Having to perform multiple roles on a regular basis can be more than a little overwhelming for in-house counsel. At times, it can also blur the ethical and legal edges and impact upon important issues like privilege. Sascha Hindmarch, former General Counsel at the University of South Australia takes us behind the key-hole for a look at some of the dilemmas encountered by in-house counsel.
A corporate landscape where in-house lawyers, and GCs in particular, hold down more than one role has become a feature of the world’s corporate environment. Often an in-house lawyer will also be the Company Secretary, sometimes occupying the role jointly with a non-lawyer, or he/she may be part of the Senior Executive Group, or a Compliance Officer, or sometimes undertake non-legal tasks.
But multiple roles can mean multiple issues for in-house lawyers and consequently a delicate and complex balancing act must be struck between competing legal and ethical considerations. This is a cross-jurisdictional issue challenging the world’s in-house lawyers as recently evidenced by the remarks of Singapore’s Attorney-General at the 13th In-House Congress in Singapore (refer to last month’s report in Asian-mena Counsel’s Vol 10 Issue 7).
Straddling traditional legal with non-legal responsibility leads the in-house lawyer to assume a commercial function and thereby influence commercial decisions. Importantly, that function or decision-making role is not legal in nature. It also provides the in-house lawyer with operational or financial material relevant to their client – additional knowledge potentially creating its own burden.
Adopting a non-legal function is not on its face daunting however, assessing what that role entails and properly segregating it from the legal function comes with a caveat. Accepting non-legal responsibility without either the individual or business giving due consideration underestimates the elements of risk and potential adverse consequences.
Corporate setting: 21st century style
The 21st century corporate setting commonly witnesses in-house lawyers also assuming responsibility as Compliance and Ethics Officers, Risk Managers or on the Senior Executive. But it is the role of Company Secretary that is the most typical non-legal position given to an in-house lawyer. In Australia today, for example, the data suggests approximately 40 percent of GCs merge their duties with the Company Secretarial function. Across the Pacific, corporate America frequently combines the GC and Company Secretary roles. However, once across the Atlantic, UK businesses tend to split the roles – the differentiation, it has been said, being based on expectation, complexity, duties and skills required for both functions.
When one considers the Company Secretarial role, it is easy to understand why the responsibility is often afforded to a lawyer. Nowadays, the Company Secretary must be cognisant of proper corporate governance, procedures for board/shareholder meetings, audit, risk and regulatory compliance. Recently it was accurately described in the Canadian publication, In-House Counsel, as: “a repository of organisational history and culture, a bridge between management and independent directors, and a front-line player in responding to regulators, investors and other stakeholders.”
If in-house lawyers are to accept front line responsibility it brings into question their own personal liability, the independence of the internal legal advice and once armed with corporate knowledge, the ethical tension of what, as a lawyer, to do with that information.
 Personal Liability In 2012, Australia witnessed a potentially far-reaching High Court decision for the in-house community in Shafron v ASIC. [2012]The case underscored the potential personal liability – normally associated with company directors and officers – in-house lawyers can face. The matter arose out of Australian Stock Exchange statements and non-disclosures associated with James Hardie Industries Limited’s establishment of a Foundation to compensate asbestos victims. The facts were played out against the backdrop of the liability and penalty provisions of Australia’s Corporations Act. In that context, and importantly, it would be unusual for such liability to be covered by a lawyer’s professional indemnity insurance. It was alleged and proved that company non-executive directors and executives, including its GC and joint Company Secretary, were liable for making/approving misleading Stock Exchange announcements, as well as failing to disclose certain information. Some critical findings leading the Court to its conclusion should strongly resonate with senior in-house lawyers and these are as follows: • Guarding the company against legal risk is fundamental to a GC’s responsibilities. • The GC, as a senior company executive, participated in making decisions affecting the whole or substantial part(s) of the business and played an important part in the company’s policy decisions. Not confined to the proffering of advice, the GC was involved in, and presented at, Board meetings, retained the actuaries engaged by the company, assisted with drafting the Board papers and assisted in the implementation of the proposals. • The Secretarial and GC’s tasks and responsibilities were inseparable and were to be viewed holistically. There was no evidence to demonstrate the GC performed certain responsibilities in one capacity as opposed to another. All tasks, therefore, were performed in that dual capacity. • A Company Secretary with a legal background was expected to raise matters about misleading statements and disclosure to the Board. A reasonable person in the GC’s position would have brought to the Board’s attention matters of which he/she was aware. • Reliance on external legal advice is no means of avoiding liability. A common misunderstanding is that this decision, along with others like it, only impacts on in-house lawyers at GC level. While those at senior level carry more risk, the reasoning underpinning this decision places all in-house lawyers (senior and junior) on notice as to the care they need to take and focus they need to bring to their role, especially if more than one hat is worn. Businesses will shape in-house legal, Company Secretary and Compliance Officer functions differently. As such, in-house lawyers and the individuals occupying those roles need to fully understand the scope of their duties and ensure this accords with job descriptions. Job descriptions need to match the function performed. If both company and individual do not understand the nature and remit of these responsibilities there is the potential to expose both the business and the individual. The decision also reinforces that Directors & Officers’ insurance policies need to cover all relevant personnel. Again, this potentially includes not only GCs but also other in-house lawyers. If lawyers are moving away from their traditional role they need the appropriate cover, as, in all likelihood, professional indemnity policies will not respond to claims associated with non-legal tasks. That being the case, it may be that in-house lawyers need to consider entering into Deeds of Indemnity with their employers to indemnify them against personal liability and associated legal costs. Also, policies tailored to the unique role of the in-house lawyer are available and are worth seriously considering. The bar is constantly being set higher for in-house lawyers, even more so for those occupying dual roles. In-house lawyers must be mindful that there is a positive obligation to bring all matters that relate to their role, expertise and knowledge to the Board’s attention irrespective of how that information finds them. Indeed, a functional relationship should exist between the Board and its in-house legal team. Privilege Ethical dilemma A final reflection |
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