Episode 10 10 June 2021
Lawyers, trust and risk
Principal lawyer, Geraldine Grace | Host, New Earth lawyer podcast
In this episode, I talk about how lawyers are not trained to promote trust, whether it's developing the trust of our clients, gaining the trust of communities or guiding clients to building more trustful relationships with their stakeholders.
In understanding trust, lawyers would also benefit from looking at the bigger picture, which means stepping back and appreciating the true nature of risk and clients' appetite for different types of risk. A more sophisticated appreciation of risk will enable lawyers to help clients establish more trust within their environments.
I am an experienced corporate lawyer, using the law to build purposeful, human-centred, Earth-friendly legal enterprises & ecosystems, for happier humans and a better planet.
I am also the founder and host of the New Earth lawyer podcast.
I am based in Melbourne, Australia, and an expert in enterprise governance, purpose, business & human rights and modern slavery. I established my own law practice Geraldine Grace in 2020, focussing on enterprises seeking purpose, and actors in the impact economy.
I am a legal advisor to not-for-profits with a national reach in impact and purpose. I work with Boards to optimise performance and help enterprises embed purpose and integrate human rights into their business.
I have over 20 years' experience practising law in Australia, the UK, Hong Kong and mainland China. I have worked for large global and Australian law firms and was a partner of a top-tier Australian law firm for several years.
I sit on the peak governing body of Australia's largest university.
[0:39] I talk about my favourite book on how lawyers can gain trust from clients, The Trusted Advisor, and the lessons I took away from it, mainly to diminish our focus on self when dealing with clients.
[3:28] Lawyers aren't seen as an ethical profession, and we suffer from a lack of the community's trust. I mention my view, which I discussed in a Lawyers Weekly podcast late last year, that lawyers need to reduce self-interest.
[6:48] When it comes to engendering more trust between our clients and their stakeholders, our training fails us, We are trained to warn clients not to trust, to be wary of risk.
[8:59] Risk, however, is a part of life. Lawyers need to know where our expertise on risk sits within the bigger picture.
[11:16] Lawyers should understand the area of risk and speak to clients about their specific risk management frameworks.
[13:00] A more holistic understanding of risk connects back to trust-building skills,
[13:45] I give two examples of where clients might trade off taking a higher risk for building more trust - one of eliminating non-competition clauses in employment contracts and another of Atlassian's simplified mergers & acquisitions term sheet.
[17:08] Lawyers who want to guide clients toward more trustful relationships would gain from learning where clients are prepared to trade risk for trust, what the legal risks are as well as the real-life risks and gains.
The Trusted Advisor by David Maister, Charles Green and Robert Galford.
David Maister's website: davidmaister.com
Governance Institute of Australia's Ethics Index for 2020.
The Lawyers Weekly podcast where I discussed the Governance Institute's Ethics Index 2020 findings about lawyers, with Lawyers Weekly Deputy Editor Jerome Doraisamy and Governance Institute of Australia's CEO Megan Motto.
Governance Institute of Australia's Certificate in Governance and Risk Management (I have no affiliation).
Australian Institute of Company Directors' Course on Strategy and Risk for Directors (I am a member and a graduate of the AICD Company Directors' course but have no other affiliation).
My podcast episode with Professor Camilla Andersen on Comic Contracts where we briefly discussed trust and lawyers.
Atlassian's blog post 'The M&A Process is Broken' written by its Chief Legal Officer Tom Kennedy about the company's publicly available term sheet for acquisitions.
Hello, everyone, my name is Geraldine Johns-Putra. And this is the New Earth Lawyer podcast. Today I wanted to talk about a pretty big topic: lawyers, trust and risk. I think I'm getting quite ambitious, tackling these massive topics. But let me tell you what I think about these subjects. When we talk about trust in lawyers, often we focus on a couple of things. Firstly, we tend to focus on how lawyers can gain more trust from their clients. Secondly, we focus on the standing of lawyers and the trust that they have in general from the community.
