Horizons: Global trends in employment law Edition 3: Changing the tune – the age of the whistleblower?

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LuxLeaks, Cambridge Analytica and the Panama Papers are just a few examples of recent scandals propelled to the public’s attention by whistleblowers. Workers are increasingly speaking up against corruption, fraud, sexual harassment and harm and, in the process, preventing scandals from progressing and even saving lives. Yet some have encountered retaliation or have simply been ignored.

But this is set to change.

Piecemeal action by governments over recent years had already started to strengthen whistleblower (also known as ‘protected disclosure’) laws. However, the European Union’s agreement in April 2019 to implement comprehensive new whistleblowing legislation across its 28 member states marks a significant step change – one which will have practical workplace consequences beyond Europe.

Eu directive table

In particular, those multinationals applying a one-size-fits-all global whistleblowing policy will need to decide whether to apply the EU’s higher standards beyond Europe. Considerations will include issues such as whether to make reporting channels available to contractors and suppliers, broadly defining protected disclosures, as well as requiring investigation and the provision of feedback to disclosers within three months.

In this age of the whistleblower, employers failing to provide easy access to confidential reporting mechanisms or handling disclosures and disclosers inappropriately risk problems escalating, reputational damage and, increasingly, significant sanctions for breaching whistleblowing regulation.

Recent legislative changes to whistleblowing protections

In 2018, the EU listed ten member states with comprehensive whistleblower legislation in place (Ireland, France, Hungary, Italy, Lithuania, Malta, the Netherlands, Sweden, Slovakia and the UK), much of which has been introduced or strengthened over the previous five years (see table on p51).

Summary of the Directive

Approved in April 2019, the new EU-wide standards to whistleblowing were nearly unanimously agreed by MEPs – implementing significant new standards to be upheld and processes to be instituted. For reporting certain breaches of EU law, the directive broadly requires employers (except those in the private sector with fewer than 50 employees although exceptions apply) to:

  • Make available secure and confidential channels for reporting internally and provide information on how/when to report externally to public bodies/regulators. Internal channels may be operated by a third party.
  • Establish procedures for investigating and following up on internal reports within set timescales, including designating an individual or department to diligently perform this role.
  • Decide whether to make internal channels available not just to employees but also to others acquiring whistleblowing information in a work-related context, including the self-employed and those working for contractors, suppliers and subcontractors.
  • Protect whistleblowers against dismissal, demotion and other forms of retaliation if disclosers had reasonable grounds to believe the information was true at the time of reporting, it fell within the scope of the directive and they complied with its reporting channels.

The directive sets down principles indicating when internal, external or public disclosure is appropriate. For example, public disclosures to the media are protected if, amongst other grounds, the whistleblower has reasonable grounds to believe there is an imminent danger for the public interest or other channels have failed. In the event of retaliation, member states must provide effective sanctions, including interim relief, and whistleblowers are immune from legal proceedings in certain circumstances. No waiver of rights and remedies in the directive are permitted.

Other countries, including non-EU states, have announced new whistleblowing legislation or are in the process of implementing change. For example, Switzerland, Poland, Slovakia, Norway, Qatar, the United Arab Emirates and Australia are all strengthening existing regulation or seeking to introduce new rules on protected disclosures by some sector-specific employees or more broadly. In Asia, Japan’s Consumer Affairs Agency is considering amendments that would see the effectiveness of Japan’s current whistleblower protection laws improve, as well as increase in scope. The changes are expected to go through the legislature in late 2019. Hong Kong has seen increased calls for general whistleblowing legislation following several corporate scandals, and it is only a matter of time before the government responds.

The United States has a long-standing, complex system of whistleblower legislation that includes federal statutes as well as certain state law regimes. Recently, there has been an increase in whistleblowing activity which, is likely to continue. The US Securities and Exchange Commission (SEC) reported that it awarded more dollars to whistleblowers in 2018 than in all prior years combined. The SEC also has a long-standing policy challenging confidentiality provisions in employee agreements that have the potential to chill whistleblowing activity – a practice that has impacted the drafting of employee-related agreements even for companies not subject to SEC oversight. In a recent development, the US Supreme Court unanimously extended the time for bringing claims in certain cases under the False Claims Act.

The EU Whistleblowing Directive

In April 2019, the EU Parliament agreed to a new directive to protect workplace whistleblowers, revealing breaches of EU law in a wide range of areas including public procurement, financial services, product safety, and consumer and data protection. The law must be approved by EU ministers, after which member states will have two years to make their national rules compliant.

EU states with limited whistleblowing protections currently, such as Germany, Spain and Austria, will be required to introduce wholesale change by 2021. Many others, including Ireland (regarded as having comprehensive rules already in place), will also have to act. For example, widening the scope of protection to volunteers, suppliers and contractors, and introducing a requirement on employers to investigate and provide follow-up reports to disclosers within set time scales.

Practical implications – beyond Europe

Workplace whistleblowers play a significant role in uncovering wrongdoing and alerting employers. Despite this, managers can be wary of whistleblowing channels, fearing malicious reporting.

Diane Gilhooley’s Top TipsDiane Gilhooley

  1. Does your whistleblowing policy provide accessible and confidential reporting channels that are highly visible and understandable?
  2. Will your policy adhere to the new EU standards globally, or will it reflect local law?
  3. Will it be extended to third parties such as those working for suppliers?
  4. Will financial incentives be offered to whistleblowers, and how is anonymous reporting handled?
  5. Check whether the policy, and any proposed changes, comply with data protection, works council consultation and other legal requirements.
  6. Do you have systems for the diligent and timely investigation of reports and for responding to disclosers?
  7. How are disclosers protected against all forms of retaliation?
  8. Are managers trained in dealing with reports and supporting disclosers?
  9. Is whistleblowing actively encouraged – do workers believe that they can and should disclose their concerns, and will be supported to do so?
  10. How transparent is your whistleblowing policy – where possible, are outcomes shared with workers?

However, these concerns should not cloud the case for instituting a robust whistleblowing system and embedding a culture of speaking up in the organisation’s DNA. Without this, the fear of suffering retaliation will have a chilling effect on whistleblowers, depriving employers of the opportunity to investigate and address issues away from the glare of publicity and the attention of both government bodies and the courts. A 2017 EU survey found that 85% of respondents would rarely report wrongdoing, fearing negative repercussions.

The changing legal landscape, spearheaded by the EU Directive, requires employers to review existing whistleblowing procedures for compliance. At the same time, employers should take this opportunity to assess their own whistleblowing culture. Like with GDPR, which forced businesses to take an honest look at their data handling and protection policies, this latest EU legislation will prompt many to review key elements of their whistleblowing systems – including leadership, commitment and accountability.

After all, good governance should encourage workers to speak up internally – for the sake of the company’s health, longevity and financial wellbeing.

Firm Focus: Royzz & Co

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GC: What differentiates Royzz & Co from its competitors?

Mahua Roy Chowdhury (MRC): Our firm represents the next generation of technology-oriented law firms, wherein our lawyers are either engineers or scientists. In view of this, our team goes beyond the books and is able to provide advice that is in line with the rapid pace of change in technology.

We have designed and built our own portfolio management and tracking software based on the amalgamation of our technical knowledge and wide industry experience. We provide use of these proprietary systems as a value-added service to our clients.

GC: Which practice areas do you see growing over the next 12 months? What is driving these changes?

MRC: The market dynamics have changed with the advent of technology. Disputes related to ownership of technology, violation of digital licences and infringements in cyberspace are on the rise. We are seeing an array of new legal issues arising that were not foreseen in the past. We are also anticipating a rise in infrastructure-related transactions.

Being at the forefront of innovation, we are helping institutes and scientists to monetise their innovation by introducing another vertical to our practice area, which is the IP valuation and monetisation service.

GC: What is the main change you’ve made in the firm that will benefit clients?

MRC: We have expanded our practice areas to provide a full spectrum of legal services to our clients. We have inducted partners and associates in practice areas such as general corporate, India entry, tax, real estate and litigation.

We have opened offices in Delhi and a second office in Mumbai with complete litigation support, too.

In addition, we have changed our process of billing and now use either lump-sum payments or commit not to exceed fees calculated on the basis of our billable hours as a norm. The exception being only in long-haul contentious disputes, wherein we rely on billable hours. This assists our clients to budget and allocate resources accordingly.

GC: How is technology changing the way that you interact with your clients and the services you can provide them?

MRC: Since inception, our firm has been a technology-oriented law firm. We are striving towards becoming a paperless office, too.

We provide web-based access to our clients to review their portfolio and receive additional notifications for deadlines. We also subscribe to several software solutions that assist us in effectively managing our client database, deadline tracking and monitoring the various portfolios.

GC: Can you provide a practical example of how you have helped a client add value to their business?

