Governance, reputation, ethics and the future of companies

Reflections from Tomorrow's Company's recent House of Lords event

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Bruce Macmillan on 04/12/17

Tomorrow's Company is 21. This not for profit develops and espouses values of good company operation and governance and increasingly wider values that touch on reputation, ethics, CSR and integrated reporting (Tomorrow's Company), in this meeting, there was even some discussion of a code of ethics for AI. 

After listening to the presentation for a couple of hours I came to the conclusions that: 

  1. there were a lot of accountants present but I did not encounter many lawyers. Something which is unsurprising as accountants have an important role, but not an exclusive one, in the governance of organisations; and so
  2. if you aspire to be a GC and/or Co Sec and/or run a compliance or ethics function, to play an effective role in organisational governance or simply to be a higher value added and more strategic  participant at the C Suite table – then you should be aware of what Tomorrow's Company do.

What part of the legal person is the legal department and why?

I was surprised and delighted by several of the answers to this question that was raised in a workshop session on the definition of the purpose of the legal team recently. My illustrative suggestion was "big toe: to allow the business to have balance and stability as it tries to move rapidly forward over uneven ground" – which left participants somewhat underwhelmed! The most amusing (and compellingly explained) was "bottom" – you can draw your own (polite) conclusions as to why! 

It does bring home the serious point that the legal person of a company is made up of physical people each of whom – including the legal team members – must have a clearly defined role, functions, order and frequency of operations and needed inputs to deliver required outputs otherwise the legal person will operate sub optimally or not at all. The same is true of all other functions in a business and, if we do not understand how they inter-relate with us and strive to make that inter-relation as effective and efficient as possible, then this too can store up problems. 

So in the same way that we know that ignorance of the law is no excuse; neither is ignorance of what the business is doing and planning to do and how it does it; nor being ignorant about what our purpose is in using our tools of Contracts, Advice and Training ("CAT") to help the business to set its legal risk appetite and then helping the business to keep those Risks At the agreed Tolerance ("RAT") (CATs to control RATs!). 

To help you with your thinking on this we have produced an illustrative corporate ecosystem diagram, here. If it initially looks very complex that is because running even a small business well - let alone one big enough to have a legal team - is. If you do not think that you have all of the things listed in the diagram in your company then you either have, but the processes and documentation are informal (not great for governance and long term survival); or you are genuinely missing a material and important part of your business (ditto). 

So perhaps it is time to use the diagram and give your corporate legal person a self- assessment "health check" and, while you are it, be sure that the legal "big toe" (or whatever!) is well connected, clearly defined and working well?
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