Navigating increased regulation and managing interactions with the regulators charged with enforcing them is the most significant challenge facing general counsel today, according to new research.
In its “Restoring Corporate Trust” report, which was put together off the back of more than 25 “detailed interviews” with more than 25 general counsel of ASX 100 companies, not-for-profit organisations and private companies, KPMG found that GCs perceive regulatory hurdles, and those who enforce them, as presenting the greatest challenge moving forward.
The Hayne royal commission “directed a bright light” on not only how companies behave but also how they respond to regulatory scrutiny, KPMG wrote.
“While the Hayne royal commission sharpened the focus on conduct and regulation, it has been an increasing focus of GCs for many years, both in Australia and abroad,” KPMG said.
Further, a general increase in volume and complexity of regulation was identified in the report as the greatest risk to their companies in the next five years, with competition, consumer protection and anti-bribery and corruption identified as the three principal areas of regulatory risk.
“There was a broad consensus that that the GC was in the best position to lead this assessment of potential impact of regulatory change,” KPMG said.
“The role lends itself to being able to advocate with the appropriate agency if needed to modify or stop the regulation proposed, while simultaneously bringing the facts, impact, experts and financial costs to the organisation.
“The regulatory changes and the ascendency of principles-based legislative obligations, which by their very nature are more nuanced and demanding of interpretation than the traditional rules-based frameworks, are increasingly bringing the GC to the executive table.”
Australian GCs said that, “today more than ever, they are being invited into broader conversations than they were historically”.
“While it was commonplace for in-house lawyers to provide advice on regulatory compliance, they were often not part of the broader conversation about the cultural or behavioural elements of compliance,” KPMG said.
“Discussions around ethical culture and integrity were often left to the business units with support from the people and change teams. Perhaps the invitations are arriving due to the sometimes opaque nature of principle-based regulatory obligations.”
That said, a number of GCs suggested it is because regulation is becoming more complex, KPMG added, further reaching and with increased obligations being placed on company directors.
“In this area, we again see consistency between the Australian context and the experience of our Australian GCs colleagues abroad. International GCs reported one of the greatest challenges in responding to regulators is a lack of clarity around what is expected by the regulators themselves,” it wrote.
“There was overwhelming agreement (80 per cent) that regulators need to be clearer in their expectations. This broader involvement in framing the ethical norms and ensuring the right behaviour has opened a broader conversation of whether the GC was uniquely placed to act as the moral compass of the organisation.”
In the same report, KPMG found that GCs are “almost equally divided” as to whether they should also be the company secretary.
The report also found that the “majority position” of GCs is that it is “appropriate, and in some instances necessary” for them to have broader executive roles.
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