2016 - the year of the ethical in-house lawyer

2016 looks set to be a big year for in-house lawyers. In March 2015, the Solicitors Regulation Authority (SRA) announced intentions for a review of in-house regulation. Hot on the heels of this came the publication of ‘Legal Risk: Definition, Management and Ethics’, a report by UCL’s Centre for Ethics and Law to launch their ethical leadership initiative for in-house lawyers. More recently, the scandal at VW has raised big questions about business ethics. Are in-house lawyers set to be at the forefront of creating an ethical and compliant culture in business?

The professional v. commercial dilemma

Compared to private practice, the position of in-house lawyers is unique. They operate in an environment where most of their colleagues, including the senior management team, are non-lawyers. Professional responsibilities and legal risk can be hard for lawyers to justify to senior management, particularly where potential revenue is at stake and commercial decisions are being made. Lawyers find themselves in a difficult position.

Working with senior management

For GCs to be able to foster ethical behaviour at the top, they need to have a good relationship with senior management. If a GC doesn’t have a strong relationship with their CEO then they ought to get busy building that relationship and keep its maintenance firmly on their radar.

Lawyers need to consider where the ethical decisions are made within a business. Once decisions are made, how are they reviewed and updated? If it is the role of the legal function to police decision-making, then it is essential that GCs are given access to the necessary information and tools – and to the right people.

We are waiting to find out what really happened at VW but it seems as though the senior management either made some bad decisions or failed to instil the conditions for compliance and a proper respect for basic ethical issues. There may be wider implications for a business: if employees are overworked and under undue stress to perform it might mean that an online course about ethics never gets done.

When it comes to enabling a dialogue between senior management and the business more generally, there needs to be clear channels of communication. Part of the role of legal is to assess whether these channels are in place and that they function appropriately. Is whistleblowing, for example, treated as it should be?

Audits

For a legal team to be compliant, they must comply with the SRA Code of Conduct. The challenge is doing this within the corporate environment. It is possible to get an SRA audit with recommendations on what would be flagged by a formal audit. If a GC feels that their team hasn’t been paying attention to all the regulatory changes in the last few years then it is a good idea to consider an audit before any weaknesses are exposed in a real-life situation.

Legal leading the way

As in-house teams get closer to the business, what role can they play in creating an ethical and compliant culture? For a business to be compliant it is vital to get the essentials right. Annual training should be established in all the key areas: bribery and corruption, competition, data protection, whistleblowing and any industry-specific regulatory training. Ensuring the training is done (and the materials are kept up-to-date) is crucial but must be followed up with the tools to actually deliver compliance. For example, bribery and corruption training needs to be supported with a gift and hospitality register.

Through training, legal can set in place the foundations of an ethical culture. Changing a corporate mindset is no small task and it is important that GCs can influence and get buy-in from those at the top – only then can an ethical culture truly be rolled out from the top to the bottom of an organisation.

What next?

It will be interesting to see how the SRA’s proposed review of in-house regulation evolves. More regulation and red-tape is not welcomed by everyone; however, better sector-specific guidelines may help those lawyers struggling to balance professional and commercial responsibilities.

The VW scandal brings into sharp relief the responsibilities of the person with the task of policing a business. There is a real risk of accountability and public exposure. As the influence of GCs and legal grows within businesses, the precarious line that lawyers feel pressured to walk should diminish. Businesses will have to accept that there are no grey areas – an ethical and compliant culture should be a given.