For general counsel looking to become more valuable to senior business leaders, one crucial skill set is the ability to identify future legal and regulatory risks to the business, according to a new study by the consultancy KPMG.
In a new quantitative and qualitative report, “Beyond the Law,” KPMG gauges survey responses from 320 general counsel in 32 countries, as well as in-depth interviews with 16 GCs at multinational corporations. The findings point to increased integration between law departments and the businesses they represent. But it also points out several ways that general counsel can improve their contributions to the business side.
“Our survey found more GCs overall are involved in business strategy than they were five years ago, and this reflects the changing mindset of many organizations towards the contribution GCs can make,” the authors wrote. “However, we also found a gap between the number of GCs who want to be involved and those who are actually getting that greater involvement.”
For example, the survey asked whether “involvement of the GC in the commercial decision-making process could improve the performance of the company and reduce its risks.” While 79 percent of respondents agreed that it could, only 67 percent said they were “actually more involved in formulating business strategy now than five years ago,” according to the results.
Turning to the in-depth interviews, the authors identified a number of skills that would stand GCs well in the eyes of company leaders. “These include being more commercially and financially aware in order to take a more proactive stance in risk identification and assessment, [and] working in partnership with others across the organization,” the report states.
It places a definite emphasis on a general counsel’s ability to predict risks, adding:
A number of GCs commented that predicting problems and risks before they arose was key to success. The role is moving from one of ‘fire-fighting’ and reacting to events to being more strategic and proactively anticipating risks at an earlier stage. Our research showed that less than one third (29 percent) of GCs are currently focusing on this as one of their top three tasks, so there is a clear need for many to shift to this way of thinking.
Bryan Jones, a partner in KPMG’s forensics practice, says senior management and board members want GCs to help them stay ahead of the curve — not just react to issues when they arise.
“They’re looking for more than ‘deal with my legal problems,’ ” says Jones. “ They want more than that, and that makes the general counsel more relevant.”
Jones calls this approach something of an “early warning system” for legal and regulatory challenges that could impact business strategy. “That’s an important preventive role,” he says.
Survey respondents said understanding the business was necessary to being able to anticipate problems. “Pure legal decision making and just managing a legal process is not going to ‘cut it’ anymore,” said one general counsel. “We really need to understand the context because we have an increasingly important role in protecting the company’s reputation.”
Another interviewee said GCs not only have to understand the business, but be able to talk to business leaders in ways the leaders can understand:
Have good future and peripheral vision in terms of recognizing what risks and opportunities are out there and then be able to translate those from legal language and ways of thinking into crisp, business language that colleagues who are not lawyers can readily understand and make use of. Also having really good business judgment; knowing the business well and having your finger on the pulse of where the company is at, in terms of its risk tolerance, its own commercial objectives.
Respondents emphasized that they need to collaborate with other departments in order to do their jobs well.
“GCs indicated that to address the risks they face, they need to develop close working relationships with other parts of the organization,” the study found. “The top two areas cited were Finance (61 percent of respondents) and Internal Audit (59 percent). Sales and Marketing was a close third (55 percent).”
Since audit executives often employ “a risk-focused work program,” says Jones, they can serve as valuable allies to GCs. “They come up with some great empirical information,” he adds.
The survey also predicted major risks coming down the pike. More than 80 percent of the respondents said that they expect the following to pose risks to their organizations in the next five years: adjusting to the volume and complexity of regulation; maintaining data security and protection; complying with different regulatory regimes; and protecting their companies’ public reputation.
As another interviewee put it in the report, “The increase in pace and complexity of regulation, plus the increase in extra-territoriality being asserted by various national states, means the world is more complicated and it is certainly something that exercises both myself and my peers.”