The new age of protectionism

LondonNovember 2nd 2017

GENERALCOUNSEL

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SUMMARY PAPER

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Today’s general counsel (GC) faces a raft of challenges: not only in providing legal expertise often across multiple and challenging jurisdictions but also in managing risk and reputation against a backdrop of political, economic and technological change.In this environment GCs have more opportunity than ever to influence the direction of a business, but with this opportunity comes an increase in accountability when things go wrong.The Economist’s General Counsel 2017 examined some of the pressing issues facing in-house legal teams, and where some of the solutions might lie. We would like to thank all participants for their candid and invaluable insights at the event, which we summarise in this paper.

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T H E G L O B A L P I C T U R E

Difficult economic conditions and political turmoil have created considerable uncertainty for businesses. The conference looked at the global outlook and what might lie ahead for the GC when helping to navigate their companies through choppy waters.

Economic growth continues, and there is reason for optimism. However, in many areas of the world, the politics weigh heavily. In the US, the economy is growing but politics could stifle the likes of meaningful tax reform, which many businesses operating in the US hope for.

In Europe, the Eurozone is making a modest recovery and has pulled through the worst of the crisis. The political story

The global picture

in Europe is not as worrying as it was a year ago. However, far right parties are having more influence and that is a cause for concern.

The picture for the UK has been one of recovery but this is weakening. Brexit is the key factor, but not the only one. The impact of Brexit will mean that growth will be below what it would have been otherwise – but it is by no means disastrous. We are likely to see an orderly departure from the EU, a new trade agreement with Europe, and relationships strengthened across the rest of the world.

In Asia, much has still to play out. China, Japan and India have powerful leaders and each has a clear vision. It is to

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T H E P O T E N T I A L A N D T H E P I T F A L L S O F N E W T E C H N O L O G Y

The potential and the pitfalls of new technology

be hoped that Xi Jinping will tackle the overheating economy. Growth in China will slow over the next year, but it will still be contributing a lot of wealth to the world economy. In India, the Bharatiya Janata Party is consolidating power across a number of states, bringing positive reforms, capitalising on its growth story. In Japan, Shinzo Abe has retained a supermajority in a snap election, but faces pressing issues of reforming a pacifist constitution to address the threat posed by North Korea.

The use of artificial intelligence in law is gaining momentum, relieving legal staff of time-consuming and repetitive work and freeing them up for analytical thinking and relationship building. But what does this mean for the GC, with the implications for security and compliance that new technology brings?The discussion looked at the rise of AI. Even the term artificial intelligence has sinister connotations – the term ‘augmented’ intelligence is perhaps more accurate in that it is simply boosting the ability

of the human user.Detractors raise concerns over putting so much trust in AI. There is the notion that it is ‘some kind of mysterious black box spitting out results’ – but it was argued that this view is outdated. The first iterations did perhaps have that flaw but any technology where the user doesn’t feel in control of the result is not a good development.The technology becomes smarter as it learns what the user wants. Caution must be taken on what questions are asked and what outcomes

are expected so that bias in algorithms is eliminated. Human input is critical.A parallel was drawn with the likes of accounting spreadsheets, as they have not replaced accountants. They are simply a tool to aid their work and the ability of the professional using it is key. The same is true for AI in law – it simply frees up the lawyer to ‘do more of the lawyering’.Delegates looked at how roles might change in the legal profession. For example, lawyers will always be necessary but they will be

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T H E G C ’ S R U L E O N C Y B E R S E C U R I T Y

Data breaches and cyber-attacks are not a matter of if but when, and the GC needs to ensure their boards understand the potential risks. Breaches may come from inside – either maliciously or accidentally, or from an outside party looking to deliberately sabotage a business. But no matter the cause, the results can ruin a company’s reputation.Delegates talked of the importance of different departments working together to understand the risks, put security measures in place and develop a response plan. It is

vital that each department understands the other and all communication should be free of jargon that other stakeholders do not recognise.The GC is increasingly being held accountable. Questions will be asked over whether the board was properly informed of the risks, whether there was proper incident management, and if previous red flags were properly followed up.The potential of a virtual attack should be taken as seriously as a physical attack on a business. Corporations have security guards in the lobby; there must

The GC’s rule on cybersecurity

part of a team that includes the likes of programmers and data scientists. Training must adapt to reflect emerging technologies as it has become clear that as times change lawyers can no longer simply be trained in just law.The discussion moved on to the data used in artificial intelligence. Security and privacy issues are paramount and businesses need to consider how their own data is gathered, stored and used as well as that of any suppliers used.

Delegates discussed liability – if AI goes wrong, who is responsible? It is the role of vendors, and those who use the tool, to make sure the technology is safe, it was argued. An audit trail is key, and if you can’t see why a decision has been made, there is a flaw in the design.

An audit trail is key, and if you can’t see why a decision

has been made, there is a flaw in the design.

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G O O D D A T A P R A C T I C E

be the equivalent safeguarding in terms of IT.Cyber-training needs to be in place for all employees, covering areas such as email attachments and the types of information that should not be shared electronically. Exercise drills should also be instigated and be as authentic as possible – as when a real crisis hits, those who need to be involved may well be away from the office.Delegates looked at the security of their business’s data. There is a perception that data

is more vulnerable in the cloud than it is in a basement prone to fire or flooding. Even so, businesses that use the cloud must understand where the physical location of their data actually lies because the claims on that data can vary by jurisdiction.

Good data practiceThe General Data Protection Regulation (GDPR), set to take effect in May 2018, presents new challenges for in-house legal teams. The conference looked at what actions must be undertaken to comply.