Now, there have been a number of books and articles, I mean, many, written about how lawyers can gain more trust from their clients. And my favourite book on this topic is actually The Trusted Advisor. It's not a new book, it was actually published in 2000 and it's written by David Maister, Charles Green, and Robert Galford.
So David Maister is a guru of professional services firm management. He is a former Harvard Business School professor and a consultant. And when that book came out, and many of you watching this, I suspect are going to be too young to remember it, I had just been promoted to senior associate at the law firm I was working at. And I was given that book as a birthday present. And I loved it, it was a very popular book, David Maister was very popular at the time. Lawyers of all seniority were reading it and recommending it. And I devoured it, right? So it's a great little book. What's great about it is that it's easy to read, it's full of lists, which lawyers like. And so it's right up our alley. And it even has a formula in it, that tells you what trust is all about. So like most good lawyers, I applied the formula and worked my way through the book.
And after practising the tips in it for 20 years, I will tell you that the biggest lesson from the book, and the biggest part of the formula, is that lawyers when dealing with clients need to remember that it's about less self-orientation, not more. In other words, it's not about you. So stop focusing on yourself, your thoughts, your feelings, and start focusing on your your client, stop thinking about how you can prove yourself and sound clever, or even get the client to engage you or give you more work, and start thinking about what the client needs. So that was the big lesson from from the book. And through that said, David Maister and his co-authors, we could generate more trust with clients.
Truth be told, lawyers are not seen as a very ethical profession and therefore trust in us is pretty low. The Governance Institute of Australia does a survey every year, they call it the Ethics Index. It's well respected. And this year, or the end of last year, 2020, lawyers fared a little bit better than previous years, but still really not that well. We're in the bottom 10 occupations when it comes to how well our ethics are perceived and we could therefore say that the community genuinely doesn't trust lawyers much. I spoke about this in a podcast for Lawyers Weekly with the CEO of the Governance Institute, Megan Motto, and my take on it at the time was that lawyers need to be showing the community that as a profession, we take our duty to the wider community seriously. And hence, we're not just focusing on our own interests. Again, that idea that we're not orienting towards self, that we're orienting towards either client or community, or both.
So, in short, you could say the lesson is think big picture, lawyers. Of course, there are individual behaviours that go into how you're going to establish trust with individual clients. So you need to know what you're talking about, you need to be credible, you need to do what you say you're going to do, follow through on commitments that you make, you need to be reliable. All of those are important. You also need to get comfortable with breaking down that professional barrier that many lawyers have, and many professionals have, that tells us that we have to put on our serious, authoritative persona. We can break that down and start acting like human beings and treating the client like a human being. Ask them how they're doing, take the time to get to know them. And for goodness sake, don't be tempted to charge the client when you're doing that.
Now then, drawing out to the bigger picture of trust. If you listened to my recent podcast, or you watched it, with Professor Camilla Anderson from University of Western Australia, she does the comic book contracts. We did talk briefly about trust. And Camilla had a humorous remark that she made, she said, when she brought up the word trust, she said, all the transactional lawyers are just going to tune out when the conversation turns to trust, which is a joke, but you know, there was some truth in it.
What Camilla and I were talking about, when we were talking about trust, was the way in which lawyers can help to cement trust between the client and the counterparty. So not between lawyer and client, but between the client and relationships that the client might have.
As lawyers, we're not really equipped to deal with the language and the dynamics of interpersonal trust. You know, all of the issues that we have with building trust with our own clients, and with the community, actually, I believe has stemmed from this. What do we deal in? We deal in pitfalls, landmines, bear traps. We deal with the devil that's in the detail. We deal with what can go wrong. We don't like taking chances. Our training is not about taking chances. And we hate to advise our clients to take chances. In other words, we hate to tell our clients to trust.
