From geopolitical tensions and Covid's long shadow to ESG, general counsel discuss how their approach to corporate risk keeps up with turbulent times

CRISIS? WHAT PERMACRISIS? — HOW GCs HANDLE RISK WHEN UPHEAVAL NEVER ENDS

"The world has changed more in the last three years than the previous ten," notes Matt Wilson, general counsel (GC) of media production company Fremantle. "Whether Covid, rising cost of living, Brexit, the war on Ukraine or simply evolving technology, culture and social norms — we've seen huge changes in this time." It is hard to disagree. The UK's relationship with the European Union only now looks to be resetting after Prime Minister Rishi Sunak's revised Northern Ireland Protocol with the bloc was signed off on 24 March; companies and households continue to face surging inflation and interest rates; Covid-19's impact on the global economy is still being felt; and the conflict in Ukraine wages on with no sign of resolution in only the most visible illustration of a fractious global environment. Meanwhile, the climate crisis worsens, ESG concerns grow, and technology proves increasingly disruptive. The risks facing business have become pervasive, protean and unpredictable. Indeed, upheaval overlapped with such frequency over the last three years as to popularise the term "permacrisis", with forces like Covid, Brexit and Ukraine interacting with unpredictable results. If the centuries-worn cliché is that business excels amid stability, pity the 21st century capitalists. The result may be fascinating for social historians and economists but for chief legal officers charged with quantifying and managing legal risk, turning chaos into corporate governance is only getting harder, particularly at a time when legal teams are expected to extend their risk management briefs at many companies. For GCs, however, this is a familiar balancing act. "The purely legal GC is a thing of the past," says Coca-Cola European Partners GC Clare Wardle. "People now expect GCs to be in charge of a broader portfolio of compliance, risk and crisis management." With risks and expectations rising, we spoke to a group of senior GCs to assess the business threats of today, the dangers of tomorrow and explore how in-house teams' handling of risk moves with the times.

From geopolitical tensions and Covid's long shadow to ESG, general counsel discuss how their approach to corporate risk keeps up with turbulent times

New dangers, long shadows

Covid-19 did more than jolt the global economy, disrupt the routine of billions and inflict severe human cost — it warped our sense of time. Lockdowns, lateral-flow tests and baking banana bread feels both like only yesterday and a dream from the distant past. But the legacy of the pandemic and the risks it brought for business have continued to reverberate via strained public finances, shuddering supply chains and fitful labour markets, not to mention a period marked by pronounced regional and national tensions. "The pandemic was hugely impactful as production stopped for two months and the business couldn't build anything or make money," says Clare Bates, GC for property developer Vistry Group. "There's been global supply chain strain in the system with labour, pricing and availability. Then there was the Ukraine war, which sent energy prices soaring. The problem for us was many of the products used in the construction process are energy intensive." Wardle echoes the sentiment: "There's been a transition from Covid-related risk to geopolitical and economic uncertainty risk. Obviously, a lot of that comes out of the Ukraine war and commodity shortages, increases in commodity prices, increasing interest rates, and a generally tougher economic environment which is impacting consumers and their take-home pay." In-house teams are also aware geopolitical risk spreads far beyond Europe, such as tensions between the US and China.

Mark Gregory, Rolls-Royce group GC and corporate affairs director, stresses the point: "Pace of change in the outside world is accelerating faster than ever. In-house teams are having to get much better at anticipating what’s coming next. To do that they need to lift their heads from the inbox.” Back in the UK, the aftershocks of Brexit and Covid have contributed to a fraught and erratic period of policymaking, a key concern for businesses that prize predictable trade and regulatory environments. After the resignation last summer of Boris Johnson following a series of controversies, Liz Truss endured a turbulent 45 days in office which ended in the ignominy of becoming the UK's shortest-serving Prime Minister, after a series of unfunded tax cuts triggered turmoil in financial markets. Rishi Sunak followed, becoming the third Conservative Prime Minister in less than two months and the fifth in six years. From the UK's sustained standoff with Europe over the terms of its EU exit and ongoing trade terms to the continued churn in Downing Street, business has had little opportunity to familiarise itself with an incumbent government and consistent policy agenda. This has impacted Vistry Group, with the property developer finding it difficult to establish a meaningful line of communication with government — a problem made more pressing by the ongoing implementation of the Building Safety Act 2022. The legislation aims to deliver far-reaching protections for qualifying leaseholders from the costs associated with addressing historical building safety defects; enhance the rights and powers of residents and homeowners; and creates three new watchdogs to regulate the new regime. Moving forward, planning will be required. Though many observers see a return to more conventional politics with the looming contest between a Sunak-led administration against the opposition Labour Party led by the centrist Kier Starmer, deglobalisation and increasingly tactical use of trade by nations has remained a consistent theme. Even historical allies can come up against each other, as seen in tensions between the EU and US over the Inflation Reduction Act, which includes multi-billion-dollar subsidies to draw investment to tackle climate change to the US. This could prove temporary but geopolitical competition and a prioritising of resilience over efficiency will make it disruptive and costly, nonetheless.

