Company lawyers under pressure on politicised business activities
Coca-Cola has learnt the hard way that, when it comes to social issues, there is no way to please everyone.
In February, the company enraged conservatives by demanding that its external law firms give some of the company’s work to black attorneys or face cuts to their fees. Then, in March, liberal protesters staged a “die-in” outside the World of Coca-Cola in downtown Atlanta to protest at Coke’s failure to oppose a Georgia law that had the effect of making it harder for black voters to cast ballots.
By the end of April, the company’s general counsel, Bradley Gayton, was out of a job, after just eight months.
Top in-house lawyers are very much in the line of fire as companies come under increasing pressure from their customers and employees to take a stand on everything — from climate change to voting rights and racial equity. At the same time, investors have increased their scrutiny of environmental, social and governance (ESG) matters.
Anxious chief executives need help handling these demands, and a split is developing over how general counsel should respond. As lawyers, GCs are by definition well-qualified to provide legal advice. But ESG and political questions have broader ramifications for a company’s image, its regulatory relationships and even its profitability.
To some general counsel, that means they should tread cautiously.
“A general counsel should not be in the business of encouraging or discouraging — much less initiating — his or her company’s involvement in the political or social issues of the day,” says J Michael Luttig, a former judge who later served as general counsel at US aircraft-maker Boeing. “That role is for the company’s business leaders. Most business leaders would resent a general counsel who thrust his or herself into the running of the business in this way.”
But others see the dilemma differently. “It’s a natural fit for general counsel to be thinking these issues through,” says Sabine Chalmers of BT. “I’ve never seen it as an either/or game.” In addition to her position as group general counsel at the UK telecoms group, she took on the role of executive sponsor for diversity and inclusion programmes after the George Floyd protests. “You have to be constantly listening to the world outside, to the expectations of your stakeholders,” she notes.
In fact, says Yale School of Management professor Jeffrey Sonnenfeld, there are three types of general counsel. Some are activists who deliberately push into social issues. Then there are traditionalists who see themselves as the “vice-president of ‘no’” and try to steer clear entirely. And a third group tries to be non-ideological and methodical but also recognises that on some questions “staying silent is complicity”.
At Telstra, the Australian telecoms group, general counsel Lyndall Stoyles is also head of external affairs, sustainability and risk. That makes her better qualified to consider ESG issues from all sides, she argues.
“One of the benefits of having a broader portfolio is having a team of different people with diverse perspectives. That has broadened the advice we give,” she says, noting that the 330 or so people who report to her include not just lawyers but economists, regulatory specialists and experts on supply chains, digital literacy and community project managers.
Louise Pentland, chief business affairs and legal officer at payments company PayPal, has seen approaches to social and political concerns change. “There was a time, five years ago, when it seemed like it was easier to opt out of some of those conversations without necessarily fearing consequences,” she says. This is no longer the case: “I think you can’t shy away . . . because I think employees now require it.” Pentland is acutely aware of the importance of looking after that particular set of stakeholders because she also runs human resources.
She recalls how PayPal was drawn into one of the first really big fights in the current cycle of politicised business activities. In 2017, the company said it was cancelling plans for a North Carolina facility after that state passed a law, known as the “bathroom bill”, that limited LGBT+ protections. Pentland says the company felt comfortable taking a stand on topics relating to inclusion because its stated mission is to democratise finance.
These GCs’ broader portfolios are not unusual, says Nir Kossovsky, co-founder of Steel City Re, a reputation risk adviser and insurance group. He estimates that roughly 40 per cent of chief legal officers explicitly have responsibility for ESG and reputation questions. “So much of enterprise value is being driven by these ESG decisions,” he says. “Overpromising creates the risk of disappointed stakeholders.”
Recent challenges have included last year’s Black Lives Matters protests and demands for action on climate change. Some companies are still opting to stay out of the debates as much as possible but, for national champions such as the UK’s BT, staying quiet is not an option, according to Chalmers. The company faced calls from its employees and customers to address concerns about racial equity, so it set diversity targets and organised programmes to heighten awareness.
“Almost every action or inaction will lead to a reaction and you are never going to make everybody happy,” Chalmers says. “[The GC job] is accepting that reality, and helping the organisation think issues through and identify the consequences of taking a position. Doing nothing and not setting out your stall is now a much bigger risk.”
In some ways, the biggest problem for companies right now is anticipating the next challenge. “There’s invariably for everybody going to be something they didn’t think about,” says Pentland. “So how do good companies, who are trying to do the right thing, ensure that one incident doesn’t completely throw the baby out with the bathwater on reputation?”
Kossovsky, the risk adviser, thinks he has an answer: don’t wait until the protesters are banging on your door, as Coca-Cola did in Georgia.
“At that point, it’s a crisis and you have failed,” he says. “The processes should already be in place. Build in an analysis of ‘who are our stakeholders and what do they expect from us?’ Accidents happen but the reputational consequences don’t have to follow.”