For us lawyers who practice in-house, we’ve witnessed through the years a huge change in the field of corporate governance — the system by which a company is managed and controlled.
Scandalous corporate failures have triggered a global interest in changing the traditional and failed agency model of corporate governance. It is now clear that managers owe a duty to more than just the shareholders. Managers are now understood to have a fiduciary relationship with all stakeholders including customers, employees, suppliers, investors, lenders, governments, and the citizens of the wider community.
We now accept that a corporation exists in a complex and multi-layered environment where its actions (and omissions) may help or harm a wide variety of players (stakeholders).
This philosophical shift moved compliance and ethics from “nice to have” to an unquestionable and necessary part of corporate governance. And this transformation in turn has brought new practices, policies, laws, codes, treaties and standards to companies, industries, nations, and beyond.
And yet I have read and heard lately that the compliance and legal functions should work independently. Among the reasons, one particularly caught my attention: While lawyers tell you whether you can do something, compliance tells you whether you should.
There is no doubt that the specific nature of the compliance function requires enough staffing, resources, a direct reporting line to the board, and even a voice in the C-suite, to secure independence and avoid potential filtering from powerful forces within the organization.
But justifying all this with the reasoning that in-house lawyers focus only on the legality of a particular issue or situation and not the ethics of the decision is in my view untrue and distorting.
That idea assumes the in-house role is never an “ethics thing.” In my opinion, this faulty premise mistakenly divides the ethical values that should be lived in every part of every organization, including in its law department.
Let me put it another way: It’s not the chief compliance officer’s job to guarantee the existence of an ethical organization. Instead, the compliance function is responsible for implementing and continually monitoring and adjusting the compliance program.
But living ethical values and doing the right things are a duty for everyone in an organization, including in-house lawyers.
This note contains a personal opinion and does not necessarily represent that of my employer. In writing this opinion I am not representing nor acting on behalf of my employer.
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Lucio M. Fabani Larrañaga is Senior Legal Director at Oracle Corporation based in Buenos Aires, Argentina.
1 Comment
Great post. It reminds me that over 30 years ago new lawyers were told by the General Counsel that they worked as the eyes and ears of the board. Over time the pendulum swung the other way and they were told to restrict their interference with sales by saying "How and not No." Now with the arrival of compliance 2.0, companies have acknowledged they need this new infrastructure to manage compliance risk and to maintain business integrity. I agree that especially lawyers, but all employees, are never free from the obligation to think through conflicts of interest and ethical problems and to speak up. A new and better collaboration between compliance and in-house lawyers is the order of the day in Compliance 2.0. These issues are explored by lawyers and COs at the annual conference of the SCCA and HCCA. I hope companies will sponsor their in-house lawyers for membership and active participation.
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