In-house lawyers suggest that their responsibility is changing from what was a purely legal role into an active business role, as a problem solver of the company with an increasing fiduciary duty to shareholders.

Over 30 senior Spanish and international in-house and private practice lawyers participated in a recent Iberian Lawyer In-House Club Master Class hosted by the Barcelona Bar Association.

“The in-house role has clearly changed, and internal lawyers now need to better understand their business and be more creative and more flexible in their solutions,” says Ramon Mullerat, a lawyer with KPMG in Barcelona, and who chaired the event.

Ethical Issues

Such change entails working more closely with senior management and as a trusted adviser to the business, lawyers suggest. But more recently, the role of many in-house lawyers has also begun to include Corporate Social Responsibility (CSR) issues and, as the risks of unethical business activity increase, it is also therefore falling to them to implement ethical business practices.

The issue is however, are in-house lawyers comfortable acting as the conscience, or some even suggest, the ethical police of the business?

“In-house lawyers have had to decide whether responsibility for compliance in general should sit within the legal department,” says David Sanromá, Legal Counsel and Secretary to the Board of Solvay pharmaceuticals in Spain and Portugal. He believes, however, that the specific responsibility for CSR falls to the internal lawyers.

The approach taken to CSR at La Caixa has been the direct result of the influence of its stakeholders, explains the head of CSR, Angel Pes, and where the conscience of the company is represented by the Chairman.

“The ethical code we wish to follow is something beyond the law, but in any event a company should not compromise its standards – for example, in dealing with businesses that employ child labour. We have made our policies public knowledge and which are then open to scrutiny by all.”

“The in-house role now involves both ensuring the legal integrity of the whole business plus the advice on important aspects of the business ethics as a whole. But giving business advice, while also being responsible for implementing ethical values as well as policing them, is asking for too much,” believes Jan Eijsbouts, adviser to Akzo Nobel, and now Co- Chair of the CSR Committee of the International Bar Association (IBA) and Advisory Board Member of its Corporate Counsel Forum.

He claims the latter cannot be a sole responsibility of the General Counsel and his team but it must be a collective responsibility of all members of the executive leadership.

Neil Fagan, Chair of the Corporate Responsibility Panel at Lovells in London, agrees: “To view lawyers as the conscience of the business is unfair and inappropriate – it is too onerous on them. They can be responsible for compliance but not ethics.”

Jack Auspitz, a litigation partner and CSR expert at Morrison & Foerster in New York, thinks likewise. “Business executives do not come to an external lawyer to make their confession, and to tell their secrets, but the US regulators are pushing lawyers down that path.”

Under recent changes, Boards of Directors in the US are facing increasing pressure to conduct independent investigations of various matters. It may be difficult for inhouse lawyers to lead such investigations for a variety of reasons, including whether particular communications to them are confidential.

In such a scenario, external lawyers will have however to work in a cooperative manner and to avoid confrontations with internal lawyers, he emphasises.

Similar developments are however also apparent in Spain, say lawyers. “Sometimes we need to get help from someone able to view our business and how we comply with regulation with an outside perspective” says Juan Ignacio Pardo, Senior Vice President of the Legal & Compliance Department, at international hotel group Sol Melia. “Nonetheless, the in-house lawyer will always play an important role adapting the external view of law firms to the internal reality of the business.”

Independent lawyers?

Some participants feel however that the increasing demands placed on General Counsel to act as both a trusted business adviser and ethical guardian may bring the potential for internal conflict, in cases where the lawyer disagrees with senior management, and professional conflict – as they are required to keep their autonomy as lawyers and not businessmen.

Jonathan Lux, partner at Londonbased Ince & Co, and former Co-Chair of the IBA’s CSR Committee, agrees that confrontations may inevitably arise, both among lawyers and within companies. “The in-house lawyers need to stand up when they feel that something is not right.”

“It is the company lawyers’ duty to follow the Board as a whole and not just the Chairman,” says Neil Fagan at Lovells. In order to ensure their independence and ability to disagree with the Chairman of his company, one UK general counsel has recently stipulated in his employment contract that if he is dismissed it must be with the agreement of the entire Board and not just the Chairman.

An inevitable consequence of the issues that CSR raises within a company, particularly surrounding its implementation and enforcement, conclude some, is that the lawyers’ requirement for autonomy would suggest that a General Counsel at least should not become a member of a company Board.

Defining values?

Juan Ignacio Pardo at Sol Melia is among those that see the implementation of company values as ultimately within the role of the inhouse lawyer, but is aware of the potential for inconsistency between “what the company says it does and what the company actually does”.

There are clear differences of opinion however as to the sources of such values and the guides available to lawyers to judge ethical or unethical behaviour – are they to look to their own conscience, values or even religious beliefs?

Nielson Sanchez-Stewart, a Council Member of the CGAE, believes that within Spain the behavioural obligations on lawyers are clear. “Deontology is not a difficult area for lawyers here as they are clearly defined by the law. We have rules and regulations and if you don’t follow them you are rightly punished.”

But some feel that ethical issues are not always clearly defined. “When we talk about the values of a worldwide business we have to realise that they are based on the prevailing company culture,” suggests Jan Eijsbouts. Netherlands-based Akzo Nobel, he explains, has a policy against recruiting and promoting family members of current employees although this potentially conflicts with culturally accepted practices in some countries in which it operates.

Such examples lead Eijsbouts to believe that a general counsel cannot be the conscience of a whole company – indeed the responsibility cannot fall to any individual and must therefore fall to the Board as a whole. Akzo- Nobel, for example, has developed a transparent staff programme to discuss and agree ethical issues that are then cascaded down through the business units worldwide.

Many ethical decisions are difficult, believes Francis Neate, former President of the IBA and now Of Counsel at Kirkland & Ellis. “Often real life judgments need to be made. For example, should an international business trade with a country where the age of workers is below the acceptable age in Europe – but if you say no you can destroy their local economy?”

Richard Taylor, a member of the UK’s Solicitors’ Regulation Authority, and Co-Chair of the IBA CSR Committee, is also pragmatic. “Real life is not always black and white but rather based on judgments – everything can be interpreted.”

Jack Auspitz at Morrison & Foerster agrees. “A lawyer can give a legal answer to whether a business would want to buy goods made under child labour, but lawyers don’t have a monopoly on ethics. Their decisions may be no better or worse than the Chairman of the board.”

This is clearly a difficult area. “Would you advise your business against sponsoring the Olympic Games in Beijing, if you felt that China was not following internationally recognised standards of freedom of speech and human rights?” asks Francis Neate.

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