Doing the right thing

As suggested here, ethics – along with compliance – seems to be the hottest topic of all for LatAm GCs at the moment.

And also as suggested before, a GC based in one of the region’s legal hubs may be covering other regional jurisdictions, some with legal systems which may require different approaches to business and risk. These differences can be quite significant. To take just one indicator, the ranking of Latin American nations in Transparency International’s 2019 Corruption Perceptions Index ranges from Uruguay at #21 (which is two places ahead of the US) to Venezuela at #173. So GCs who want to ‘do the right thing’ may have to establish different ways of achieving that goal, according to where they are doing business.

Furthermore, LatAm GCs have more than local regulations to worry about. For example, their businesses can be hit by the extra-jurisdictional effect of many US enforcement actions. A significant number of Foreign Corrupt Practices Act cases have involved Latin American businesses, with the most high profile recent instance probably the USD 1.78bn that Petrobras paid to resolve an FCPA case in 2018. And a GC who is in a US-headquartered company, as a significant number of those in our survey are, will be concerned not only about any local ramifications of questionable behaviour but also about how that behaviour will be perceived in the US and how it may be dealt with under US law. Similar concerns may apply elsewhere – for example, a GC whose company has UK connections will be mindful of the Bribery Act 2010.

Such dangers mean that – leaving aside ethical questions, and even questions of reputation – GCs should always be able to get the attention of central management in areas of compliance and risk.

Compliance gets you in the room

The past decade has seen an unprecedented change in the environment in which GCs operate, for three interconnected reasons.

The most significant is probably the type of regulation and enforcement described above. There has been an increase in such regulation and, at the same time, a strengthening of the civil and (increasingly) criminal sanctions for rule breakers. In some cases, the liability is personal. This has boosted the standing of many GCs. As one told us: “Compliance is boring, but it certainly gets you in the room.”

There has been a simultaneous growth in reputational challenges, some of which derive from regulatory problems. Most such challenges are not new (though some are, such as those that derive from cyber attacks), but they can be greatly amplified and can also be driven by – and in turn can drive – the third factor, which is… Social media. For a GC caught unawares, a ‘twitterstorm’ can come from nowhere, or a negative video can suddenly go viral, plunging a company into frantic damage limitation. Not only do companies need a tested rapid response plan, they also want to be able to show clearly that they are in fact, on some level, the ‘good guys’. So for an international GC in the twenty-first century, looking to protect their company and shape its assessment of – and reaction to – commercial risk, compliance has to be about ethics and values, not just about following rules. Of course, following rules is what lawyers are meant to be good at. But there is also a long and honourable tradition of counsel as counsellor, bringing wisdom to the table rather than a narrow literalism or, in some cases, a focus on ‘gaming’ the system.

This is not the place to consider the problems that particular jurisdictions or sectors may pose, and individual GCs will already be well aware of the difficulties they face themselves, whether directly or through the management of local teams or law firms. What we would like to discuss instead is the impact that this can have on the wider role and personal progress of a GC.

As we have already suggested, GCs always have to ask themselves not merely whether behaviour is permitted but whether it’s appropriate. They may also face the challenge of persuading some people in their organisation that this is the right question to ask, and that a broad view of outcomes is vital for ‘futureproofing’ the business. This may be particularly difficult if business is being done in a context where bad behaviour is perceived as normal or acceptable, or if the company is one whose GC lacks influence.

Nevertheless, the status and background of GCs should give them the standing to ask such difficult questions, despite the real world pressure that there may be on a GC to leave questions unasked – particularly where the answers to those questions could have personal (and criminal) as well as corporate consequences. GCs should play a crucial role in the formulation and adoption of appropriate corporate values. However, GCs should not oversell their identity as the conscience of the company. If ethics are exclusively a ‘GC thing’, then people who want to ignore or avoid corporate values have an easy excuse to do so. A GC is unlikely to be effective if they’re seen as a distant ethical arbiter, particularly where that distance is geographical or cultural. Rather, the GC has to deliver a functioning set of values, and make sure that both the values and their functioning are robust, wherever the company does business. For some jurisdictions, that means working hard to ensure that both important ideas and cultural nuances don’t get ‘lost in translation’.

