In-house counsel failing independence test on risk management

By Des Cahill

13 May 2015 at 12:27 BST

A new report suggests many corporate counsel struggle to navigate conflicts between their ethical obligations and company expectations.

Suwatchai Pluemruetai

The Legal Risk: Definition, Management and Ethics study, undertaken by University College London’s Centre for Ethics and Law, suggests many in-house counsel do not have the structural support or processes in place to deal effectively with ethical conflicts. Professor Richard Moorhead and Dr Steven Vaughan, the report’s co-authors, from University College London and Birmingham University respectively, conducted interviews with 34 senior in-house lawyers and senior compliance staff at large corporates to discuss legal risks and efforts to manage them.


The report found the very nature of an in-house role often leads to tension between the lawyers job of identifying and managing legal risks and the corporation’s commercial interests. 'Risk assessment requires professional objectivity for such assessment to be useful and accurate, yet the culture of ‘being commercial’ and the framing influences of a professional culture that emphasises putting the client first strains that objectivity,' the report states. 'The professional obligation of independence is also sometimes called into question.'


The authors suggested risk management processes were often "ad hoc", based on intuition rather than a systematic process and varying from case-to-case. Structural issues were also identified as a potential issue, with lawyers reporting being punished for challenging the corporate hierarchy or rewarded for toeing the line. 'More generally a corporate discipline was at work that protected the discretion of senior decision-makers and disciplined lawyers towards corporate norms. That discipline reminded lawyers that they were there to support the business; that they advise and do not decide." It added that in general, ' in-house lawyers and the businesses they work within have an allergy to the word ‘no’ being exercised by anyone other than the ultimate decision-maker.'  


Ultimately, the authors warned legal risk management may be compromised if lawyers could not act independently. 'Discomfort and concerns about independence effectively meant that, on occasion, our in-house lawyers felt their companies were taking unreasonable positions on legal risk or, perhaps, untenable positions on the legality of their action.' LBC Wise Counsel chief executive, Paul Gilbert, who was involved with the project, concluded: 'We need a conversation of a generation because we have not had this conversation ever.'


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