Restoring Corporate Trust: What It Means for the General Counsel

Restoring Corporate Trust:

What it means for the General Counsel

KPMG.com.au Today’s organisations are facing a more complex regulatory environment, changing demands from shareholders and a razor sharp focus on trust, integrity and culture.

Today’s organisations are facing a more complex regulatory environment, changing demands from shareholders and a razor sharp focus on trust, integrity and culture.

KPMG Forensic works with General The results are not as predictable 4. Regulations and Regulators Counsels across the country helping as might be expected: bringing the General Counsel to them respond to the most challenging the table 1. Broader executive roles for bribery, fraud, anti-corruption and the General Counsel or stick to Increasing complexity in regulation commercial disputes, so we took your knitting? and more focus on how organisations the opportunity to go straight to respond to regulators is driving Death to legal professional privilege or the source. companies to ensure their General the only way to provide commercially Counsel has a seat at the executive table. The role of the General Counsel is relevant advice; Australia’s General becoming more complex and more is Counsel Community appears divided. 5. Moral compass or corporate being asked of those who perform it. cop out? There was broad endorsement that in 2. Does the Corporate Governance hat fit? The General Counsel is uniquely equipped order to succeed the General Counsel to provide the moral conscience for their It appears this is one of the hats that needs a seat at the executive table organisation, however, there are mixed seems to fit, taking on increased with direct reporting to the CEO. views as to whether they should. General Counsels were of the view responsibility for corporate governance, that only with this access can they driving the trust agenda and ensuring the organisation consistently ‘gets it right’ is provide the strategic, commercial Dean Mitchell being embraced by the General Counsel. advice and the stewardship that is Partner being asked of them. 3. Company Secretary or not KPMG Forensic KPMG sincerely thanks the Australian to Company Secretary? That is General Counsels who were very the question generous with their time and candid in Somewhat surprisingly, whether their responses and we are delighted the General Counsel should be to have helped frame such an important the Company Secretary appears discussion. to have divided Australian General Counsels evenly. Some of Australia’s Throughout 2019, detailed interviews leading General Counsels pointed to were undertaken with more than 25 irreconcilable conflicts, role confusion Australian leading General Counsels and workload to support a view that from ASX 100 companies, not for it wasn’t the right fit. Whilst others profit organisations and the country’s equally as passionately pointed to largest privately held companies. We synergies, board access and ‘best also drew on research undertaken by person for the role’ to explain the 1 KPMG Globally with leading General merits of the role combination. Counsels.

1 Through the looking glass: General Counsel Report 2016 (KPMG Global) https://home.kpmg/be/en/home/ insights/2017/03/risk-newsletter-through-the-looking-glass.html

Whether the General Counsel should confine themselves strictly to providing legal advice or whether they should embrace broader roles within the organisation appears to have divided Australian General Counsels.