MRC: Technology being our forte, we often cross-refer our clients and their products. We also update our clients and introduce them to the latest technology, and advise them on integrating the same to augment their reach or improve their products and services.

GC: Are clients looking for stability and strategic direction from their law firms, as opposed to purely legal counsel?

MRC: The role of law firms has gone through a metamorphosis. Clients are asking questions that are no longer limited to the legal aspect, but instead have widened to include business decisions as well. Law firms have to don the legal as well as the business hat to provide the kind of advice that clients expect from us.

GC: What is the firm’s primary focus over the next three years?

MRC: In the next three years, we intend to focus and solidify our position in the new practice areas introduced. We are focusing on empowering our team to become holistic lawyers who can provide out-of-the-box advice to complex situations.

Reaping what you sow

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2018 was a good year for Indian entrepreneurs. The world’s third-largest start-up ecosystem saw its base expand by 12-15% and investor funding grow by 108% year-on-year, as well as a rise in late-stage funding – sufficient to give a leg-up to unicorn status for eight companies, according to a 2018 report by NASSCOM and Zinnov Management Consulting, Indian Tech Start-Up Ecosystem: Approaching Escape Velocity.

But just a few years ago, things weren’t quite so rosy. Despite the dizzying success of e-commerce wunderkind Flipkart (sold last year to Walmart for USD$16bn) and its ilk, investment plummeted from $1427m to $583m between Q1 and Q2 2016 (according to CB Insights, October 2016) and businesses started to go under.

‘Investors were investing like anything. The majority of the time it was e-commerce and consumer services, and everyone was putting in money. The field became saturated, start-ups were giving big discounts to gain customers. And that model doesn’t work, because you are not creating customer loyalty,’ says Saugat Dutta, project manager at EY heading the Startup Himachal PMU.

‘The success parameter of a start-up was judged by how much investment it had secured, so it was a case of: “That start-up is very successful.” “Why?” “Because they secured millions of dollars in “investment”. Now, when I read a start-up story, the story is “Who’s that start-up which generated this much revenue within these many months?” – not the amount of the investment they raised.’

‘With any kind of herd mentality, you often will see a lot of people putting in money speculatively,’ adds Dibyojyoti Mainak, consultant GC of Mobile Premier League, a mobile gaming app start-up.

‘You started seeing cases where investments were made that were often valuing companies at far more than what they should have been valued at, even investing in companies without really seeing a business behind it. It became less about the product and more about a certain template of success within the market. So, if one content company has raised money, then you would expect every other content company to also raise money,’ he explains.

But rather than complete collapse, what followed was a process of maturation – building on established tech talent within the country, but with a renewed focus for strategy, sustainability and a global business plan to support those eye-catching ideas.

Laying the groundwork

Significantly, the government’s endorsement of the sector has mushroomed, evidenced by the creation of Startup India in January 2016. The flagship initiative was established to encourage start-ups that meet its criteria (and register) with benefits such as financial help with patent filing and fast-tracked examination, self-certification under certain labour and employment laws, and an income tax exemption for three years. In addition, Startup India has formed a 10,000 crore fund of funds to make downstream investments in venture capital and investment vehicles that target start-ups, promoted the creation of incubation centres and labs to foster both innovation and R&D in education and industry, as well as relaxed public procurement norms which previously excluded start-ups.

‘India has been an agrarian economy for decades. The new government [formed by Prime Minister Narendra Modi in 2014] wanted to bring about a shift to a knowledge-based economy. We have been exporting engineers and doctors abroad, so instead the goal was to see if we could use the skills and knowledge base here in India to achieve economic prosperity,’ explains Dutta, who works with state governments on initiatives to support and develop start-up ecosystems.

In order to drive a culture of nurturing the innovation ecosystem to the grassroots level, central government devised a framework to rank states on their efforts to support innovation along several verticals, intended to create competition and encourage each state to take ownership of its start-up environment.

The central government’s push for ‘Digital India’ (which promotes the use of innovative technology in government) and ‘Make in India’ has led to some cross-pollination with state government initiatives. For example, the government of Andhra Pradesh, has started to put all land records on a secure, blockchain-based platform, and is also using drone-based solutions for state security and checking municipal infrastructural compliance. In addition, it utilises Internet of Things solutions for inspecting the cleanliness of government-supported school toilets. Such initiatives have begun to create opportunities for start-ups to cater to technology requirements, facilitated by relaxed public procurement rules allowing state governments to order directly from technology-focused start-ups. The companies gain user validation and also secure a state government contract, boosting their credibility with private sector customers.

And access to innovation is expanding beyond the usual hubs. The city of Bangalore is synonymous with tech-based innovation – it is home to 25% of India’s tech start-ups, with Delhi and the National Capital Region (NCR), and Mumbai housing 21% and 14% respectively, according to the NASSCOM/Zinnov report. But the same report notes that an increasing presence of tech incubators, tech parks and affordable work spaces is allowing tech start-up hubs to flourish in cities such as Hyderabad, Chennai, Pune and Kolkata, with additional growth in tier two cities such as Jaipur and Chandigarh.

Tech parks and affordable work spaces is allowing tech start-up hubs to flourish in cities.

But, success has not been unqualified, according to some.

‘For you to be a start-up, you needed to get a certification of sorts from, inter alia, one of the recognised tech institutes in the country, or have a registered patent in your name already,’ says Mainak.

‘That essentially cuts out 90% of everybody in India, because we are not a very patent-savvy nation, not to mention [the fact that] the patent regime in India is quite restrictive. You can’t expect a 23-year-old or a 25-year-old who is still in college, mostly on parental money, to have the financial wherewithal, or even the knowledge, to do something like register – it’s a very complicated process. That was a specific problem with the start-up definition – but that’s something the government’s already worked on solving. New notifications brought in in February 2019 relaxed many of these rules, and now require, among others, just a write-up justifying how you are innovative/will create jobs etc,’ he says.

‘Secondly, the Indian bureaucracy is a behemoth which answers to multiple interests/powers. It is not centralised enough for the central government to simply push policy and expect that all departments will follow. I’ll give you one classic example: the government has said that labour and employment compliances are cumbersome, which they are. So they said, “Ok, everybody until about three or five years in, you can self-certify.” Very good. Except then, they brought in a new tax law. Tax is covered by one department and employment is covered by a different department, and what that means is that taxation doesn’t follow that logic, so overall, the number of compliances you have to do has not reduced sizeably. If one goes down, another comes up – it’s a little bit like fighting like a hydra.’

Clearing the way

To exist in this space means grappling with a very particular set of challenges.

At the intersection between India as a jurisdiction and start-ups as an ecosystem is the issue of safeguarding ideas: in India, the process for obtaining patents has been historically sluggish, while time is of the essence for a burgeoning start-up economy working to reach its full potential. Recognising this, Startup India has introduced expedited patent review and rebates on filing fees.

‘India’s IP system has to catch up, people are not getting patents granted for five years in some instances. They file and wait. And, in the mean time, the technology loses its edge. So still, we are shaky, we cannot hope to compete in the international market that way,’ says Dutta.

‘The very restrictive licensing and the restrictive patent and IP regime that we have in India makes it tougher for you to protect your brand. And that’s the first challenge I see: brand protection. Because most start-ups don’t take that very seriously and this is why everybody has a copycat problem. Essentially, there’s somebody else who’s trying to do the exact same thing and often even copying your name,’ adds Mainak.

‘The gaming sector, where I am now involved, is very litigation prone. And it’s not just litigation, it’s prone to action from various different government departments who don’t necessarily understand the business. There’s a lot of confusion regarding whether this is entertainment or whether this is sports, and how we want to see it. Those kind of regulatory challenges are there for many sectors.’

Despite much regulatory relaxation for start-ups, penalties for non-compliance in some areas can be prodigious. Nevertheless, labour and employment, Goods and Service Tax, Shops and Establishments Act and Registrar of Companies compliance, as well regulatory requirements to combat sexual harassment, can be areas that those at the most nascent stages might be tempted to neglect.

‘Contrary to how the situation was about 15 or 20 years ago in India, when it was easy for somebody to miss out on certain compliances and still the law doesn’t catch up with you, today it has become extremely stringent. The law will catch up – if not tomorrow, definitely three years down the line. The fallout of not doing compliance is way higher than the money that you spend getting compliance done,’ says Janhvi Pradhan-Deshmukh, lead legal counsel at Startup Box, a firm that provides legal, consultancy and secretarial support to start-ups.

‘For bootstrapped start-ups, it’s a little difficult to convince them of certain things. With certain innovative business models, the law is not exactly made for them and, as such, they think that it’s ok to not do certain compliances because they don’t fall exactly under the ambit of the law. But in a start-up, time is more important than money because the start-up world is so dynamic – it changes so frequently, so fast – that to catch the trend, to catch the market is very important. You can’t be wasting time on answering legal notices and replying to queries.’

