New global research from Morrison & Foerster reveals that GCs want to be evaluated on how effectively they protect their companies from risk and reputational damage. As Paul Friedman explains, they’ll have plenty of opportunity to prove themselves.
As globalization and technological transformation march forward and reshape the business landscape, risks lurk in more places than ever. As we’ve seen so many times, failing to address these risks can quickly result in devastating financial and reputational disasters.
One day, it’s a data breach exposing private customer data. The next, it’s a regulatory investigation into allegations of bribery halfway around the world. And on and on.
The increasing frequency of these cautionary case studies covering such a broad range are, of course, why risk management issues, so often viewed as a backwater in the past, are getting more attention than ever in the C-suite and boardroom. Perhaps it also helps explain the growing stature of the general counsel, who is often tasked with communicating the most pressing risks to the CEO and board. Crucially, GCs are also charged with conveying the benefits of having a plan to proactively manage risks and to mitigate them. It’s a role GCs are embracing, according to new global research by Morrison & Foerster.
GCs Focused on Reputation and Risk Management
Called “The GC {RE}DEFINED: In the Face of Complexity and Change, the Time to Lead is Now,” the research draws input from 200 GCs and other senior in-house counsel across the United States, Asia and Europe. The goal was to understand how the GC of the future will best be able to shape their organization’s future.
The research project’s purpose was also to hear how GCs wanted to be evaluated. It is revealing that most answered with how effectively they manage the plethora of risks facing their companies. In fact, the top criteria were:
- Resolving issues that could cause reputational or financial damages (58 percent) and
- Protecting the company from risk (43 percent).
These findings are further proof that the GCs see their role expanding well beyond the purely legal realm. It’s also an indication of how much the role has changed from a reactive to a proactive one.
Risks Must Be Updated Constantly
Risk is a dynamic concept that must be constantly evaluated, and it’s the job of the GC to predict which risks their companies need to prepare for. The “risk factors” that companies cite in filings made with the Securities and Exchange Commission reflect how the nature of risks changes over the years. Not too long ago, it was rare to find mentions of cybersecurity, data privacy or climate change. Now, they are routinely mentioned.
Effects of the #MeToo movement have also made their way into securities filings. The research platform Intelligize recently analyzed SEC filings around 1,200 M&A transactions from 2017 and found only one included a disclosure relating to sexual harassment or misconduct. In 2018, an analysis of approximately the same number of transactions turned up 45 disclosures. Disclosures around transactions mentioning cyber risk clauses and risks relating to foreign investment have also spiked recently.
Tomorrow the risks will be different. It’s the job of the GC to prepare their company for them.
Not All Risks Are Created Equal
The GC also frequently plays the role of the conscience of a corporation, calling out not just what is legal, but what is right. Because of where the GC sits, he or she can exert influence in all areas where culture and values are at the core, at the intersection of organizational purpose, leadership, strategy, talent development and ethics. In the GC {RE}DEFINED research, 31 percent of study respondents cited “operating as an upholder of corporate culture and social behavior” as a top-three criterion for personal professional evaluation.
At the same time, the GC is increasingly being asked to play a more active commercial role, counseling on the development and execution of business strategies, often in the face of complexity where the right answer is not clear. To meet the needs of the C-suite, a GC must do more than simply say “no” to colleagues when there is risk involved. Risk-taking is at the core of all successful business enterprises, and all aspire to be successful.
Many GCs understand this and want to be seen as a business partner, not just a lawyer. In the GC {RE}DEFINED research, 81 percent of respondents said they feel that it is fundamental that they are a member of the C-suite. To reach that level, GCs must demonstrate they can properly balance the competing demands placed on them.
How Can GCs Succeed?
With the speed of business today, GCs will continue to encounter enhanced tension between protecting the reputation of their organization and enabling commercial strategies. The GC will need a toolkit of strategies for the whole gamut, from defensive risk management to full-scale global crisis management.
Perhaps even more importantly, the GC will need credibility with their colleagues. That does not come with the title; it is not a given. It is earned, often on the back of demonstrating strong business and legal judgment, focus on culture and, of course, nurturing relationships over time. On the plus side, there are endless opportunities to demonstrate strengths across these and other areas.