The majority position of the General kept adding functions until it was senior Another consistent basis for the Counsels interviewed by KPMG was enough to be a direct report to the CEO”, opposition to broader roles was the that broader executive roles were to a more reassuring “compliance was potential impact on legal professional appropriate and in some instances becoming more and more legalistic in privilege. General Counsel’s reported necessary. General Counsel’s generally our company, so it made sense”. the ability to separate roles and be felt the need to be more involved clear in which capacity they were A subset of the group who suggested in the day-to-day operations of their acting was becoming increasingly the General Counsel should have a companies, to work closely with other difficult which according to a number broader role believed this meant being departments and to understand better of Counsel put privilege in peril. more involved in the business but not the way their business works. necessarily having responsibility for It was also contended that involvement in The adoption of broader executive roles other functions. The view was that the functional adjacencies could compromise was also seen as an important way for General Counsel needed to be involved the independence of the General Counsel the General Counsel to have a seat at more in the business, negotiating and leave them serving two masters. the executive table. There was a strong contracts and providing advice on view that very few companies had the strategic priorities rather than remaining “Everyone says they can wear appetite for one of their senior executive isolated from the business. multiple hats, but can they really? positions to be occupied by a General If we learnt anything from the Royal Counsel, who was solely responsible “Of course, you have responsibilities for providing legal advice. Commission it was that the General to provide legal advice, but you’re Counsel must be there calling it like also meant to be a part of the “Whether we want a broader role it is. In my view it’s pretty simple, business – not sitting on the the GC should stick to their knitting”. or not is largely a moot point, if the sidelines, writing lengthy advice ASX 100 GC General Counsel wants a seat at the and throwing it over the fence.” executive table, which they need Global GC in order to do their job effectively, General Counsel who advocated for a narrower role suggested there was an then they must have broader However, there was a significant inherent tension in the General Counsel responsibility across the company. minority of interviewees who were role between taking an active part in the There are only so many seats”. fierce in their view that the role of the commercial decision-making process ASX 100 GC General Counsel was to provide strictly and remaining the conscience of the independent legal advice. In their view, business. The broader roles, it was Amongst the General Counsel the only way to do this was to be suggested, inhibited the ability to take interviewed by KPMG there were independent of the business, free to a purely legal, dispassionate view of functions as diverse as Procurement, challenge and say “no” without fear or when it is, or is not, in the company’s IT, Human Resources and Risk, reporting favour in order to protect the company interest to pursue a particular action. into the General Counsel. Interestingly, the and their shareholders. It is a difficult balance. rationale behind many of these reporting lines was obscure or absent. A number “Broader roles for the General of the General Counsel suggested the Counsel can mean the death for rationale was as diverse as the functions legal professional privilege” themselves. The rationale ranged from “no one else wanted it”, to “they just ASX 100 GC

Following the Hayne Royal There appeared to be alignment in role in a number of components of Australia and abroad that the General governance: Commission many Australian Counsel can and should play a crucial Boards increased their focus on trust, integrity and Corporate Setting risk tolerances is a major component of the reinforcing strong corporate Strategy/Risk corporate strategy process. Management governance. Whilst there Compliance Focus on compliance is not simply a matter of developing was some division amongst a “Code of Conduct” or Conflict or Interest Policy. This Australian General Counsel function is often part of the legal department or otherwise on the issue of broader reports through the GC. functional responsibility for a CEO Succession As a key Senior Executive, the GC would naturally play a role Planning in the strategic planning and succession planning for critical General Counsel, there was executive roles. Counsel can help ensure that the Board overwhelming support for keeps in mind all appropriate criteria when seeking a new the General Counsel taking CEO or other senior executive – not just specific business skills or performance record, but also integrity and risk a leadership or at least active management capabilities. role in corporate governance. Executive Increasing focus of shareholder proposals and public Compensation scrutiny. Counsel can play a critical role in educating Counsel is uniquely situated to act as Board members facilitator between the Board of Directors and Management Team and take the Crisis The current communications environment (social media, leadership on a variety of governance- Management etc.) makes it even more important to get out in front of related issues. the crisis with a strong and cohesive narrative. Counsel can play a key role in crisis management by preparing The General Counsel is all about the organisation and also preventing crises by identifying governance but you’re not always the company’s vulnerabilities. In a crisis, it is crucial that the Counsel knows the organisation and the relevant given the oversight across the whole personalities, and can judge when he/she needs to take business to know what’s going a lead role vs knowing when to bring in outside experts. on. If you want good corporate governance, you need your GC at the table when the important Working closely with those dealing with willingness to comply, as people decisions are being made” the risk and governance agenda is seen become involved in the process and ASX 100 GC as an important way of managing these have had an input into the solution.” risks and ensuring that compliance with It appears there is broader acceptance regulations is not just a tick box exercise. across the Australian General Counsel According to a leading Global General community that Corporate Governance is Counsel, “… it can’t just be a nice a role more consistent with the functions policy and it can’t be just a bit of of the General Counsel than other training. You’ve also got to work with corporate responsibilities. However, when people who can actually work into the KPMG explored whether this extended to day-to-day activities. This collaboration the Company Secretary, the consensus is seen as helping to embed the fell away.

Wide support existed for the General Counsel undertaking a broader role in Corporate Governance in Australian corporations, however the wide support did not extend to the General Counsel also being the Company Secretary.