Running the farm

In recent years, India has experienced a cultural shift – doing away with past attitudes towards entrepreneurialism, and rethinking the concept of failure.

‘When someone wanted to start his or her own business you were looked down upon. If you had not secured good marks and were not academically qualified, or had not got a good job, that’s when you were starting something of your own,’ says Dutta.

‘But now, having a start-up – even having a failed start-up – has started to become a badge of honour.’

This has attracted not just young and ambitious minds, but also experienced executives into the field – and start-up adviser Pradhan-Deshmukh has found that her role is to handle not only legal issues, but to understand the psyche of all types of co-founders.

Neglecting the small print now can cause future headaches, or even financial hits.

‘The young generation, they are fresh out of university and have an amazing bunch of ideas. Unfortunately they are a little blindsided by the Flipkarts of the world and they cling to that: “Oh, I’m going to become a billionaire in a short period of time when I sell off the shares in my company, and I will then become a serial entrepreneur and I’ll use that money to invest somewhere else.” It doesn’t work like that. When you come to me with that kind of idea, you have already made up your mind to sell your own baby before it’s actually born,’ she says.

‘But there’s another set of co-founders who have worked in huge corporates at high levels and then they decide, “Ok, I don’t want to work for someone else anymore.” These are the people who are mature. They understand the importance of compliance and legal, they understand the importance of having the right professionals on board – having chartered accountants, a company secretary, a lawyer. Unfortunately, they are extremely fixated on certain things – they sat in senior positions in their companies and they think that they can treat the new business in the same way, or they can tell professionals what to do and what not to do. But again, it doesn’t work like that because the start-up world is extremely different to a company which has been in the market for a hundred years.’

Home-growing innovation

Despite the burgeoning popularity of entrepreneurialism at both ends of the career spectrum, Dutta believes there is more work to be done to fully embed a culture of innovation, particularly among schools and the academic community, where the teachers themselves must be trained to develop a more innovation-friendly mindset.

‘The government of India has started funding to create small tinkering spaces called Atal Tinkering Labs (ATLs) in schools. So the infrastructure is getting there, but who will actually give the soft learning part, the teaching part? That’s missing. The hardware is sitting under lock and key because no one is actually there. In the colleges, also, the curriculum needs to be revised and the professors need to lead from the front in being innovative and entrepreneurial in the endeavours. We will soon have bullet trains, but our curriculum is still stuck at steam engines!’

Incubators, accelerators and innovation spaces are popping up across the country, but although the tech scene is flourishing with an abundance of talent, some believe that a world-leading innovation marketplace is a little way off.

‘Many Indian start-ups are essentially copycats of foreign start-ups. These are not home-grown basic ideas, they are essentially very good copies of what is already listed in the market,’ says Mainak.

‘We are aiming to be on par with Silicon Valley or, now, China. China is now a very serious contender to become a global start-up giant. Everyone is now heading to China because of a lot of unique innovations – they used to replicate, now they are innovating. India is still stuck at the replication stage,’ Dutta adds.

‘Things are coming, but I wish the growth trajectory would be steeper, because I am amazed by how China is doing – they are first pushing money into R&D and now it has started bearing fruits. India needs to do that; India is not pushing money into R&D. Mostly, we are trying to replicate and customise ideas to our socio-economic contexts. I don’t think it’s a bad thing because, of course, it’s generating money and employment, and is innovative at a basic level. But to have an edge over other countries, you need to pursue radical innovations and aspire to be inventive.’

A lawyer in the mix

For most embryonic companies, absorbed by passion for a new idea and the pitfalls of establishing a company, hiring in-house legal support has not been the first priority. But Mainak advocates greater diversity on core teams – including lawyers.

‘In India, the legal system is extremely pyramidical. We have a phenomenon called “grand lawyering”, where essentially there are a very, very small group of senior advocates who corner most of the influence. You will often not have access to these guys when you are a very young company and you can’t afford their rates, which then means that established clients will always have an advantage going into any kind of litigation. This is why it is important for most start-ups in India to ensure that they never get into litigation.’

However, he adds: ‘Most still wait till their first run-in with the legal system or bad/unfair contracts – in other words, whenever the first “crisis” hits.’

In a fast-growing company, investment in company culture and good policymaking often falls by the wayside, and a toxic environment can emerge, incubating issues that further iterations of the organisation will have to face. And neglecting the detail now can cause future headaches, or even financial hits.

‘When you try to raise your third round of funding, or later on when you are listing and you are trying to raise a huge amount of funding and they are trying to do a due diligence assessment, a lot of these issues come to the fore. At this point, it’s a huge pain trying to solve all of these problems – maybe four years down the line the company realises that it hasn’t signed a non-disclosure agreement, or a pensions agreement, or even employment agreements, in some cases. That is when they would bring in somebody legal,’ says Mainak.

‘It’s not the best strategy, particularly with a system that is so regulation-heavy (India remains one of the most regulated economies in the world), so you would do well to have a legal mind right at your board stage, right when you are trying to strategise. Lawyers tend to bring logic and structure, and are able to play devil’s advocate.’

For start-ups rushing to market, or scaling fast on a shoestring budget, it can be tempting to assume that a lawyer will do nothing more than hamstring a fledgling business. But, when the realities of compliance, process, litigation, contract negotiation and management, brand protection and strategy development converge, there is a fertile world of opportunity for advisers to bring a critical eye to proceedings, and weed out potential problems early on.

Introduction: Alex Speirs

Our latest collaboration with Clifford Chance, Their Voices: Insights from Today’s Rising Lawyers, chronicles the journeys and stories of a selection of the next generation of lawyers, written and compiled by the team at GC magazine.

The collection of stories reveals that the stereotypical, well-trodden pathway to law is far from the sole entry point to the profession. In the past, anything but a complete commitment to the law – and nothing but the law – may have been considered a detriment, whereas now diversity of experience, both personal and professional, is characterizing the next generation of entrants. Those featured in the pages that follow embody this change, hailing from a range of backgrounds with law a second career for many – some in tangentially related industries, others hailing from a past which couldn’t be further from the law – but all bringing with them an insight as unique as it is valuable.

The interviews that underpin this publication also reveal a profession in the midst of change, as the realities of working at a law firm in the 21st century ring true for all the right reasons. The impact of technology is creating opportunities for new ways of working, increased flexibility and the chance to fundamentally reimagine how lawyers should – and do – operate. With this newest cohort of entrants hailing from a generation of digital natives, it shouldn’t come as a surprise that many of those featured are showing leadership and helping drive this change, but the willingness of senior partners and management to respond by empowering some of their newest members in such a positive fashion illustrates the changing dynamics apparent in a modern law firm.

Helping to facilitate that change at Clifford Chance, particularly for new entrants to the firm, has been Erin Zucker, the firm’s dedicated assignment manager, who has been instrumental in transforming the experience of first-year law clerks and associates. Instead of specializing at the commencement of their professional career or operating under the rigidity of the typical six-month rotation, most new entrants now enter a pool for a two-and-a-half-year period, during which time they are exposed to assignments across the firm’s transactional practices. That very exposure – to a broad selection of practices and practitioners – offers the opportunity to glean an insight into what their own future could hold, while developing well-rounded lawyers with a more holistic understanding of the profession.

When considered in the context of a world (and business environment) that is increasingly globalized, one with less defined boundaries and practice areas that no longer operate in silos, bringing together the aforementioned threads – diverse pathways, modern working practices and holistic approaches to training – no longer seems like nice-to-haves, but rather professional imperatives.

The stories that follow paint a picture of progression and much-needed modernization for the next generation of lawyers. And while change can be a scary word, based on my interactions with those who generously gave their time as part of this undertaking, I can confidently say that if this is what the future leaders of the legal profession look like, we’re in good hands.

Alex Speirs, Editor-in-Chief, GC magazine

Foreword: Erin Zucker

Lawyers choose a legal career for many different reasons. Some have it in their DNA and come from a family of attorneys. For others, the idea may arise during high school or college, or maybe after spending some time in another kind of job or doing community service. When the idea strikes, some are not certain and need time to explore; others are driven straight to law school. But they all have one thing in common: something sparked their interest.

My job is to help empower our lawyers. They arrive here on their first day having already navigated their way through law school, the recruitment process and a summer program. It’s an impressive beginning, and I find great joy in doing my part to help them shape the future of their careers – digging into the work and finding the right space to practice in.

Since the firm decided in 2015 to embrace a pool concept for our first years in the transactional practice, I have been tasked with implementing that process. Shortly thereafter, I began coordinating staffing within the litigation practice in collaboration with our partners and counsel. This approach offers significant benefits. For one, it keeps everyone consistently busy and allows lawyers to immerse themselves in a variety of work, where and when our clients need it. It also provides exposure to our international network of offices in a very fluid way – that’s a great fit with our culture as a global firm.

