E&C in the office of the general counsel 

February 2021 

Ezekiel Ward

Reporting lines

In many companies the ethics and compliance function sits within the General Counsel’s office. Various surveys put this at approximately half of companies, depending on the industry.

Whilst much depends on personalities and competence, I have often been critical of joining Legal and Compliance together. From a governance point of view it makes little sense, and of course it fails to meet enforcers’ expectations around “independence”. The limited bandwidth of CEOs produces the outcome we so often see – joined up until/unless there is a major compliance problem. I won’t re-hash these points in this article.

Instead, let’s take a look at the context in which General Counsels (“GCs”) are dealing with ethics compliance (“E&C”) topics.

 

GC priorities

The below is a rough attempt at mapping out GCs’ priorities. Feel free to send me an email letting me know any additions.

GC3.png

Issues

Firstly we can immediately see that there are a whole host of priorities. The day to day is very busy for any GC. There is also ‘bundling’. Large topics are brought together into easy-to-handle groups. So GCs are having to distil nuanced topics within crude buckets.

The second observation is on how close to the business each area actually is. By this I mean how aligned the topics are to business priorities. You reach strong alignment within boxes like Strategy, Transactions and Disputes. The business needs a legal advisor in these scenarios. Now take a look at the boxes for Governance and Risk, ethics & compliance. Many compliance topics can be difficult for employees to discuss or accept. Perhaps none more so than investigations. Topics like anti-corruption, if handled badly, can lead to feelings of ‘blocking’ or slowing down the business.

Finally, imagine a GC who has 30 minutes to catch up with their boss - the CEO. The focus is on strategic and tangible topics. Culture, entity management or the control environment don’t get a look-in. The same thing happens in management meetings and, all too often, at board meetings. The audit committee (or equivalent) may be the only exception.

If you have ever discovered a west African joint venture from the 1980s that has been forgotten about, you’ll know that entity management matters a great deal. The new market entry that the business has been planning doesn’t seem so easy if you’ve signed away exclusivity to a long-forgotten JV. You can guarantee the JV partners haven’t forgotten, and that the courts will enforce their claims. If you miss the basics on Governance, strategic priorities get derailed. The CEO needs proactive comfort on these topics from professionals who are dedicated to their resolution.

 

Closing

Many companies successfully run Legal and Compliance functions. But there have to be adjustments if GCs are to hold on to their prized E&C activities.

Independence for the Chief Compliance Officer (“CCO”) is an absolute must. If the CCO is merely an ‘errand boy/girl’ for the GC, a large gap opens up in the organisation’s governance. Independence implies a separate budget and visibility on spending / hiring. Access to the CEO, management and board should be a given. The GC and the CCO have to become allies, not competitors.

Ethics & compliance is a relatively new corporate topic, becoming prominent only in the last 10 to 15 years, depending on your industry. Its growth has been astonishing and in the past three years it has morphed into risk management, environmental, social and governance (“ESG”) work. All of this means that we should regularly assess its place in the organisation and its scope of work.