General Counsels were almost equally divided as to whether the General “The General Counsel is “If there is a deal on, or a close Counsel should also be the Company absolutely the right person to be call on market disclosure, then you Secretary. Company Secretary, they have an need your GC and CoSec on top of understanding of the business, their game, this is when you need Advocates for the dual role pointed understand the legal issues in them both at their best, if they are to a number of synergies in the roles. However, the dominant explanation for play and can make sure the board juggling both roles that’s not good performing both functions was access is getting the visibility of the for them or for the company”. to the Board. A number of General organisation that they require” ASX 100 GC Counsel expressed a view that they ASX 100 GC could not adequately undertake the role Other General Counsel pointed to what of General Counsel without access to However, amongst the General Counsel they believed to be irreconcilable conflicts the Board and the Company Secretary interviewed by KPMG there were between the two roles to explain why the role provided that access. equally as many who firmly believed roles should be separated. General Counsels tended to point the General Counsel should not be to being privy to board deliberations the Company Secretary. There were “When you talk to the Directors rather than board members themselves principally two justifications for the need about continuous disclosure, or was the key to being an effective for role separation: i) the roles are too their Directors duties or other big for one person; and ii) it can present General Counsel. It was suggested issues, who are you? The General this understanding of the strategic irreconcilable conflicts, or at least lead to confusion as to which hat is being worn. Counsel or Company Secretary? deliberations and risk appetite, enabled Even if you’re clear what hat you’re the General Counsel to provide more There was some agreement that for wearing, the Directors may not be”. commercial and actionable legal advice. smaller organisations or those operating ASX 100 GC The importance of being both the outside a listed environment, the General Counsel and Company workload might be manageable for one person. However, a number of those There was however, almost universal Secretary appeared to be impacted by agreement from all of the General whether the General Counsel reported advocating for a separation of the roles were of the view that in an ASX 100 listed Counsel interviewed that if the directly to the CEO. In situations where Company Secretary was not the this direct reporting line did not exist, environment the workload could inhibit performance of both roles effectively. General Counsel then there was a clear it was viewed as much more important advantage for them to be legally trained to have the access to the strategic It was suggested that these issues in order to execute the role effectively. deliberations of the Board. were particularly acute when the company was in crisis or ‘deal mode’ and issues of continuous disclosure were in play.

©2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. ©2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. 9 Restoring Corporate Trust 4. Regulations and regulators bringing the General Counsel to the table

It perhaps comes as no surprise that navigating increased regulation and managing interactions with the regulators charged with enforcing them is the most significant challenge facing today’s General Counsel. The Hayne Royal Commission directed a bright light on not only how companies behave but also how they respond to regulator scrutiny.

The regulatory changes and the In this area we again see consistency “The game has changed, we ascendency of principles based between the Australian context and the already were dealing with legislative obligations, which by their experience of our Australian General increased regulation in the areas very nature are more nuanced and Counsels colleagues abroad. International of Anti-Bribery, Modern Slavery demanding of interpretation than the General Counsels reported one of the and Anti-Competitive Behaviour; traditional rules based frameworks, greatest challenges in responding to however, now there is much are increasingly bringing the General regulators is a lack of clarity around what greater scrutiny on not only how Counsel to the executive table. is expected by the regulators themselves. we meet our obligations but how There was overwhelming agreement we interact with regulators” “Your ability to be completely on top (80%) that regulators need to be clearer in their expectations. ASX 100 GC of those forthcoming changes, and be able to advise on how to approach This broader involvement in framing Whilst the Hayne Royal Commission them, is something that puts you the ethical norms and ensuring the sharpened the focus on conduct and at the forefront at many of the right behaviour has opened a broader regulation, it has been an increasing important meetings that take place.” conversation of whether the General focus of General Counsel for many Counsel was uniquely placed to act as Global GC years, both in Australia and abroad. the moral compass of the organisation. Globally, General Counsels who Australian General Counsels reported responded to a KPMG survey chose to KPMG that today more than ever, regulation as the single largest risk they are being invited into broader that their companies face. conversations than they were historically. A general increase in volume and Whilst it was common place for in house complexity of regulation was identified lawyers to provide advice on regulatory as the greatest risk to their companies compliance, they were often not part in the next five years. The top three of the broader conversation about the principal areas of regulatory risk cultural or behavioural elements of were around competition, consumer compliance. Discussions around ethical protection and anti-bribery and culture and integrity were often left to corruption. the business units with support from the People and Change teams. There was a broad consensus that that the General Counsel was in the best Perhaps the invitations are arriving due position to lead this assessment of to the sometimes opaque nature of potential impact of regulatory change. principle based regulatory obligations. The role lends itself to being able to However, a number of General Counsel advocate with the appropriate agency if suggested it is because regulation needed to modify or stop the regulation is becoming more complex, further proposed, whilst simultaneously reaching and with increased obligations bringing the facts, impact, experts and being placed on company Directors. financial costs to the organisation.