A big part of my job is getting to know people: what kind of work interests them, their professional styles and goals – their voices. What I’ve learned is that this generation of junior lawyers is shifting the prevailing wisdom about success in the law.

I’m also here to encourage people to step outside their comfort zone by exposing them to different types of work. I know that I am having a positive impact on someone’s career when they say, “I’m so glad I tried something new.”

What you will read in these pages is just a sampling of the stories that our junior lawyers could tell. From my perspective, the takeaway is this: whether they practice law for their entire careers or move on to something completely unexpected, they are on a path to forging their own success in an evolving field. That’s why their perspective is so valuable. n

Erin Zucker, Americas regional professional development manager, Clifford Chance

A level playing field: How the Transactional Pool works

Upon joining Clifford Chance, most first-year law clerks and associates enter the pool for a two-and-a-half-year period, during which time they are given exposure to assignments across the firm’s transactional practices. The enhanced system preserves the best aspects of prior approaches – exposure to many different kinds of work and to partners and associates practicing in different areas – without the rigidity of six-month rotations. Ms Zucker’s role as a dedicated assignment manager was integral to the firm’s objectives in designing the pool system.

Afterword: Evan Cohen

Photo credit: Thomas Donley, New York

Our first collaboration with our friends at GC magazine and The Legal 500 – Advice To My Younger Self – profiled 20 highly regarded women lawyers who shared tips for success with those about to begin their own journeys. What’s exciting about Their Voices is that it flips that narrative. This time, it’s our rising lawyers helping legal industry veterans – partners, general counsel, law school professors and others – gain new insights in a world that increasingly requires fresh perspectives.

In conceptualizing this project, we started with the premise that today’s lawyers are incredibly agile – not only in their ability to work effectively from almost anywhere, but also in their openness to new ways of thinking and problem solving. From the time they were old enough to lift a mobile phone, they’ve been tied together by technology and global networks, which makes tuning out and turning off increasingly difficult. And yet, most of them manage to achieve an enviable level of balance in their lives.

Perhaps the reason this new generation of lawyers is so adept at navigating change is that rapid transformation is all they’ve ever known. Those of us further along in our careers have had to dispatch some long-held beliefs and modify our approaches to embrace a new normal. It’s not always a comfortable proposition, but we are finding our way – sometimes with help from the very people we lead.

“Today’s lawyers are incredibly agile – not only in their ability to work effectively from almost anywhere, but also in their openness to new ways of thinking.”

It’s hard to believe that 2019 marks the beginning of my fourth decade as a lawyer and my twentieth year as a partner at Clifford Chance. I’ve seen a lot and learned a lot, including the importance of eschewing labels. Each generation receives its own moniker – Baby Boomer, Gen X and the like. But if this book tells us anything, it’s that lawyers of every generation have many more traits in common than differences that separate them.

I couldn’t be prouder to call the lawyers in this book my colleagues. They are bright, motivated, hard-working, client-focused and civic-minded – just like the generations that preceded them. Best of all for me as a managing partner, they are part of a much larger group of associates who have their own equally impressive stories to tell.

The profiles in Their Voices: Insights from Today’s Rising Lawyers inspire me to remain flexible and welcome what’s next. I hope this book helps you to do the same.

Evan Cohen, Americas regional managing partner, Clifford Chance

Corporations with benefits

corporation-with-benefits

‘There is no reason why good cannot
triumph as often as evil. The triumph of
anything is a matter of organisation’

– Kurt Vonnegut, The Sirens of Titan

When looking for good in the world, corporate governance law is perhaps not the most obvious place to train your eye. However, there is a sizeable band of corporations – thousands, in fact – who have opted to start just there, using corporate governance as a springboard to the greater good.

Shareholder primacy, often cast as the villain in corporate scandals or blinkered business decisions, operates on the theory that the job of directors and management is to maximise return to the investor. In turn, corporate law is traditionally viewed as a contract between corporations and investors that the company will, in the balance of law, deliver the highest return.

‘But that’s really an assumption and not a fact of life,’ says Rick Alexander, corporate governance expert and former corporate attorney in the US corporate mecca, Delaware.

A benefit corporation is a corporate entity which includes certain positive impact requirements among its legally defined goals, allowing corporates to reject shareholder primacy in favour of a governance model that permits balancing the interests of other stakeholders – like workers, customers and communities. Maryland became the first state to specifically legislate for these kinds of corporations in 2010, and 30 others have since followed suit.

In the early 2010s, Alexander had been practising transactional law for 25 years and was responsible for maintaining Delaware’s corporate statute when he was approached by B Lab, a non-profit that operates a certification scheme for companies based on environmental and social responsibility.

‘They wanted us to adopt a benefit corporation statute in Delaware. And to be honest, we thought it was kind of cute, but not really serious. I was the chair of the council that worked on those issues and so our first reaction was pretty negative,’ he recalls.

‘But they pushed pretty hard and I ended up taking it on as a project to look more seriously at what they were talking about. As I looked into it, I became persuaded that traditional corporate law actually had a lot of assumptions built in that weren’t necessarily supported by any rational economic theory.’

Alexander’s change of heart and subsequent work was instrumental in Delaware’s introduction of public benefit corporation law in 2013. He even left the practice of law to become B Lab’s head of legal policy, promoting the concept of benefit corporations around the world.

Nowadays, B Lab and benefit corporations are still linked – in order to retain B Corp status (B Lab’s certification), companies must have a corporate structure that rejects shareholder primacy which, in the US, will often mean incorporating as a public benefit corporation. You don’t need to be a B Corp to be a public benefit corporation, although the two frequently go hand in hand – and are often confused.

Keeping your commitments

Among the roster of companies opting to incorporate as public benefit corporations, there are some big names. Global creative crowdfunding platform Kickstarter is one.

‘For Kickstarter, this was always the founders’ ethos,’ explains general counsel Christopher Mitchell. ‘They were not about, “Hey, let’s make our money on an IPO or sale of the company.” I like the fact that we are a very socially and politically active organisation. I think that goes hand in hand with being a public benefit corporation – being very aware of what is going on in the world, how it affects our community, how it affects your business and then what are the appropriate steps to dialogue about that and to get involved.’

When the legislation came along, the company felt that it was the perfect vehicle to crystallise Kickstarter’s commitments. Public benefit corporations must lock in a stated public benefit (or benefits) in their charter.

‘We are a for-profit entity, we operate like any normal business. However, it’s like having a double bottom line. What are you focused on, what does good look like, what does success look like, what are you working towards? As you’re making decisions as an organisation, what behaviour do you take, what actions do you take, what areas do you support? If you think about a lot of other organisations, their main focus is making money. Well, what if it wasn’t just that?’ says Mitchell.

Public benefit corporations must lock in a stated public benefit (or benefits) in their charter.

‘What about if you said, “Well these other two or three things are important to us, and this is how we measure success”. Commitment to the environment and bringing creative projects to life are all part of that mandate. I think a lot of non-public benefit corporation organisations aspire to those things, but a lot of times those other goals become secondary to profit maximisation.’

Interestingly, Kickstarter’s shareholders unanimously backed the conversion to become a public benefit corporation. It could be that some investors believe they are looking at a generational shift of corporate values, and the public benefit corporation sits at a unique nexus.

‘It’s a paradox, but it can actually generate more value for your investors – your corporate structure communicates that you are a responsible partner and not bound by law to take advantage of every situation. I think right now we’re at a stage where individual companies are looking at adopting a benefit corporation structure as a competitive advantage, especially among the millennial workforce, or even the generation coming up behind the millennials, who are extremely interested in that sort of concept,’ says Alexander.

If public benefit corporations are aiming to inject virtue into corporate life, could this also trickle down into a better life for their in-house attorneys? Mitchell thinks so.

The North Star

‘I love it because it gives me another reference point. As counsel, you’re considering the law and the objectives of the business and you’re trying to organise those, but when you have these very clear stated commitments and rules, it just provides another reference point to help with the decision-making process. It prevents singular deviation on a project where someone might say, “Hey that’s fine but for this one we’ll just try this.” No, these are commitments, they’re set in stone,’ he explains.

‘It’s absolutely fantastic to have this North Star and this very clear statement driving alignment internally. It’s not just you’re the GC and you’re an outlier. You can point to the charter and say: “This is what we committed to be.”’

‘When it comes to a situation like dealing with a supplier who may not be performing but if we were to walk away, hundreds of their employees would lose their jobs, we look much further than the financial impact of the decision and often make what might seem like an unorthodox choice because it could cost us more in the end,’ adds Hilary Dessouky, general counsel of outdoor apparel company Patagonia, which incorporated as a benefit corporation in California in 2012.