The new regulation brings substantial change in compliance and legal tasks as well as adjustments to the general business organisation of systems and processes. The requirements are extensive, covering how data is provided to organisations, consent requirements, and the rights of individuals to have data

erased. It also increases the responsibilities of an organisation regarding what it can do with the data stored on its systems.

However, delegates heard that the requirements of the GDPR shouldn’t be seen as the sole driver for taking these measures. Good data protection practice is essential for businesses anyway. To derive value from data, businesses need to know its location, what the company can and can’t do with the data, and instil trust in those giving their information so that they will continue to do so in the future.

The new regulation brings substantial change in compliance and legal tasks as well as adjustments to the general business organisation of systems and processes.

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B U I L D I N G E F F E C T I V E T E A M S / T H E G C A N D T H E I R L A W F I R M S : N E W W A Y S O F W O R K I N G

If GCs are to fulfil all the numerous demands upon them, they must have an effective team behind them. But as more millennials are entering the workforce, the recruitment landscape is changing. Delegates discussed what it takes to attract and retain the younger generation of workers.

There is a challenge – most jobs have an element of tedium, and as millennials tend to have high expectations of immediate job satisfaction, what can be done to convince them that the effort is worth it? Engagement is crucial – if an employee can see that what

The relationship between GCs and their law firms can sometimes be seen as a ‘them’ and ‘us’ situation. On the one hand, there is cynicism from GCs over fee structures and billable hours, on the other, external lawyers feel under pressure to be constantly available for their clients.

Delegates talked of a need for a better understanding between the two. Law firms must be more innovative with their fee models, GCs meanwhile need to ensure that the lawyers

they are doing contributes to the bigger picture they are more motivated to continue. They have to see a path to progression as well as being given wider experience of the business through collaborative projects. Giving them access to senior leaders can also help.

It was stressed that we cannot generalise about any generation of the workforce. While there might be certain factors driving millennials that are indeed different, we need to treat people as individuals and talent strategies have to be personalised.

Building effective teams

The GC and their law firms: new ways of working

that work for them do not feel under undue pressure to go above and beyond what it is reasonable: lawyers should feel comfortable disclosing to clients if they only work a four-day week, for example. GCs have a responsibility to encourage good practice among their suppliers, and that includes the wellbeing of their staff.

Fee-structures are a source of contention. While the likes of capped and discounted rates are offered, firms could do more to innovate. There was a call for

the law firm to act as a project manager, bringing together different service providers for commoditised work so that they can offer better value to their clients.

Technology should allow law firms to deliver more in the way of innovation but it was noted that firms cannot innovate into a vacuum and need to work closely with their clients to find out what is valued.

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M A N A G I N G R I S K A N D R E P U T A T I O N

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A great number of businesses have seen how quickly their reputation can be destroyed by a story on social media. Some malicious, others just ill-informed, technology allows such stories to proliferate around the world in minutes. The conference looked at the role of the GC in managing risk and reputation.

It was noted that risk is also an opportunity and not just a problem. The GC needs to provide a balancing hand so that companies feel confident in taking the risks they need to grow, while ensuring that the business doesn’t stray into dangerous territory. They must also ensure that risk is embedded in the day-to-day running of a business and that all colleagues are thinking about risk such as the reputational damage to a business that a careless Tweet can cause.

The GC needs to be the calm head in the storm and has to be on the front foot when a crisis does hit. It is the manner in which a company responds to an emergency that is vital. It is possible to turn a negative situation into a positive by being open, transparent and customer-focused. Good internal relationships between departments such as the legal team and public relations are essential to help manage the

aftermath. Businesses must also continually show that they are a force for good so that when something damaging does occur, people can trust the response.

The problem of ‘fake news’ was discussed in detail, and delegates looked at how organisations are taking a proactive role in monitoring stories about their businesses. But it is difficult, particularly if a story takes root in a closed forum. Compounding the problem is that social media influencers have a big following, are trusted, but don’t necessarily fact-check what they are saying. Businesses need to reach out personally

to these people. Trusted media organisations are playing a role in countering fake news in the online world, but the financial incentives for doing so are limited.

Managing risk and reputation

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B U I L D I N G T R U S T / T H E R O A D A H E A D

For a GC to be effective in their role, they must be able to build trust with the chief executive officer and the board. Openness, transparency and good judgment are prerequisites. The GC must be able to assess problems holistically, offering solutions and not simply present the legal issues. A GC with business acumen as well as legal expertise will be invaluable to the chief executive officer.

Gaining the trust of the legal team is also crucial for the GC to work effectively. It was put

There are many challenges ahead for the GC as their role evolves. They are not simply the gatekeeper of a business, whose remit is ‘keeping the CEO out of jail’, but strategic advisors who can offer invaluable insight into how businesses can grow, not only legally but ethically.

Strong relationships are vital, with the GC having to engender the trust of the chief executive officer and the rest of the senior leadership team, as well as working closely with all areas of the business. Calm under pressure, the GC is also

the voice of reason when crisis hits. Legal skills are a given, but today’s GC will also be diplomat, innovator and leader.

forward that there is still a lack of sharing between the GC and their team but the more trust you have in the team the more they will have in you, and they respect the privilege. The way the GC acts sets the tone of the group. The psychology of effective teams was discussed: the mood state of a leader impacts how they interact with junior colleagues. When stressed, people can lose their compassion for others but an empathetic leader will get the best out of people.

Building trust

The road ahead

Gaining the trust of the legal team is also crucial for the GC to work effectively.

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