Lessons for in-house legal from the RICS governance scandal

Written by Benjamin White, Founder of Crafty Counsel. 

Before last weekend, I don’t think that I had ever given any thought to the Royal Institute of Chartered Surveyors. And yet, “RICS” is now a must-read and unfortunate case study - the subject of a governance scandal that has led to the resignation of some of its most senior executives.

It’s also a story of direct relevance to in-house lawyers as it, unusually, includes the public and direct criticism of several of the lawyers involved, including the General Counsel of RICS.

The reason I’m writing this article is not to rehash the facts or that criticism - but to try and draw out some of the implications of RICS for in-house lawyers. Many of the points raised and recommendations in the Levitt review speak directly to some of the anxieties that I’ve heard voiced repeatedly by in-house lawyers in the community that we run under the Chatham House Rule at Crafty Counsel. As such, it’s an important and urgent case study for in-house lawyers in thinking about how we work and who we work for.

So, what happened?

Last week (7 September 2021), RICS published an independent review by Alison Levitt QC into the circumstances surrounding an internal audit report into financial controls conducted by its accountants BDO in 2019. The problem was not so much that BDO had given RICS its lowest possible “no assurance” rating into financial controls. The problem was in how “the system imploded” over the handling of the report.

Four non-executive directors had repeatedly challenged executives (principally the CEO and COO) over the internal audit, starting from their discovery at a board meeting in December 2018 that RICS had extended its overdraft facility from £4m to £7m due to inaccurate cash flow forecasting. Over the subsequent months, they repeatedly asked for further details and production of the BDO report (once they learned about it), only for this to be repeatedly delayed. The Chair then commissioned an internal governance review to be led by the General Counsel. The four non-executives objected to the appointment of the General Counsel to lead the review, as they believed she was insufficiently independent. She led it anyway, and found that there was no failure in the operation of the governance framework.

Finally, the services of the four non-executives were abruptly terminated by the President of the Governing Council (a feature of this story is the plethora of governance bodies and titles at RICS) - a move that Levitt concludes was orchestrated to a great degree by the CEO and COO in conjunction with Matthew Lohn, partner at RICS’ external advisers, Fieldfisher.

(The paragraphs above really do not do justice to the labyrinthine detail of what happened, nor to the Levitt review itself (the background facts are summarised at pp.7-10, and the recommendations at pp.20-21). I cannot recommend enough Professor Richard Moorhead’s blog post on RICS. Meanwhile, this article from building.co.uk gives a sense of the industry’s reaction: “Gleeds chairman in withering attack on RICS leadership after resignations bloodbath”.)

Levitt’s conclusions as they pertain to the General Counsel… and General Counsel generally

Levitt does not name the General Counsel of RICS, but she comes in for direct criticism in the review, notwithstanding her “conscientiousness and sincerity” in assisting the review. Professor Moorhead’s blog covers much of this in great detail, and I do recommend reading that blog for context on the below.

The Levitt review includes several specific recommendations relevant to the General Counsel and, by extension, for how other in-house counsel think about governance. (And, these are just a small selection of the recommendations, all of which are described as “interim” pending a full governance review!)

  • The General Counsel should not have a pre-existing relationship with RICS’ external legal advisers (the General Counsel had trained, qualified, and practised at Fieldfisher, before joining RICS on secondment and then joining permanently. “I have concluded that in performing her role in relation to these events, she placed excessive reliance on advice from her previous employer, Fieldfisher, who were RICS’ chosen external legal advisers.”).
  • RICS’ external legal advisers should be put out to tender every three years.
  • Specifically, Fieldfisher should be replaced.
  • The process for seeking external advice should be overhauled.

“For the future, there should be a framework setting out the parameters for seeking external legal advice and stipulating who can give instructions. There may be levels of spend for which authorisation should be sought from Governing Council.”

“Advice from external legal advisers should be non-partisan and should always be given in the clear recognition that the client is RICS itself, not any part of senior management. It should be limited to genuinely legal matters and should not extend to matters of strategy.” (A repeated feature of the Levitt review is that the CEO and COO identified themselves, and seemingly were identified by the General Counsel and Fieldfisher, as embodying the client.)

  • The whistle-blowing hotline should go to an independent third party if a complaint is made about or by a senior executive. “The fact that a whistle-blowing hotline is never used should be a cause for concern, not complacency.”

Just reading those recommendations is enough to get a sense of how badly wrong things went wrong at RICS.

Where do we go from here?

Five things come to mind.