‘At Patagonia, people and planet come first and that is a great foundation for decision making. It adds complexity because there are so many different factors to consider and that can be hard at the beginning. But it’s like a muscle that you have to exercise, and when you see the results, you want to keep working on it.’

Building muscle

For Laureate Education, becoming a public benefit corporation took a little heavy lifting for the incumbent GC’s predecessor. In 2015, the for-profit network of higher education institutions changed domicile from Maryland to take advantage of the shiny new Delaware law. Maryland had its own similar statute, but as the PBC structure had gained traction, model legislation was developed to address thorny issues of fiduciary duty and shareholder liability, and Delaware followed this trend – which appealed to Laureate when it decided to reincorporate.

‘I think any time you’re thinking about making a change in your legal status, the general counsel is critical. The GC has got to understand what’s required and has to be the one to take a hard look at the organisation and ask “Is it really in our best interests to do this, can we really be a public benefit corporation, what is that going to mean for us?” There are going to be legal requirements, the board of directors is going to have to understand what this means, they’re going to have to feel comfortable with it, they’re going to have to vote for it,’ says Victoria Silbey, CLO of Laureate since 2017.

The first public benefit corporation in California

Hilary Dessouky, general counsel of Patagonia, explains what being a benefit corporation means for the outdoor apparel company.

‘We have a 40-year-long history of environmental conservation and activism and, from 1991, the company’s mission statement was: build the best products, cause no unnecessary harm and use business to inspire and implement solutions to the environmental crisis. We recently simplified our mission statement to reflect the urgency of the crisis we’re facing, to just: we’re in business to save our home planet.

Our values are so deeply ingrained in everything we do, for us the risk would be not being a public benefit corporation.

We have gotten very specific in our articles of incorporation about what we’ll do to create public benefit and have listed six areas of focus. One of them is that we give away 1% of sales to environmental non-profits, and we’ve given away more than $100 million since we started the programme. We also just committed to give away $10 million from the 2017 irresponsible corporate tax cuts.

We work really closely with the groups that we support through campaigns, advocacy and activism, and that also culminated in working with our grantees and the Native American community to help establish the Bears Ears National Monument. On December 4, 2017, President Trump issued an executive order purporting to reduce the monument by 85% and Grand Staircase-Escalante National Monument by more than half. Our benefit corporation structure provides a requirement for us to take certain actions and so, in response, Patagonia, along with a coalition of grassroots groups, filed a lawsuit in the DC District Court challenging the President’s action based on the premise that The Antiquities Act of 1906 grants the President the authority to create national monuments but not to reduce or rescind them. As a benefit corporation, we’re doing everything we can to help combat climate change and we have an obligation to our employees, to our community and to the environment to actually take that action.’

The general counsel also has a vital role to play in drafting the public benefit purpose that the company is nailing to its mast.

‘It needs to be both specific enough to really talk about what you do but broad enough to last for a long time, as a company may change emphasis and strategy. You have to think about it as almost a legal contract, so it’s critical that the GC is part of the decision-making process around that purpose,’ she says.

The Laureate team eventually settled on ‘To produce a positive effect for society and for persons by offering diverse educational programmes, both on premises or campuses located in the communities we serve online’.

‘If we are acquiring or divesting a college or university somewhere on the globe, part of the questions that we ask ourselves is whether this will be good for students. Can we offer students more – better access, better educational opportunities, better outcomes, better ability to get jobs, to get salaries that can support them, for example. We are constantly evaluating those outcomes, doing studies to see how our graduates fare. We’d probably do that anyway, but being a PBC gives us the context in which to put these questions and to make these decisions,’ explains Silbey.

Investor reception

But is it really possible to balance profitability with a commitment to the greater public good?

CircleUp, a company that helps consumer product start-ups to raise equity, thinks so.

It applied machine-learning software to scoring like-for-like strength, reach, growth and intensity of consumer brands in June 2018, finding that 93% of B Corps (distinct from public benefit corporations, but connected by sustainable ethos) scored above the average. The software also reported a 49% growth in sales, three times more than the category cohort.

But not all attempts to marry a sustainability stamp and profitability have escaped a bruising, particularly in the public realm. After the board ousted the CEO of e-commerce platform Etsy in 2017 amid swirling reports of overspending and falling share price, the vocal champion of stakeholder culture and then B Corp released the following statement from its newly installed CEO, Josh Silverman:

‘Since 2012, Etsy has relied on third-party certification, known as B Corp, as one of the ways we demonstrate our public commitment to running a sustainable, socially responsible business. We are proud of our B Corp certification, and of our track record of improving our B Corp score after each impact assessment.

‘One of the requirements of B Corp certification for corporations incorporated in Delaware is that a company must change its corporate structure from a C Corporation to a benefit corporation. As we have said publicly over the past year, Etsy will not seek conversion to a benefit corporation by the December 2017 deadline because converting is a complicated, and untested process for existing public companies.’

Etsy declined to be interviewed for this piece, but B Corp’s Rick Alexander is reluctant to concede that its specific situation has any reflection on the reception of the PBC status among investors.

‘Part of our certification is that at the end of a grace period, if they wanted to keep the certification, they would have had to become a benefit corporation and that would have meant getting a two-thirds vote from their shareholders. At that time they were kind of in a struggle with their shareholders, they had some not-good performance, there were hedge funds in the stock and eventually there was a whole turnover of management. That was not a company that had a problem with being a PBC, it was a company that wasn’t in a position to get a two-thirds vote on anything, let alone PBC status,’ he explains.

‘Booming corporate profits and rising worker productivity have not led to rising wages.’

Certainly the experience of Laureate Education, the first company already with public benefit corporation status to make an IPO, has been relatively smooth – though Silbey admits there was a little trepidation beforehand.

‘One of the concerns we had was that public markets would not be receptive – it was kind of unchartered territory. I don’t think that that’s turned out to be the case – I don’t think we have investors who aren’t investing or shareholders who aren’t shareholders because we are a PBC. But we really didn’t know at the time,’ she says.

‘We definitely had to explain it. It’s not that common in general and nobody was public beforehand, so when we filed our IPO doc and our 10-Ks since, we had to very carefully explain what it means and why it ties into our overall mission. We needed to be very clear and anticipate the questions that we might have: Does that mean that there’s not going to be good shareholder return, does that mean that you’ll put everybody else ahead of shareholders? We needed to think through what those questions might be and then to address them both in our written documentation and in other conversations with investors.’

Because public benefit corporations are obligated to make decisions that honour a specified social or environmental purpose, they can be held to account for not doing so. The Delaware statute has therefore built in protection for companies so that such lawsuits can only be brought by shareholders owning more than 2% of the company, and that no monetary damages can be obtained, only assurances that the company will improve.

‘For the most part what the statute does is eliminate risk. It makes it easier to operate in a way that’s socially and environmentally conscious, so we reduce the risk that anyone would ever sue you for that,’ says Alexander.

Adds Silbey: ‘If you are carefully considering the decisions you’re making in both the long term and short term, I think that the risk is manageable. We have thought about it and when we do governance training for our senior leaders and for our board members this is an area that we cover – and we get some thoughtful discussion about it.’

A moment of reflection

Having public benefit corporation status has reporting requirements, of course, although at once every two years in Delaware, these are not too onerous.

‘On one hand this is a statement to the public but also for ourselves, it’s a moment of reflection. How well did we actually do? It’s an important piece of feedback,’ says Mitchell.

Like Kickstarter, Laureate is also a B Corp, and B Lab’s granular auditing process provides a similar opportunity for introspection.

‘For the B Corp status, we were concerned that it might be too hard. To get audited on things like environmental footprint and supply chain issues was very new for us and we didn’t really know how we were going to do. We’re not making sneakers, so we’re not checking our supply chain more regularly,’ explains Silbey.

‘So this was a brand new horizon for us, but it’s been great, actually. Because it goes all the way down to a campus level review, we get really good insight into our institutions and how things are going and it helps us then make decisions when we engage vendors – it gives a framework to think about choices we’re making throughout our network of institutions.’

The reality is that a public benefit corporation status is unlikely to appeal to a company that has not placed an environmentally or socially conscious agenda at the heart of its offering, like Kickstarter, Laureate and Patagonia have. The jury is out, however, on how an ethical agenda might be protected in the event of a takeover, especially in the case of rolling back commitments – however legally.

‘In a hostile takeover there’s a limited amount that can actually be done, and I haven’t really thought through should we have a poison pill specifically related to PBC status,’ says Silbey.

‘But certainly with respect to a non-hostile transaction, our directors would try to weigh the different questions that we have as a PBC about commitment to students and communities and outcomes, so we would balance all of that with other fiduciary duties and shareholder considerations.’

A sustainable future

Public benefit corporation status is, fundamentally, optional. But what if it wasn’t?

