Australian Corporate Lawyer - Autumn 2017

theAustraliancorporatelawyer
THE ONE WORD IN-HOUSE LAWYERS
SHOULD NEVER USE
Jason Ryan
Boasting extensive international business
experience across both in-house and private
practice throughout Europe, Asia and the United
States, Jason is a passionate lawyer with a
focus on ultimate client service. Now Managing
Counsel with Lexvoco, Jason is also passionate
about helping other lawyers to become better,
more valuable, excited and helpful to their clients.
Jason was a panelist at ACC Australia’s
Victorian Corporate Counsel Day 2017.
There is one thing that nearly all
companies do that they should not.
They require their in-house lawyers to
approve decisions. Legal teams should not
be asked to approve anything. This may seem
counter-intuitive but there are good reasons
for it.
Many companies implement policies that
require the business operators to obtain
the “sign-off” or “approval” or “tick” from the
Legal team. However, requiring the lawyers
to approve matters is dangerous especially
if the organisational strategy is to be highly
competitive in the market; a desire that
is core to most companies. There are two
fundamental flaws with requiring legal to
approve a decision.
1. Not all lawyers are great strategists
When the lawyers are required to approve
a certain course of action the company is
putting the legal team in charge of strategic
direction. That is, the lawyers are deciding
whether the company will take a particular risk.
Most lawyers do not have business degrees,
do not have MBAs and do not have any formal
training in strategy so why then do companies
inadvertently ask their lawyers to be in charge
of strategy? The reason is comfort. It feels safe
from a governance perspective to ensure that
legal have approved all decisions. It feels like
a safe control and it is simple. Boards tend to
gain reassurance from these guardrails and in
their minds it will stop the “cowboy” behaviour.
However, this approach carries the risk that
significant opportunities will be missed that
would otherwise have been safely taken. It
breeds conservativism at the cost
of opportunity.
2. Competing interests
ruin collaboration
Legal approval creates tension between
the legal team and other departments
because, despite being colleagues, both
sides are arguing over a course of action with
very different incentives. The commercial
team is incentivised to be bold, to be
brave and to venture into the unknown.
Bonuses and targets incentivise them to
take risks. Conversely, the legal team are
rarely incentivised in that way. Lawyers are
encouraged to be independent and as a
result they often default to conservatism. In
this scenario, the lawyer has no upside to do
anything else but say, “No”.
Therefore, to summarise, the vast majority of
companies place lawyers in charge of strategy
without appropriate qualifications and with
an incentive to be highly conservative. While
these interests remain juxtaposed, these two
teams will always struggle to collaborate.
It is not the perfect recipe to drive a highly
competitive business.
A Brave New World
– remove the word “Approved”
An alternative model is to release the lawyers
from the shackles. Stop forcing them to be
conservative. Give them the freedom to be
helpful business partners and not force them
into being the ‘police’, the ‘gatekeeper’, the ‘wet
blanket’, the ‘mood hover’, the ‘handbrake’ and
all the other names thrown at them because
of competing interests.
There is a way to create perfect relationships
and allow the company to safely take bold risks
with one very simple change; to insist that the
lawyers only give advice and that the approval
is taken by the business, not the legal team.
In this model, the word “approved” or “sign
off” is avoided by the legal team. The lawyers
provide their advice in colour; green, amber or
red. The business then decide whether they
wish to take the risk. If the advice is Amber or
Red the business need to obtain the approval
from the commercial person that the legal
team designates (or set by delegated authority
limits). This is a very simple concept but it is
a fundamental change from the traditional
decision-making process mentioned above. It
was invented by the author and is known as
“Sophisticated Risk Taking”.
There are some fears that may come to mind
but these are unfounded:
1. Myth No.1: “People will try to circumvent
policies” False. We find that people
generally do not wish to break policies
they normally do so as a result of being
frustrated. This system removes frustration.
2. Myth No. 2 “The level of compliance will
go through the roof because the business
people will simply ignore advice and proceed
headstrong if they receive an amber or
red rating.” False. The opposite is true.
Basic psychology dictates that people
do not wish to expose their company to
unnecessary risk. In all cases, a wonderfully
productive discussion occurs where people
work collaboratively to ensure that the risk
is green or light amber before proceeding.
16 VOLUME 27, ISSUE 1 – AUTUMN 2017