Law firms reshape ethics policies
UK businesses are reshaping corporate ethics in the wake of the Trump administration’s criticism of diversity and sustainability initiatives and are ditching or scaling back ethical policies and practices.
That is the view of research from the law firm Freeths, which acted for 555 sub-postmasters in the High Court case exposing the Post Office Horizon scandal. Its report suggests that 54 per cent of larger companies have changed the way they approach those policies, with 28 per cent making wholesale changes or abandoning them altogether.
The survey of 250 general counsels and chief legal officers across UK corporations also found that businesses were in danger of putting profit ahead of ethics, with 83 per cent saying that “doing the right thing” comes secondary to profit in business decision-making. Although 83 per cent said ethics in business decision-making was more important than ever, only 35 per cent were of the view that UK organisations act to address ethical issues before they arise.
More positively, 90 per cent said their ethical guidance is likely to be listened to by company leaders, and 85 per cent reported that their organisations had turned down business opportunities on ethical grounds. But 21 per cent said they were only moderately — or less — comfortable speaking up about ethical best practice.
Commenting on the findings, Philippa Dempster, a senior partner at Freeths, says that “a drive for profit can significantly impact or impede ethical decision-making”. She suggests that the research exposes the “troubling reality” that “while businesses express commitment to doing the right thing, there’s still a significant gap between principle and practice”.
Even in the light of the Post Office scandal, Dempster says that “we’re seeing some UK businesses abandon valuable ethical and moral initiatives in response to outside influence”.
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Richard Moorhead, a law and professional ethics professor at the University of Exeter, said that it was “a sign of progress that this kind of report is being produced and discussed in law firms and for boardrooms”. He added that a “crucial issue is what happens when ethical qualms become more fundamental legality and honesty problems”, at which point “ethics is not a vague idea or a ‘nice to have’, it is a professional essential”. But Moorhead accepts that “the perils and price of speaking up in such circumstances can be enormous”.
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Corporate scandals, such as the prosecutions by the Post Office of hundreds of innocent sub-postmasters that were based on evidence from accounting software that the company knew was faulty, have put the role of in-house lawyers under intense public and regulatory scrutiny. Once viewed as a back-office function, ignored by companies until problems arose, the role has evolved to become embedded in the business and often with a place on the board. Over the past 20 years their numbers have tripled and there are now more than 34,500 in-house solicitors working in about 6,000 organisations across England and Wales in a wide range of industries and public bodies.
A common phrase adopted by in-house lawyers when discussing ethical challenges, says Joss Saunders, a member of the Law Society’s in-house network, who for three decades has been general counsel at the charity Oxfam, is “lawful but awful”. While an activity may be legal, Saunders suggests that in-house lawyers should consider whether it is something that they are prepared to facilitate, cautioning them against an approach that does not take into account the way that international law and regulation is evolving.
He highlights the UN’s principles on business and human rights, which provide standards governing the operation of multinational companies to protect workers, local communities and the environment from the adverse impacts linked to business activities. “While the principles are not the law, if companies don’t comply with their responsibilities under them, which are informed by the law, they may well end up facing reputational challenges and even litigation,” Saunders says.
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Dempster notes that in-house lawyers are regulated by the Solicitors Regulation Authority just like private practice solicitors, and that they must comply with regulatory duties and standards even if these bring them into conflict with their employer. This includes acting with integrity and in a way that upholds the rule of law, the proper administration of justice, and the public’s trust and confidence.
In-house lawyers must pull off a tricky act balancing commercial imperatives with ethical obligations — being a business’s trusted adviser who champions integrity without being perceived as a blocker of growth, Dempster says, adding that with their closer proximity to the organisations in which they work comes an increased pressure.
In-house lawyers, she suggests, should be the “moral compass” of the business to ensure it is doing the right thing, which, she adds, is also “commercially smart” and avoids the risk of reputational damage, loss of talent and ultimately, loss of market share.
However, Saunders insists that the responsibility to ensure ethical standards is not lawyers’ alone, but the role of the wider business and rests ultimately with the board. Where there is a conflict between the in-house lawyer’s duty to the company and their professional obligations, Saunders suggests that balancing the two may not always be possible, and the lawyer may have to leave and even blow the whistle on the company.
The Law Society and Solicitors Regulation Authority have produced copious guidance and training materials to support in-house lawyers. And last week the society published an updated version of its ethical practice framework for in-house solicitors, which included draft whistleblowing guidance.
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