Rise of the in-house ethics watchdog

Few in-house lawyers would say they were not in favour of sustainability. Businesses able to withstand shocks because they manage financial, social and environmental risks, as well as obligations and opportunities, are like motherhood and apple pie: it would be foolish to admit you were opposed.

In a world of populist politicians, tougher international regulation, greater demand for diversity, and investor and consumer activism, however, sustainability is more than a PR exercise. It is becoming a hard-nosed strategy for ensuring survival by managing risk, driving growth or improving returns on capital.

“This isn’t just about altruism,” says Paul Lister, director of legal services at Associated British Foods. Its subsidiaries include retail group Primark, whose supply chain in 2013 included the Rana Plaza building in Bangladesh that collapsed. “You need a sustainable supply chain or you haven’t got a sustainable business.”

According to a 2017 survey, Sustainability’s Deepening Imprint, by the consultancy McKinsey, the most common reason companies gave for addressing issues of sustainability was “alignment with the organisation’s own goals, mission, and values”.

This is what you would expect them to say. But the other reasons given were more revealing — reputation, meeting consumer expectations, boosting efficiency and responding to regulatory requirements. Such concerns reflect the demands of doing business in an era of instant social media campaigns, the #metoo movement, assertive regulators and attention focused on “dirty money” in the wake of the Panama Papers and international money laundering scandals.

You need a sustainable supply chain or you haven’t got a sustainable business

As a result, companies are increasingly “formalising” sustainability to make it a key consideration in other business decisions. This is both to head off threats ranging from supply chain risks to consumer revolts, and to save or make money through energy efficiency and technologies such as artificial intelligence (AI).

“Businesses today must move at the speed of light, but must do so while retaining consumer and other stakeholder trust in our ethics, legal compliance and world citizenship,” says Deborah Majoras, chief legal officer and corporate secretary at Procter & Gamble, the consumer goods group. “Our challenge is to carefully develop guardrails that enable that necessary speed while engendering and maintaining . . .  consumer trust.”

Perhaps because general counsel were already dealing with related matters such as compliance and risk, the evolution of in-house lawyers into ethics watchdogs has been a natural one.

Mauricio Rosillo Rojas, general counsel at Bancolombia, Colombia’s largest commercial bank, says in-house legal departments today “not only deal with traditional legal issues — contracts, antitrust, litigation, corporate law — but [also become] involved in business structure, strategy, regulation [and] dealing with the authorities.”

“Very early on, ethics looked a bit like compliance and legal, therefore it looked like my role,” says Mr Lister. “But it has grown massively.” Primark’s corporate responsibility division now comprises 120 people across the globe. “Sourcing in the developing world carries risks — you need to look for the issues and not be afraid of what you might find,” he says. “It’s a never-ending task, and it’s tough.”

In 2013 Mr Lister led Primark’s response to the Rana Plaza disaster in which more than 1,100 garment workers were killed and more than 2,300 injured. “It was a third-party run factory but we knew we were there,” he says. “So [after the disaster] we had a team on the ground, we used local [partners] to provide food aid, and we set up a compensation scheme that reached $14m in short and long-term commitments.”

Many in-house lawyers share the view that sustainability in the social and environmental sense dovetails with business rationale. The reputation of the International Finance Corporation , the global development body that supports private enterprise in developing nations, would be little use if it did not put sustainability at the heart of its work, says Ethiopis Tafara, its vice-president and general counsel for legal, compliance risk and sustainability. “There is an expectation on the part of the public that if we’re going to be allocating capital we should be paying attention to the environment and communities affected,” he says.

“For an institution like mine, which is an unregulated financial institution, not a Wall Street or City firm, our licence to operate with these privileges and immunities is dependent on operating at the highest levels of ethics.”

Likewise, for the Crown Estate, which runs the UK monarchy’s property portfolio, sustainability is relevant, because of the natural and built environment it owns and controls, but also the viability of an organisation that can trace its history back several centuries.

“We have developed a methodology that helps us to understand the impact of our activities beyond the financial — environmental, social, people, and so on,” says Rob Booth, the estate’s general counsel and company secretary.

“But the whole idea is to deliver a sustainable competitive advantage. We are benchmarked against the commercial property market. The best way to outperform them is to put sustainability principles into practice to find smart ways of being competitive.”