1. Who should the General Counsel report to?

    A frequent topic for debate among in-house lawyers is who, ultimately, the General Counsel should report into. I would say I now more often speak with General Counsel whose reporting line is into the CFO or COO than to the CEO, and many General Counsel do not have a structured way of engaging with the Board. Indeed, some General Counsel take on the Company Secretary hat largely to have a reason to be in “the room where it happens”.

    One Chief Legal Officer wrote to me today on exactly this point:

    “So often CEOs think they are the company and the company is them. And if the executive reports to her/him, then it's very difficult from an organisational behavioural perspective and in practice for the GC to circumvent what the CEO wants...

    The only way you can really get around this is for the GC to have a reporting line of some description up to the governing board… It's all very well blaming the GC, but it's also the responsibility of the members of a governing board to develop a direct close relationship with the GC, independent of the CEO. This is much more difficult in those organisations where the GC reports to a COO or CFO. That direct relationship then enforces in the mind of the GC who the real client is.”

    2. The limits of being a business partner

      We’ve been hearing now for years of the importance of being commercial and being a “business partner”. The problem is, that’s not always consistent with being awkward and willing to say “no” or to remind your senior execs who the client really is. Business partnering ceases to be a useful concept when the exec team are pushing the boundaries of appropriate governance; for example, working with the General Counsel on handling “awkward” board members (or indeed shareholders).

      3. How to handle your old firm?

      We will all recognise the pattern of an associate leaving a law firm for a General Counsel role at a client company, and then sending work back to the old firm - indeed, back to one’s old boss. This doesn’t have to be a negative - the institutional knowledge that the law firm has on a long-lasting client relationship can be very valuable. But… many in-house lawyers I know have spoken of the importance of diversifying the company’s network of external advisers, and building new relationships. This can be difficult when the client’s relationship with your old firm pre-dates you. But, seemingly, the RICS situation is an important case study for what can happen when you’re too beholden to your former bosses.

      4. How to handle internal investigations?

      It’s never a nice feeling to be told that a second opinion is needed, or that you’re not the right person to run a particular project. But, part of the role of General Counsel is to know when to step out of the picture and accept that everyone would be better served (and you protected) by you doing so. It’s fairly common for the Board to ask for a second opinion on some difficult judgement call, let alone an internal investigation. Don’t get yourself into this situation:

      “The internal governance review purportedly conducted by RICS’ General Counsel in September 2019 not only reached the wrong conclusion, but was not what it appeared to be. General Counsel did not in fact conduct the Review herself, rather she had outsourced it to RICS’ external legal advisers, Fieldfisher LLP. Further, before the Review had even been commissioned, its conclusions had already been decided. The most important objective was that there should be no threat to or criticism of the CEO, the COO or the Chairs of the Management Board and Audit Committee.”

      5. Who can help General Counsel?

      We’re now in a situation where over 30% of solicitors practising in England & Wales are thought to be working in-house, and yet there is an absence of consistent, meaningful training and support provided to this cohort in relation to ethics, governance, and difficult decisions. The materials provided by the SRA and Law Society are largely confined to technical practice notes on the application of the SRA Standards and Regulations to in-house lawyers. I did find this copy of a slide deck from a training session the SRA ran in 2019, and the SRA does maintain an ethics hotline.

      This is nowhere near good enough. In-house legal is not only a large cohort, it’s the group of lawyers acting inside businesses and they are part of how sensitive decisions are made every day. Unlike in private practice, and outside the very largest legal teams (mainly banks), in-house lawyers tend to work in small teams or on their own, relying on their peers and informal networks and communities to sense check the most difficult situations. They work alongside or directly for the very people who they are required to challenge if doing the wrong thing. There is no other client. They are at once peculiarly exposed internally, and under-supported externally. Oh - and they pay for their practising certificates just like their peers in private practice.

      In my ideal world, we’d see practical case studies of difficult decisions and judgement calls, of every day ambiguity, led by current and former senior in-house counsel alongside other relevant practitioners and experts, and marketed, funded, and disseminated by the Law Society and/or SRA without further charge to practising certificate holders. A few of us are trying to fill this gap (ourselves at Crafty Counsel, Professor Moorhead, Ciaran Fenton… there are others). But so much more could be done.

      This week, it was the General Counsel at RICS. Meanwhile, there are public calls for lawyers at the Post Office to be investigated by the SRA. These are just the governance crises that have become public - many of us will have heard horror stories that didn’t become public, including of GCs leaving organisations under NDA. Let’s do better by our in-house counsel, and maybe we can nip some crises in the bud.

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