In some cases, it may be true that pointing to potential legal traps will carry more weight than appealing to ‘corporate values’. Although such values are increasingly seen as important for modern companies, it is often the case that a set of values devised in head office does not subsequently flow evenly and consistently through every part of a company. Where companies have operations in countries with widely different cultures, the problem is compounded and ‘local values’ may predominate.

To be effective, values need to be introduced at the top of a company and spread downwards quickly and thoroughly. The GC has to ensure that their dissemination and take-up through the company is as smooth and comprehensive as possible. That may require the GC to be an influencer, an advocate or a counsellor. It may also require the GC to remove obstacles from the path of those values. And in a large company, where the GC is one person among many thousands, they will need to look not only to local management but to the senior people in their local legal teams to be persuasive and influential advocates for ethical business. The GC has to transform their personal integrity and influence into a system that will keep a company on the right track.

While this will undoubtedly be hard for some GCs, it is a massive opportunity for them. Law firms and other external providers can do many of the things a GC can do, if a company buys their services, but this is one area in which progress is nearly always best driven internally.

And it is a role for which the GC is uniquely fitted. There has always been scepticism in some quarters about the GC as ‘trusted advisor’ in commercial situations. But when what’s at question is trust itself, then the GC should always be the most credible person in the business.

Some GCs will embrace this prospect eagerly; others may find it challenging. But even some of the latter may find that, if they try to exert influence in this area, they are pushing at an open door. Many CEOs have woken up to the importance of values and the dangers of running an ‘ethics-lite’ business. GCs who are equally clear-sighted will see that this creates a space and an opportunity for them, and will move decisively to fill it, expanding the reach and strength of their influence as they do so

Key contacts

Contact
Felipe Arze Abogado Corporativo
Luis Felipe Arze, LL.M
Partner
T +56 22 4852 073
Jonathan Warne
Jonathan Warne
Partner
T +44 20 7524 6130

Sustainability

 

Like their counterparts elsewhere, Latin American GCs are increasingly aware of – and, in a growing number of instances, affected by – the global trend for businesses to change their working practices in response to concerns about environmental impact and sustainability.

At the moment, relatively few GCs have key roles in the sustainability operations of their businesses. But there are clear signs that there is a trend for them to be more involved. Indeed, there is a lot of potential overlap between the two functions, in areas such as compliance, standards, codes of conduct and arrangements with suppliers to create what is in every sense a sustainable supply chain.

And while there is clearly a connection between environmental and sustainability issues and a business’s broader ethical outlook, the concept of corporate sustainability -particularly after the Coronavirus- also extends to a business’s impact on society, where the connection with a GC’s brief on ethics and compliance is well established. For some authorities, it even extends to the idea of a business that can sustain itself - something with which a GC should certainly be involved.

So: environmental sustainability, a sustainable social impact, and the organisation as an entity that can sustain itself. What can the GC do to promote these three objectives? Fortunately, GCs who want to do that are increasingly pushing at an open door. ESG (environmental, social and governance) issues are the topic of the moment for a variety of legislators, regulators and investors – as well as for many employees and, not least because of climate change, for the wider public. Many businesses have never been more receptive to the notion that change may be desirable in these areas.

GCs don’t need a special set of skills to lead or promote this agenda. The attributes that we’ve dealt with throughout this report will all help the GC who wants to do that. However, that GC will also have to win permission – and, importantly, time – if they’re going to succeed. The real question for a GC may not be what they can do in this area, but rather whether they are able and willing to make it a real priority. Do you believe it will become a key responsibility for GCs in the 2020s, as compliance did for many GCs in the 2010s? And, if so, do you want to be ahead of the curve?