The legal world is about to enter a new era

The full text of my opinion piece first published in the Australian Financial Review on 9 June 2022. The article was #3 Most Viewed in the Companies Section on afr.com on day of publication.

The legal world is about to enter a new era.

Until the late 1990s, it was common for law firms to be identified by a strong affiliation to a particular religion, political party or ideology.

We had “Catholic firms”, “Labor firms” and “union-bashing firms”. These labels were reflected in the make-up of a firm’s partner group, the type of clients they served and the work they did.

Over the past two decades, many of these firms have tried to dial down these affiliations and present themselves as agnostic. This has meant?changing the partnership cohort?to include people from diverse backgrounds and taking on a wider range of clients and matters.

However, there are signs we are about to commence a new period where firms will be forced to take a position on a range of issues, especially?in the ESG area.

They are already being?asked by their staff?and others where they stand, and will be judged by their willingness to uphold these principles.

To illustrate, a law firm that actively supports a shift to carbon zero may come under enormous pressure to “live” these principles and refuse briefs from fossil fuel clients. This might include not working for banks and financiers that provide capital to these same clients.

At the recent Australian Financial Review Banking Summit in Sydney, the CEOs of the Commonwealth Bank and NAB were greeted by protesters chanting about “bastard” banks funding coal and gas projects.

Christopher Black said in a letter?to NAB chief executive Ross McEwan: “I am a 15-year-old climate disaster survivor. I’m in Year 9, and I live in Forestville, and I am very concerned about the climate crisis. For me, this is a very personal issue, which is literally a fight for my future.”

Law firms already have quite a few Chris Blacks working for them. If the recent election is anything to go by, they will become the majority over the next few years.

It should be noted that law firms and the profession have been grappling with ESG-related issues for some time.

Key presentative bodies like the Law Council of Australia have been strong advocates on a range of social issues, including refugee rights and access to justice. Almost all major law firms have comprehensive pro bono programs that focus on community work and addressing social ills.

Law firm leaders were active campaigners for same-sex legislative change in 2017 and?will likely be so for the Indigenous Voice?as it heads to the referendum promised by the Albanese government.

Hip-pocket consequences

What’s different about this new era is that the focus of change is not within the broader community or legislation passed in Canberra, but rather directly on how the firm itself operates.

In some instances, it could have serious hip-pocket consequences. Having to drop all its coal clients could be fatal for a resources-focused firm.

Another aspect of this new era is that firms may be forced to be more public on their specific policy on a particular issue. The pressure will come from external stakeholders such as clients, referrers and regulators, but more especially from staff. If the war for talent continues, employees will have more leverage and be a powerful catalyst for principles-led change.

The first step every firm should take is to identify ESG-related risks that may affect a firm’s social, and internal, licence to operate.

There will be a number of relatively simple and cheap things the firm can do to reduce some of these risks. For example, firms can work towards having a carbon zero, or carbon negative, footprint.

For other issues, firms should consider establishing new governance entities or roles that focus on ethics and principles-led decision-making.

Law firms need to be better prepared for these difficult ethical choices. The Chris Blacks in their ranks will be demanding it.