ESG — A new risk frontier

If the last three years have heralded a series of unexpected upheavals, the long-term march of ESG policies presents a more predictable challenge that is set to take up an increasingly central focus for in-house teams, with huge implications for corporate risk and reputations. "There has been a marked change," says Nestlé UK and Ireland GC Mark Maurice-Jones. "The whole ESG topic has grown in importance. There's lot of dimensions to ESG risk. There are numerous reporting regimes we have to get our heads around. The public and investors want to know how we're doing against promises we've made, so those reporting regimes are becoming increasingly rigorous, and we've got to understand them." Nestlé has responded on several fronts. Firstly, the food and beverage company has created a Force for Good Committee, a sub-committee of the main leadership team charged with incorporating ESG concerns into the company's broader strategy. Moreover, a Sustainable Claims Committee has also been formed with the remit of ensuring the business communicates its green credentials accurately. "It's a cross-functional committee which includes legal and scrutinises all the claims we're looking to make so our communication isn't seen as greenwashing, which is a real risk," says Maurice-Jones. But, of course, increasing expectations and obligations to report ESG policies creates its own risks. And greater awareness of greenwashing — marketing misleading information about the environmental benefits of a product — has instilled caution in how businesses communicate their green credentials. Wardle observes: "One thing I'm noticing is greenhushing, with people not saying what they're doing for fear of being told they're greenwashing. There's a perception that if you say anything, people will criticise you and it's better to say nothing. That's unfortunate because a lot of companies are trying to do the right thing, and talking about it would both help and encourage others."

The reputational risks themselves vary. At specialist healthcare services provider Acacium, GC Daniel Toner has helped develop a playbook for brands under fire. “UK healthcare is always high-profile, particularly when it comes to the private sector, so we are used to high levels of scrutiny from politicians, journalists and regulators. This is generally positive, and helps our sector to drive up standards, prove our quality and explain the benefit we bring to society. However, we continue to see some really scurrilous (and unlawful) behaviour from some sections of the media, and we won’t hesitate to take robust legal action to protect our patients and their privacy when required." To protect reputations, many GCs recommend close alignment between legal and communications teams, a balance that requires marrying the contrasting strictures of legal professionals with the more intuitive approach of comms advisers. But no matter how considered, there's always a risk that corporate narratives will go awry. Wilson outlines the approach: "It's making sure when we're taking the big decisions we are thinking about how it will play out reputationally, we're thinking about social media and making sure there's a plan in place. It's making sure the messaging is right and ensuring there's a plan if those messages don't land in the way you intend."

Silver linings playbooks

Given the scale of upheaval business has faced in the last three years, there has been little time for horizon scanning. But after years of disruption and crisis, most legal chiefs are asking themselves the same question: what's next? Unfortunately, aside from sudden shocks, longer-term concerns remain, among them the future attractiveness of the UK for investment and London as a global finance hub. One such trend is the flight of companies from London's stock markets, as more companies opt for US listings. Earlier this year, the world's largest building materials company CRH decided to exit from London, while other companies, such as gambling group Flutter, are mulling secondary US listings. "Will the London market remain competitive?" asks Wardle. "There's a concern the UK could lose ground to other markets if the situation doesn’t change."

Coca-Cola European Partners GC Clare Wardle

The purely legal GC is a thing of the past. People now expect GCs to be in charge of a broader portfolio of compliance, risk and crisis management.

