Law firm governance is rarely considered a topic worthy of a “60 Minutes” investigation. This might not be the case for long.
I’ve been tracking the fallout from the demise of Dewey & Leboeuf, a legendary (and bankrupt) global law firm that allegedly veered so far away from sound governance that several members of its executive team are now facing criminal charges and civil suits.
It’s a fascinating and sad story from so many angles. But the one that most intrigues me is how blind the firm’s leaders were to reputational risk.
Reputational risks threaten a firm’s ability to do business based on its perceived value, trustworthiness and credibility. Deloitte has described this type of risk as a “meta-risk”, capable of being a larger menace to firm survival than a financial setback or problematic compliance issue.
The shenanigans at Dewey exemplify the worst example of what can go wrong if reputational risk isn’t systematically addressed.
And if the Dewey drama wasn’t enough, legal advisors are now in the middle of the intersection of regulated industries trying to regain public trust and regulatory regimes trying ensure they do so. Media and other stakeholders will look for dissonance between the new values espoused by high profile corporations in clever communications campaigns (e.g. Goldman Sachs) and their third party advisors, who traditionally prefer to stay in the background.
Which leads me to wonder how many leading Canadian firms factor reputational risk into their governance procedures. I don’t presume to know the answer. I can, however, share my observations.
1. Every firm in a regulated industry should understand and address reputational risk – not just public companies, but private firms, too.
2. When one major firm is exposed as irresponsible (or corrupt), the integrity of its peers is called into question.
3. Lawyers are skilled at dealing with reputational risk on behalf of their clients. They know that it stems from corporate strategy and radiates beyond mere legal technicalities into a much more complex web of long-term implications.
4. Despite understanding reputational risk as it applies to client work, lawyers often make decisions about their own firm strategy based on narrow or outmoded thinking. Constraints of time, resources and personalities are the most frequently cited explanations for such decisions.
5. Societal trends towards transparency and mutuality present opportunities for firms to take a wide-angle view of reputation management. These trends aren’t fads to be addressed by a committee or press release. They’re here to stay.
6. Firms that factor reputational risk into long-term strategy will outperform – if not survive – their competition.
My aim is not to scare you or sound sanctimonious. There are a lot of options for firms willing to address reputational risk, once they understand the concept and the implications.
Next week, I’ll highlight the main areas of risk that I’ve observed in law firms and some ideas to address them. I’d enjoy some conversation on this topic in the meantime. If you have a comment or point to make, please share your perspective here or send me an email.