Senator Elizabeth Warren, Democrat and 2020 Presidential hopeful, last year announced the Accountable Capitalism Act, which strikes at the same target as the public benefit corporation: shareholder primacy.

‘In the early 1980s, America’s biggest companies dedicated less than half of their profits to shareholders and reinvested the rest in the company. But over the last decade, big American companies have dedicated 93% of earnings to shareholders – redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that booming corporate profits and rising worker productivity have not led to rising wages.’

A key plank of the Act calls for corporations with more than $1bn in annual revenue to obtain a federal charter as a ‘United States corporation’, obliging directors to consider the interests of all corporate stakeholders.

‘This approach is derived from the thriving benefit corporation model that 33 states and the District of Columbia have adopted and that companies like Patagonia, Danone North America, and Kickstarter have embraced with strong results’, stated Warren.

The road to legislation, like government, is a long one, and much is in the balance with this Bill. But, if a corporate governance trend is turning heads – and public opinion – there could be interesting times ahead for large companies.

All the more reason for the general counsel to ensure they are involved in any process of governance change or audit from an early stage – whether that’s becoming a public benefit corporation, B Corp, or a future permutation.

‘Sometimes at B Lab we’ll be dealing with a sustainability group in a company, and they’ll say “Let’s do all the other stuff and then we’ll do the legal” – because nobody wants to call the GC!’ says Alexander.

‘We encourage people to socialise the issue early and to make sure that there’s board-level discussions about certification and that the board understands the legal piece. The GC is going to be key in the boardroom’.

No more firsts

There can be few legal roles in the US of as much significance and substance as White House counsel. And when Beth Nolan jettisoned film school for law school, she had no idea that her eventual career, including serving as White House counsel for President Bill Clinton – the first female to ever take on that role – would be almost the stuff films are made of.

But the path to what could be termed the ultimate general counsel role was not an obvious progression for Nolan. Eschewing private practice thanks to an interest in public policy law, she found herself as a junior attorney with the US Department of Justice (DOJ), tasked with working on government ethics.

‘I was really disappointed when I was given that assignment if I’m honest,’ she recalls. ‘The Office of Legal Counsel is known for handling the weightiest questions of executive power and executive privilege and I felt like I was going to be advising whether somebody can accept the free gift of tickets to a tennis tournament.’

But Nolan’s initial reservations turned out to be unfounded, and her burgeoning passion for ethics would go on to shape the course of her career. After four years at the DOJ, Nolan began teaching at George Washington University, where she taught constitutional law, but wrote about government ethics and lawyering.

‘That’s the specialty that was eventually of interest to President Clinton in the White House when I first started as an associate. There were scores of constitutional scholars but there weren’t that many people who really knew government ethics, and so that changed the trajectory of my career and my life,’ she reflects.

APPLIED ETHICS

Of course, at the time, as a recently tenured associate professor at George Washington, Nolan still didn’t know that. After volunteering for the Clinton Presidential Transition team, she was offered a role running the government ethics programme at the White House.

‘My original four years in the Justice Department were during the Reagan administration. There had been eight years of President Reagan, followed by four years of President Bush. So there weren’t that many Democrats who had government experience in government ethics laws, particularly some of those that had come through from the Ethics in Government Act of 1978,’ explains Nolan.

‘I was somebody who was teaching it, writing about it and had prior government experience actually doing it. So I got called to the attention of the people in the White House, went to meet with them and was offered the job.’

Her burgeoning passion for ethics would go on to shape the course of her career.

Putting academia to the side, Nolan was given a leave of absence to return to government. And although she’d spent the past eight years focused on government ethics – the realities of her new position would set in almost immediately.

‘I think I had a misconception that I would still have time to think about theory. I had this image of myself as being tucked away in some basement of what’s now the Eisenhower Executive Office Building working in my office on difficult issues,’ she says.

‘Instead, it’s a rodeo ride. I remember having to slow down to take a breath. When I look back at it, I remember having to tell myself – as a friend advised me to – “Stop and take a picture in your mind.” I really tried to do that.’

Nolan spent two and a half years doing conflict of interest counselling and vetting non-judicial presidential nominees and appointments, before returning to teaching – anticipating spending the rest of her career in academia. But then the former ‘vetter’ found herself on the other side of the equation.

‘In the spring of 1996, I was asked if I wanted to return to the Justice Department as the nominee for assistant attorney general for the Office of Legal Counsel. Sometime in the start of President Clinton’s second term I was nominated, and I waited a year before I got a confirmation hearing,’ she explains.

‘I had my confirmation hearing, waited a year and still hadn’t had a vote on my confirmation hearing – it was caught up in politics. I of course respected the Senate and their prerogative, so I just waited and waited.’

But in another twist of fate, as one door closed, another door opened for Nolan. In the summer of 1999, she was invited to return to the White House, this time as White House counsel.

FOLLOWING MR SMITH

The White House counsel is the chief legal adviser to the president (in their official capacity) and the White House staff. A non-statutory position, unlike the statutory standing of the attorney general role, the White House counsel is there to advise as the President wishes, meaning that each Presidential incumbent can have a counsel who fulfils different roles, depending on their relationship.

‘But in a well functioning, modern White House, I’d say there are some things that you would expect the White House counsel to always do: to serve as a liaison to the Department of Justice; to coordinate legal issues with other departments and agencies in the executive branch; to help respond to congressional inquiries and investigations; and then to provide advice and counsel to help the White House staff stay fully within legal boundaries as they execute on their policy agenda,’ explains Nolan.

Like any general counsel role, this involves handling multiple constituencies – although, in this instance, those parties are Congress (both the House of Representatives and the Senate) and other executive agencies, all of which have interests that might be incompatible in any particular moment – in a mission-driven environment.

‘The mission of the White House may change a great deal depending on who the President is, but some of the mission has been pretty consistent over time too. Ultimately, it’s to do what is seen as being in the best interests of the American people or the nation.’

And of course, not many general counsel roles involve an interview with the President of the United States!

‘That moment does stick with me, particularly because the meeting was in the main floor of the State Rooms of the White House itself, not in the West Wing,’ Nolan recalls.

‘I think if people had seen me going through the halls of the West Wing to the Oval Office to meet with the President, there might have been speculation. So instead, it was in the White House itself – which is just majestic, and you have such a sense of history.’

That sense of history is significant, not just from the perspective of the long-standing history of the institution itself, but for those who came before Nolan and laid the foundations for her to be selected and assume the role of White House counsel.

‘I came in as a successor to Chuck Ruff, certainly not as his replacement, because no one could ever have replaced him. But I’d had the opportunity to work with him, as well as John Podesta, who was the chief of staff, and with Cheryl Mills and Bruce Lindsey, who were the deputy White House counsels. And, to be frank, if Cheryl Mills hadn’t already decided that she was going to leave government, she would have gotten the White House counsel position and I wouldn’t be talking to you about this at all,’ admits Nolan.

‘Funnily enough too, being nominated as the assistant attorney general for the Office of Legal Counsel and not receiving confirmation actually helped me significantly. Had I been confirmed, then it’s likely that this opportunity would never have arisen for me, but it also meant that, as a result of that process, I had already been thoroughly vetted.’

TAKING THE REINS

Despite coming in after the impeachment proceedings against President Clinton had concluded, Nolan entered into a highly charged political atmosphere, replete with investigations alongside the day-to-day role, itself stuffed with with plenty of variety to keep her busy.

‘I remember one day where there was an urgent national security matter that we had to attend to, followed by another urgent call about the implementation of the Easter Egg Roll! Sometimes it really was just like that,’ she says.

Of course, not many GC roles involve an interview with the President of the United States.

‘What I learned was that you have to really love and embrace every kind of real issue and question that arises during your role. I was very fortunate, as I had a really great staff of lawyers who did that – it wasn’t always just down to me or my personal obligation.’

The day-to-day workload also encompassed matters of executive privilege, questions about political activity, nominations and appointments, conflicts of interest, congressional investigations, independent counsel investigations, as well as the everyday business of running a government agency. But despite the absorbing nature of the role, Nolan retained a fangirl’s appreciation of government fostered by her days as a student – and teacher – of its apparatus.

‘I had the privilege of being there at the start of the administration and then at the very end – albeit in different roles. But the machinery of government transition never failed to awe me – that at 12 noon one person is President, and at 12:01 another one is, and almost the entire White House staff changes in that minute. To someone who loves and taught constitutional law and focused on government issues in my research, there was really no better opportunity to be a witness to the way our government works than those moments of transition,’ she says.

‘[At the end of an administration] you don’t leave things. It’s not like at the Justice Department, where one administration leaves and another comes in but there’s a vast group of civil servants who continue on – there, it’s only the top layer that changes and all the documents and records and files remain. In the White House, everything goes. It’s not tossed – it goes to the National Archives and then, in many cases, to the Presidential Libraries. But it’s not in the White House – you come into empty filing cabinets and computers that have nothing on them, and a staff who largely have no idea what they’re doing.’