Coca-Cola European Partners GC Clare Wardle

There are plans to reinvigorate London. The UK Government's so-called Edinburgh Reforms are aiming to drive through divergence from EU rules to increase competitiveness. Moreover, to boost London’s equity markets, the government will revamp company prospectuses, reconsider short selling rules and review the regime governing investment research. The proposals mark a major pivot in British financial services, but fears persist that it will not be enough, particularly with Switzerland and Amsterdam emerging as regional competitors. And, of course, for the reforms to be realised the UK will need policy continuity. With a general election looming, and the outcome far from certain, much remains unclear. As Bates puts it, "it's the element you can't control". Elsewhere, new technologies are also recasting the business landscape. The emergence of generative AI — a form of machine learning that can create content such as text, images and audio — has ignited a debate over the role and ethics of such potent platforms. A recent example is Microsoft-backed OpenAI, whose ChatGPT model sent waves through the technology community, but limitations and risks remain. "There seems to be a generative AI arms race by the tech companies," notes Wilson. "That is both a risk and an opportunity. It will play out over months and years even though everyone is currently excited about it. The implications of that for ownership in the creative industries is fascinating so we are currently thinking about our policy towards using the output of ChatGPT and similar tools in our shows — what does it do to the IP position? That's something we are certainly engaged on." Meanwhile, The Solicitors Regulation Authority (SRA) has recently shone a light on corporate legal teams with its In-House Solicitors Thematic Review. Noting the leadership roles GCs occupy within organisations, the SRA warned some in-house teams may not be capable of carrying out conflicting duties alongside ethical and regulatory risks. In particular, the report cites examples of legal teams facing challenges to their independence, especially where commercial interests of the organisation are not in alignment with regulatory obligations. But GCs will face such threats with confidence gained through adversity. Indeed, crises have typically helped in-house teams gain internal clout at the expense of commercial colleagues that make hay during boom times. The feeling among legal chiefs is they're ready — they've learned the lessons.

Keep your head — GC lessons in winning friends and cooling down crisis

Mark Gregory, group general counsel and corporate affairs director, Rolls-Royce: Crisis management is different to risk management — it's knowing what to do when a risk has materialised into an issue. Of course that's really important and part of risk management is knowing what to do in a crisis — lots of us are great at firefighting. But risk management is about anticipating issues rather than just reacting to them. Being clear about that in the organisation has really helped to drive risk management effectiveness.

Matt Wilson, general counsel, Fremantle: Look for allies in any business. We don't have legal problems or tax problems — we have Fremantle problems. You will always do better if you're able to take a shared-ownership approach to the issues. That means feeding into the strategy teams, the finance teams and the commercial people involved in the solutions irrespective of if the main focus is a change in the law. It's about diversity of thought: the more brain power you can bring, the better result you end up with.

Jeremy Barton, UK general counsel, KPMG: As a general counsel, you and your team have to appreciate the overarching regulatory relationship at any point in time during your handling of a regulatory enforcement or investigations matter. You have to think about the wider context and relationship. To be successful in handling a regulatory situation, you need to be particularly sensitive to both the influence from, and the impact on, the overall relationship."

Dan Toner, general counsel, Acacium: Know what you don't know and know when to call in expertise. Have the confidence to lead as a general counsel — your place is in the room when it comes to risk. Beware groupthink. You don't want to be so close to a subject that you can't see it. Lack of diverse thinking is a problem. Sometimes you need to take a step back and go: "Hang on, we all think this is low-risk, but is it?" Remember, you are the third leg of the tripod alongside your CEO and CFO and you're in the room with them.

Mark Maurice-Jones, UK and Ireland general counsel, Nestlé: When it comes to ESG, don't wait until you're an expert, because you'll never do anything. Roll up your sleeves and get involved. General lawyer skills matter. Dare to disagree and be ready to challenge everything. Encourage a culture of inclusion where people speak up and are open. Be ready to give and receive feedback. Don't get defensive. I work closely with my law firms to make sure we understand the laws coming down the road. Today's trends are tomorrow's laws, so stay close to the trends. Often, by the time something is before Parliament, it's too late to do much about it.

Mark Gregory, Rolls-Royce group GC and corporate affairs director

In-house teams are having to get much better at anticipating what’s coming next. To do that they need to lift their heads from the inbox.

KPMG legal chief Jeremy Barton

Nobody in a company is necessarily an expert in geopolitical risk but it's important that a company taps into good thinking. We are fortunate as we have our own experts we draw on at board level.

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