Verizon: In-house teams the size of large law firms
Posted by Dan Bindman, Associate Editor, Legal Futures
If the chief executive of a division of a massive American company is to be believed, corporations everywhere are in the process of changing to put the needs of the community alongside profits.
This may or may not ease the burden of in-house lawyers struggling to maintain the balance between their employers’ singular focus on doing whatever it takes to succeed and broader society.
Ronan Dunne, an accountant and chief executive of the consumer group of US giant telecoms company Verizon, points to a meeting last year when 181 CEOs of US corporations from Intel to Netflix for the first time in over 20 years changed the objectives of their companies from maximising shareholder profits to include the needs of customers, investors, suppliers and community.
He believes the problems faced by general counsel (GC) being put under pressure by the companies to do questionable things – despite their professional rules saying the public interest comes first, not their clients – must be seen in this context.
Speaking at a high-level roundtable [1] organised by behavioural change consultant Ciarán Fenton, Mr Dunne said it was only a matter of time before the environment in which GCs operated changed for the better. A new generation of employees is demanding change in the way companies do things and this will impact positively on GCs, he believes.
But the problems for GCs don’t seem to be so much in large corporations with massive legal departments like Mr Dunne’s, but rather in younger companies looking to develop, according to a former GC who took part in the roundtable, Jenifer Swallow, who is now director of Lawtech UK.
The part of Verizon Mr Dunne is responsible for has an annual income of $21bn (£16bn). The legal team of just one part of the company is equivalent in size to a large law firm.
Conditions for lawyers, certainly in terms of pay – Mr Dunne’s personal remuneration package reportedly includes a salary of well over $1m and share options worth several million more – are hardly comparable with those in a small company jockeying for position in a tough marketplace.
The roundtable was held to discuss a proposal [2] by Professor Stephen Mayson, whose detailed review of regulation suggested lawyers working in companies should be part of separate business units, operating like a wholly owned subsidiary and answerable to a legal regulator, rather than the lawyers being individually regulated.
In theory this could protect them from being leaned on to behave badly by the companies that employ them by signalling that they were different from ordinary employees and protecting their position by making someone senior in the company answerable for the legal department’s actions.
The company lawyers contributing to the discussion agreed that the proposal would highlight the separateness of solicitors from other employees, but also pointed out that a crucial part of the equation was whether board members and the chief executive welcomed the sort of challenging advice that a lawyer acting in the public interest might proffer.
Trying to provoke a more open discussion, Mr Fenton said they needed to address the “big smelly elephant in the room”, namely that there was a conflict expecting lawyers to be both independent and financially dependent on the company for their incomes.
Responding, Professor Mayson said he had wondered to himself whether it was possible to ride both horses at the same time, but concluded that he wasn’t ready to give up on the idea that it was possible for an ethical lawyer to do so.
Last year, Professor Richard Moorhead, when at University College, London (he’s now at Exeter University) worked with colleagues to draw up guidelines [3] to make it easier for GCs to live up to their ethical obligations.
These include having a direct reporting line to board members and the CEO, and allying themselves with independent non-executive directors who they felt were more likely to respect the lawyers’ independence and back them at board level.
Ms Swallow believed implementation of these suggestions should take place immediately.
Mr Fenton said he was acutely conscious of the dilemmas faced by some unfortunate GCs, because he previously ran a hotline to advise them on dealing with ethical problems. He was “shocked” at the awful stories he heard of impossible pressure being put upon in-house lawyers.
Whether Prof Mayson’s proposal will reduce this pressure is debatable, because there is no getting away from the underlying conflict of the in-house lawyer’s position.
Lawyers facing a board united in the need for cutting ethical corners to achieve a commercial outcome are obviously in an invidious position. They face a stark choice: leave and perhaps blow the whistle, or stay and potentially face their regulator or even the courts.
Professor Mayson’s proposal and Professor Moorhead’s guidelines recognise that protective measures need to be put in place. It will not be an easy task as this seems an issue that many would rather brush under the carpet instead.