That means that each new administration and its staff – and subsequently its counsel – have the opportunity to shape their own role and agenda, though, in large part, the role of the White House counsel in particular will, by its very nature, be one that is as reactionary as it is prescribed.

‘I think, in the 2000s, national security matters have played a much more prominent role. I certainly had to handle my share of national security matters, but that focus on terrorism in the 21st century, I think has certainly changed the White House counsel’s job,’ says Nolan.

‘During my time in the White House, we were dealing with multiple congressional investigations. This White House is just starting to face that now, whereas in the first two years they didn’t really have to deal with that at all. That’s going to shift the role for the current White House counsel. But, in large part, I think in any general counsel position there’s certain bread and butter things you have to do. Sometimes it’s going to be more bread and butter, other times it’s a lot more cake and jam!’

I BEG YOUR…

Another potentially significant aspect of the White House counsel role – albeit one that could potentially be handled differently by every White House – is the thorny issue (even to this day) of the presidential pardon. The US Constitution allows for the President to issue pardons, or official forgiveness, to felons convicted of a federal offence. President Clinton issued a large number of pardons on his last day in office, sparking controversy.

‘We certainly handled pardons at the end of the administration in a way that was different from the way they’d been handled before, because the President really wanted to be sure that he was able to exercise his pardon power, and the rate of pardon recommendations coming out of the Justice Department was very slow. Although we tried to get people alerted that we wanted a faster process early on, things just didn’t proceed that way. We ended up in the White House reviewing some pardon applications directly, still working as closely as we could with the Justice Department,’ Nolan explains.

‘We would review their recommendations, in some cases we disagreed with their recommendations, and we’d advise the President that in some cases we agreed. We’d give the President – and also the chief of staff was involved in some of these as well – our best advice about whether or not to grant a pardon. But ultimately, it’s the President’s power – I read my copy of the Constitution and I didn’t actually see the counsel to the President being given any authority in this.’

One pardon in particular that stoked the flames of controversy, causing a federal prosecutor to be appointed to investigate its legality, was Clinton’s pardon of Marc Rich. A financier and commodities trader indicted on charges of tax evasion and trading with Iran while the country was under embargo, Rich had fled the US.

‘I did testify about that after I left the White House – the President waived any privilege with respect to that pardon. I testified at the time that I did not recommend that you grant that pardon. I didn’t see anything improper about him granting the pardon, I just, as a matter of policy, didn’t think it was a good exercise of the authority. But, as I said, I had no doubt about the question of policy on who got to make that decision,’ says Nolan.

‘Congress and the US attorney all were interested enough to investigate the exercise of the pardon power – so it wasn’t treated as a hands-off issue completely. In fact, my very first day as counsel to the President, I was delivered a subpoena from Congress to testify about pardons that the President had granted before I even became counsel. So Congress has, in other times, not been shy about investigating or reviewing the exercise of the pardon power. I never felt tested as I didn’t see anything improper. I think that the President likely has the authority – Congress can complain about it – but it will be interesting to see if there are other limitations that get explored over time.’

WHITE HOUSE TO IN-HOUSE

After leaving the White House at the change of the administration, when President Clinton handed over the proverbial keys to President Bush, Nolan chose to tread a different path. Following a career spent working within the government apparatus, she pursued a brief tenure in private practice.

‘When I left the White House, I thought to myself that I really liked being a general counsel and knew that this type of role was a strong fit for me. But I also realised that while I’d had government jobs and academic jobs, I didn’t have any experience on the private side,’ says Nolan.

‘That’s why I chose to go into private practice, so I could get that exposure to a broad range of clients and legal issues, but perhaps most importantly, I needed to get some experience on the business side.’

‘The machinery of government transition never failed to awe me.’

Nolan would join Crowell & Moring as a partner, where she spent five years working in the firm’s white-collar and securities litigation practice – a period she credits with instilling the requisite broad-based knowledge to successfully assume a commercial in-house role.

‘Gaining that experience was really valuable for me, but I felt a strong desire to be a part of a team, not just an adviser to a team, but a member of the team with ownership of the matters on which I worked,’ she explains.

‘I also wanted a job where I felt aligned with the mission, so when the opportunity to return to George Washington University as general counsel arose, I knew it was one that resonated with me. I’d been a law professor there ten years earlier and it really hit the objectives that I was looking for. I think having served as a faculty member who had been through the tenure process only enhanced my ability and service as the general counsel.’

The opportunity to come back and serve as the chief legal adviser to the university that served as the springboard for her professional life ties the career of Nolan together with a bow that is almost too perfect – perhaps the final stop in a career which has truly come full circle.

A MOMENT OF REFLECTION

Looking back, Nolan exudes a sense of pride in being the first woman to serve as White House counsel, and in having played a role in felling a professional barrier for women. Since her appointment, two more women – Harriet Miers and Kathryn Ruemmier – have served.

‘But I think the feeling I had in the moment was mostly very personal. It was a mix of pride and excitement and sober awareness of the responsibility,’ she says.

‘And then I look forward, and what I look forward to is the day where there are no more firsts, and it’s not remarkable that a woman is appointed. I think we keep moving along that path. We’re not there yet, and I had that opportunity to be a first, but I’d love it if there were no more firsts.’

Now with the benefit of experience on her side, reflecting on a life in law which has spanned the pinnacles of government, academic, private practice and in-house functions, Nolan says that there’s no secret solution for success – but did offer some sage advice for the next generation:

‘I can only say what worked for me, and the important thing to consider is that what works for one person may not work for another. What worked for me is that I followed what interested me, I tried to know myself well enough to know exactly what that is,’ she says.

‘To add to that, I think one of the really important things is to figure out how you can be yourself at your job and, if that isn’t working, you have to focus on what needs to change. I’d say sometimes that’s the job, sometimes that’s you and sometimes that’s a combination. But use disappointment as a tool to learn and grow and, perhaps most importantly, don’t forget to enjoy the ride.’

GC Powerlist: United states 2019

Since we published our first GC Powerlist in the United States, the series has gone from strength to strength in countries ranging from Australia to Costa Rica, and South Africa to China. We have interviewed tens of thousands of general counsel, and highlighted some of the very best GCs and in-house teams around the world. And now, in early 2019, we find ourselves back with the United States. But for the biggest legal market, where do we go from here?

Simple answer: bigger. For the first time, we have expanded the GC Powerlist to include the leading 500 GCs, representing some of the largest global corporations, to tech-savvy start-ups and everything in between. And for the first time, we have also included the leading lights in legal operations, an area which is threatening to dominate the in-house conversation for the next decade.

The full GC Powerlist is available from 22 March 2019 at legal500.com/gcpowerlist, and features interviews and insight from the pre-eminent in-house leaders in the United States, including:

‘Last year, I had sole responsibility of negotiating with over 460 law firms on a comprehensive engagement agreement. This effort was the foundation of fundamental changes in how we engage and retain law firms,’ – Alan Bryan, Walmart.

‘The wider company has profited not only by the expert legal advice delivered in a non-judgemental, collegial way, but also by the sense of common purpose that results from a true partnership between in-house lawyers and their business clients,’ – James E Ballowe Jr, E*Trade.

‘The number one piece of advice I would give an aspiring in-house lawyer is to read and listen. I need to anticipate what’s coming so that business can be ahead of the curve,’ – Susan L Lees, Allstate.

‘I deeply believe that the legal function must be an integral part of the company, rather than viewed as standing in opposition to what the company is doing,’ – Rena Hozore Reiss, Marriott International.

The Legal 500’s GC Powerlist is sponsored by Linklaters, Basham and Yerra Solutions, and is supported by the International Bar Association and the Association of Corporate Counsel.

Catching Opportunity

As a billion-dollar franchise and one of the most recognisable entertainment brands in the world, the chief legal officer of The Pokémon Company International may be one of the more coveted in-house roles on the market. For the past 11 years, Don McGowan has occupied that position and has taken the brand through a plethora of groundbreaking international deals across a broad range of industries. From spearheading the legal negotiations surrounding the launch of the hugely successful Pokémon GO mobile gaming app to playing an integral part in the licensing agreements of the upcoming live-action Pokémon film, McGowan has enjoyed a diverse portfolio not always typical of the general counsel.

But these feats are only the beginning for McGowan, who, unlike most GCs, can add ‘Hollywood movie producer’ to his already impressive résumé. Between juggling his legal duties as GC for The Pokémon Company International, he is also a producer for the highly anticipated Pokémon: Detective Pikachu movie set be released in May. A modern-day renaissance man, McGowan is redefining the traditional role of GCs, showing legal expertise can be just as useful in an office as on a Hollywood movie set.

