ranks below – the “clay layer” – to make middle management confident and skilled at dealing with ethical issues.
One of the delegates detailed his experience within a global consulting business providing content and moderation services to social media platforms. “On behalf of our clients, we are required to assess whether there are policy violations, which range from scam, bullying or inciting acts of terrorism,” he said.
One of the most pertinent issues for the business has been content moderation of social media platforms operating in countries with restrictions or heavy censorship such as China and Russia. The business has faced both political and legal pressures and the legal team has been at the forefront in framing the right ethical approach.
“In some jurisdictions, it is illegal to advocate for LGBT equality for example. We had to define our point of view as to what we would and wouldn’t do for clients,” the delegate explained.
His legal team carried out a human rights impact assessment which gave them the structure to talk to business leadership about conceptualising the questions, even if they didn’t yet have the answers. The lawyer continued: “We have been very clear on our stance. We told all of our social media platform clients that because of our corporate commitments to drive inclusion and diversity we would not support that kind of service scope.”
Griffiths asked to what extent, in practice, businesses flexed their ethical approaches when faced with such weighty issues.
A delegate responded that it was about “holding the line” and not shifting, particularly on the subject of human rights abuses. By way of example, he referred to work his business carried out on a bearings bank that had been deliberately distorting its financial accounts. After the bank had been investigated, it was concluded that it would only be a viable business if it continued to use suppliers hiring cheap and exploited immigrant labour.
“So we shut it down,” he said.
Where human rights are concerned, the panel acknowledged that there is very rarely a right or wrong answer . A delegate described the complications within his business, advising on lost, stolen and looted art. Around foggy questions of legal ownership or where two sides have a solid claim, there are both ethical and moral factors to take into account. This sometimes involves dealing with unsavoury characters and revisiting historical wrongs.
“One of the things lawyers struggle with around ethics is that there may not be a right answer. We’re all trying to find the best solution for us and the people we represent or work with,” he stated. “For ethics, we need to accept that there will be different answers and they will be different to the legal position.”
Hussey cited issues from within supply chain contracting where there is no definitive right or wrong answer.
“A client may have modern slavery prohibitions and if they breach them, we will automatically terminate. But depending where in the world you are operating it might not be the right answer,” she said. Such action can throw up an ethical minefield, closing a factory or plant and resulting in loss of work for hundreds of families.
“There are dilemmas you have to work through in terms of what the right outcome is,” Hussey continued. “Alternatively, is there be a remedial plan that can be put in place to provide children with an education.”
Communication with stakeholders, as well as local communities, source countries and the wider market is imperative in order to get the full picture.
A further complication the panel contend with is reputation. Business and ethics don’t always go hand in hand but now a business’s reputation can be shattered overnight if it crosses the wrong social influencer. Even the perception of unethical behaviour can create a reputation management crisis, whether or not there’s any proof.
“We are all aware of the power of social media in terms of shaping and changing corporate policy,” Griffiths motioned, before asking the panel how they navigate the divergence between reputation (notably online reputation) and ethics.
For a legal head in a consumer foods brand, reputation translates directly into sales: “We are ever-conscious about how our consumers feel about us. We have agencies that manage our social media accounts and we are careful about the content we put out from all kinds of perspectives,” she stated.
“We cannot be seen to be liking comments where people say they’ve eaten our product in great quantities.” As the product in question is high-fat and salt, it would be seen to be encouraging the wrong behaviours and promoting unhealthy eating.
A general counsel from within a football club group quipped that he works within a goldfish bowl, with the relentless interest from outside influencing how the business operates.
“My closest working relationship is with the director of communications – the two of us work as a crisis management outfit. When an ethical or reputational emergency happens, it’s always the both of us cleaning up the mess.”
Unlike many of the other industries represented on the panel, the football industry is largely self-regulated with very few controls. Safeguarding policies and procedures have only recently been implemented, and so there are still issues around handling historical claims relating to the abuse of children in youth teams.
A delegate pointed out that many organisations remain overly defensive on the subject of past abuses and harm. Lawyers must lead in taking the right decision at the outset and let the light in.
To round off, the panel discussed whether, and how far, ethics acts as a tool for their businesses to attract and retain talent.
It was recognised that social responsibility, through the rise of movements such as #MeToo and Black Lives Matter, is a critical factor in talent retention and engagement. Younger generations are looking beyond traditional employee benefits packages to business’s CSR credentials. On the other side of the table, consumers are less inclined to mind if they have to pay a little more for a product manufactured according to ethical labour practices.
“We are seeing a generation with a lot more awareness and access to groups, who are making connections to the things they see meaning in,” stated a delegate. She added that older and more traditional industries needed to catch up and communicate any harmful consequences that flowed from use of their products more clearly. This ranges from fast food to weapons and fighter jet manufacturing.
Hussey reflected on the Boohoo scandal exposed by The Sunday Times in July 2020, identifying poor labour practices in the fashion brand’s supply chains, including in factories in Leicester. It was found that Boohoo’s board members had not commented on their duty to shareholders to avoid a situation developing that causes “severe reputational damages.”
“This is where lawyers can influence their boards in the right way” she said.