Whether it is a deep rooted sense of what is right, extensive study and intellectual debate on ethics, or the unwavering pursuit of what is just, lawyers are particularly attuned to making objective assessments based on merit.

In an environment where organisations moral tensions and they should be A number of General Counsel pointed are being asked to not just comply with the one at the table to call a “time to the Hayne Royal Commission as both the letter and spirit of the law, out” when commercial considerations evidence that ethical decision making but also meet the evolving concept overtook ethics. had to be installed as a foundational of community expectations, perhaps obligation of every employee. They it is the General Counsel who is best “If you want the General Counsel suggested allocating responsibility to placed to act as the moral compass to be the moral guardian, and I an individual allowed management in for the organisation. particular to throw the metaphorical think they should, it rests very ethical football over the fence. Australian General Counsels appear comfortably with how we are divided on who should be the moral trained and how we practice; guardian of an organisation or whether you must provide them with the “You can’t have an ethical policeman it in fact should be any individual at all. psychological safety to speak up” on each street, you need to ensure The majority of General Counsel proper KPI’s are in each employee’s consulted by KPMG resisted the ASX 100 GC contract, that all levels of introduction of a Chief Ethics Officer, management are genuinely walking However, other Australian General a role much more common in US the talk. Assigning ethics to one companies than Australian organisations. Counsel resisted the role of moral guardian for their organisation, person or group of people dilutes US technology companies in particular pointing to inherent conflicts with their the responsibilities of others”. have embraced the role of the Chief substantive role of providing fiercely ASX 100 GC Ethics Officer to help their organisations independent and legally sound advice deal with complex moral dilemmas. In on complex matters. 2019, Salesforce appointed a Chief Ethics Officer with a wide mandate to “To “I’m here to provide the best develop a strategic framework for the ethical and humane use of technology.” possible legal advice for the company, which is the expectation Often the role of the Chief Ethics Officer of the board and shareholders; I’m extends to investigating alleged violations not here to provide moral counsel”. of company polices, codes of conduct or other legal obligations. This extended ASX 100 GC responsibility often leads to the function falling to the General Counsel or Senior A third school of thought rejected the In House Counsel working within the concept entirely, arguing that not only Office of General Counsel. was it not the role of General Counsel to be the moral compass but it should A number of Australian General Counsel be no individual’s role, including a Chief were supportive of the concept that Ethics Officer. Assigning responsibility they would have some influence over for “ethics” to an individual took away the morally precarious decisions taken the personal responsibility every within their organisation. They agreed member of an organisation should have that they were uniquely placed and to champion ethics, it was contended. experienced in balancing ethical and

Martin Dougall Dean Mitchell Partner in Charge, Forensic Partner, Forensic T: +61 405 033 049 T: +61 457 897 810 E: [email protected] E: [email protected]

Christine Oliver Greg Meredith Partner, Forensic Partner, Forensic T: +61 439 714 718 T: +61 437 266 198 E: [email protected] E: [email protected]

Paul Black Michael Khoury Partner, Forensic Partner, Forensic T: +61 414 254 321 T: +61 404 062 893 E: [email protected] E: [email protected]

Luke Howman-Giles Natalie Faulkner Partner, Forensic Partner, Forensic T: +61 450 283 500 T: +61 412 076 877 E: [email protected] E: [email protected]

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