Despite it all, McGowan still manages to find time to advocate for children’s rights as a board member for the National Center for Missing & Exploited Children and teach entertainment law at the University of Washington. Heading into an eventful 2019, McGowan is showing little sign of slowing down.

I Choose You

Before moving to the bright lights of Hollywood and becoming a gaming and entertainment law luminary, McGowan began his legal career as a litigator in Quebéc, Canada. In his journey toward the multi-dimensional position he now enjoys, McGowan admits he stumbled upon more than a few lucky breaks.

‘To a certain degree my career path has been like Forrest Gump,’ McGowan admits. ‘I’ve sort of fallen repeatedly into opportunities – and you know, I’m not so blind to the idea to say the harder I work the better luck I have, but certainly there has been a fair amount of luck.’

As of the start of 2019, the app had brought in a total of $2.2bn of revenue since launching in 2016.

McGowan’s career trajectory has included a few once-in-a-lifetime opportunities. This good fortune paired with a strong work ethic has been fundamental to his sustained success.

‘You pick up the skills that life requires you to have,’ he says. ‘I got to Pokémon in August 2008. Prior to that I was the lead lawyer for Xbox games, but at the time we called it Microsoft Game Studios. So, I have worked in the gaming industry and the media industry for about 15 years. Prior to that I actually worked in security and cryptography at Microsoft.’

While at Microsoft Game Studios, McGowan worked on a range of video games, handling everything from franchising to advertising to compliance issues. He also negotiated one of the first video game-based movie deals for Halo, Xbox’s flagship gaming title. While that project didn’t eventually come to fruition, the experience put him at the forefront of gaming and entertainment law, so when McGowan heard of an opening on the in-house team at The Pokémon Company International, he knew his work experience would make him the perfect fit.

Gotta Catch ‘em All

The Pokémon portfolio covers games, movies, television shows, trading cards and a staggering amount of other merchandise across a multitude of mediums. In recent times, the most well-known Pokémon export has been the runaway success of Pokémon GO – a mobile game. Employing location-based augmented reality, the app allows users to capture, battle and train Pokémon in real-world locations, in conjunction with other real-life players. To date, Pokémon GO has been downloaded over 650 million times and has established itself as a global cultural phenomenon. The success the app would become took the world by surprise, including McGowan.

‘I promise you no one gets up in the morning thinking today is the day we launch a cultural phenomenon. You don’t get up in the morning to say: “Today the world changes”.’

McGowan might be accused of hyperbole, but it’s easy to make the case that he’s being realistic: users spent $75m on the app via the Google Play store in December 2018 alone, and a staggering $262m across the year. As of the start of 2019, the app had brought in a total of $2.2bn of revenue since launching in 2016.

McGowan was instrumental in coordinating the deal between The Pokémon Company International and Pokémon GO’s development company, Niantic. Niantic was a start-up spin-off of Google, and comprised of a team of people who played key roles in the development of Google Earth and Google Maps. Transforming this technology into a safe, fun gaming experience looked like a gigantic legal risk at the time.

‘I had people coming up to me saying, “I cannot believe you are going to do a game like this – good luck, man!” Not exactly the vote of confidence you’d hope for,’ says McGowan.

‘I don’t think it is a question of being risk averse, I think it is a question of being attuned to the risks, being cognitive of them, developing your product with them in mind and figuring out the way to address them. And I think that is something that any good legal department does.’

Putting Pikachu First

For as ambitious as the project was, Pokémon GO’s life to date has been a surprisingly smooth one.

‘We launched a worldwide geolocation game with no regulatory issues,’ he says flatly.

A large part of the regulatory success of Pokémon Go can be credited towards McGowan’s focus on brand preservation. This meant ensuring issues of data privacy and child protection were at the top of the list of potential legal concerns. Pokémon has existed for over 20 years and has developed a reputation as a globally trusted children’s brand, so this was a North Star of sorts when navigating potential legal risks. This approach was founded from the position that parents identify the Pokémon brand with products created with children’s safety in mind.

‘That is a really powerful responsibility for us to have and it is something that permeates the company’s DNA,’ says McGowan.

Most of the work in this area was undertaken by himself, but supported by a small team of eight people at the time.

McGowan’s team had to solve adaptation issues that arose from turning a video game into a movie.

‘My work in these areas was particularly important, because at that time Niantic had no legal staff and so, functionally, that meant all of the legal work on clearance and all the work on the game was done through me,’ he says.

‘There is a thing I do in every sort of meeting I am having with people to discuss a new idea or a new situation – I run through a list in my mind: what are the kids’ privacy issues, what’s the advertising issue etc, and at the end of it I look at my team and I say okay – last question: what have I forgotten to think about?’

The practicalities of the app are such that the cost of getting it wrong is high. The game encourages its users – many of whom are children – to roam their neighbourhoods and cities looking for Pokémon to catch. The fact that the app’s bread and butter are the location tracking adds another complexity to the ethical considerations that must be taken into account.

‘We are obviously looked to as people who have sort of leading expertise on privacy and children’s issues and we are happy to help, and we are happy to share,’ says McGowan.

Expanding from a legal team of eight to a legal team of 19 over the past three years, McGowan acknowledges that Pokémon GO has given The Pokémon Company International the opportunity to grow. With the 2019 release of the live action motion picture, further expansion brings its own host of legal hurdles.

Time to Evolve

It was a cold evening in January when filming began for the Detective Pikachu movie. McGowan was on set and watched as Ryan Reynolds came in to voice Pikachu. He says he knew from that moment on this movie could become a really big hit.

‘That was the moment that everything became real. This is actually happening, we’re making a movie! I never thought it would happen in a million years,’ he says.

‘But sitting there, as Ryan Reynolds – who didn’t even need to be there because he was doing a voiceover part which is shot from the booth – came in, in the middle of the global promotional tour for Deadpool 2, to shoot the scenes. That’s when everything we’d all worked for really crystallised and became real.’

It was through the relationships McGowan built within Legendary Entertainment and Pokémon International, that he was able to secure the once-in-a-lifetime opportunity to work as both in-house counsel and movie producer on the same project.

As a producer, McGowan was involved in everything from advising on casting, directing and script and, while cautious to maintain a separation of ‘church and state’, McGowan was able find the perfect blend between the two skills.

From a legal standpoint, McGowan and his team did almost everything from papering up the agreement to negotiating and ironing out details of the deal between American-owned Legendary Entertainment and his Japanese parent The Pokémon Company, with movie distribution rights going to Warner Bros. McGowan had the task of bringing companies operating in two different jurisdictions – with two different cultures – together.

‘A lot of what I describe in that movie project is, you know, you have two parallel lines and every now and then somebody has to pull them together and make them meet.’ In a lot of ways, McGowan says that was his legal team’s job. Along with putting together the paperwork, McGowan’s team had to also solve adaptation issues that arose from turning a video game into a movie.

The practicalities of the app are such that the cost of getting it wrong is high.

Detective Pikachu launched as a video game, so we had the pre-existing video game we were working with and there were all the adaptation issues that go into that as well,’ he says.

‘There were a couple of things in the first trailer, where people quite rightly pointed out that music was a rework of something from the video game or a rework from the TV show. We have to make sure the rights were cleared on all of that stuff. There is the IP protection issue, there is the marketing campaign stuff and all sorts of things. There is stuff that you will never even think of. I rely heavily on the teams at Legendary and Warner.’

The day-to-day work of putting a movie deal together is very standard. McGowan describes it as ‘usual lawyer work, it’s the same work day-in-day-out, it’s the stuff that a lawyer does, just transferred onto something that’s got a little bigger canvas.’

His team is currently handling everything from marketing campaigns to the last-minute tasks required in the context of releasing a movie.

Back to Victory Road

After rubbing shoulders with Hollywood’s elite on the red carpet for the release of the much-anticipated Detective Pikachu movie, it will be back to business as usual. Aside from the major projects, there is a surplus of daily issues that McGowan and his team work on to keep the Pokémon franchise running.

One of the major legal issues is the vast number of knock-off products that look to capitalise upon the Pikachu brand – in particular, the swathes of online retailers selling counterfeit Pokémon products.

There is also the TV show, which runs in 196 countries, although most of those licence agreements are handled through the Japan office. Still, McGowan’s team deals with shows that air in the US and EMEA. Add to that the manufacturing deals for trading cards, product testing and safety, as well as the management of the direct-to-retail business, called Pokémon Centre, which is based in the United States – and it’s not hard to see why McGowan says he never sleeps.

‘We have so many things going on, this company has so many activities: to the video game guys – we are a video game company, to the toy people – we are a toy company, to the movie people – we are a movie company, there are not a lot of other companies that can say that. But for us here in legal, we’re all of that. And some more!’