So we see ourselves, when we act as lawyers, and we advise our clients, we give legal advice, as protecting our clients from risk. But here's something that I think is important for lawyers to keep in mind. And that is that risk is a part of life. The whole area of risk as a discipline has developed and companies recognise this. Especially if you look at the financial sector, risk is now a separate department in itself, the risk teams are well resourced and staffed and they're massive. This not just in the financial sector, you also find risk teams where, in industries where safety is a priority. So the aviation sector has huge safety and risk teams, for example. So the whole area of risk as a separate field, as a separate discipline, I believe lawyers would benefit from gaining more than a passing knowledge of, because it's going to increase our understanding of how risk fits into real life.
When I began to advise clients at a senior level in the financial sector, and indeed, when I undertook secondments to major banks to sit in their legal teams as an advisor, I was struck at how relatively undeveloped my understanding of risk as a subject was. Whereas in banks, for example, everybody is more or less trained on the discipline of risk and understand the the elements, the fundamentals of it. So, as a lawyer, I realised that I understand certain types of risk. I understand compliance risk, I understand regulatory risk, to an extent I understand reputational risk. In my areas of legal expertise, I can advise on how to control those risks with legal solutions. But I found that I really came to benefit from understanding that there are many different types of risk, and many different ways to control and manage risk. A legal solution is one of those solutions or one of those controls, and that knowing which area of risk I was touching on, in my advice, actually made me a better lawyer.
Now, as I advise boards, and even sitting on a governing body myself, I've come to appreciate that every organisation has its own appetite for risk, recognising of course, that risk, as I said, as a part of real life. Every organisation is going to have its own tolerances for how much risk it's prepared to bear in which areas. And good governance means that this should be written down, and it should be signed off by the governing body or the board of the organisation.
So what I'm suggesting when it comes to risk, and lawyers getting to know risk better, the broad meaning of risk, I mean, firstly, it would really help lawyers to get - every lawyer - to get a basic understanding or education on this discipline of risk. The Australian Institute of Company Directors runs courses on risk from a governance perspective. The Governance Institute of Australia also has a range of courses that a great on risk management and risk governance.
The second thing I would say is, if you're a lawyer, and you are advising clients, at a relatively senior level, it would pay to have a conversation with your client about their organisation's risk management framework, their risk appetite statement, and the risk tolerances of the organisation. Because if you either are or you're aspiring to be the go-to-advisor for their riskiest issues, or their most critical pressing issues, then it really would benefit you and the client for you to understand what the organisation sees as its risks and what it's able to or willing to tolerate, in terms of risk. Have a chat even with the Chief Risk Officer or with the Chair - confidential chat - with the Chair of the Risk Committee if they've got one, or their Audit Committee.
Why is this important? And what does this have to do with trust, which I also was talking about earlier? Well, as I said, it's going to help you understand where the client can accept a risk and where it can't. So this is going to help with the individual trust that you develop with a client but it's also going to help you guide the client to have more trusting relationships with its stakeholders. So clients, when they talk about this quality in lawyers sometimes refer to it as being "more commercial". What they mean is the lawyer's more realistic when advising on issues of risk.
So Professor Camilla Anderson and I, we were talking about, just to give you an example, organisations who are prepared to remove non-competition clauses from their employment contracts, meaning clauses that prevent the employee from working with a competitor after they leave the organisation. Now, these clauses most lawyers know they're tricky to enforce, because there's a public interest reason that prevents many of those clauses from being enforceable because it's really preventing someone from being able to earn their livelihood.
So many organisations understand that they're not even going to try and enforce these clauses in their employment contracts. So Camilla was giving us an example of an organisation that just dropped it from their employment contract, their standard employment contract and that would have developed more trust with the organisation's employees because they were prepared to accept that particular risk.
I'll give you another example. In 2018, the software company Atlassian, huge Australian headquartered software company, made public its term sheets on how it enters into acquisitions of companies. Now Atlassian acquires many companies. At that stage, it said it had acquired over 20 and what their publicly available term sheet does is it strips out those clauses that they just don't think they need, including a number of warranties. And including a number of clauses that, you know, now actually limit the liability of the people they're buying from. So they've actually included clauses that are favourable to the companies or the founders that they're buying companies from. And they only kept in the basic ones that they felt they needed. Now, Atlassian is, as I said, a huge company, and Atlassian could have used its massive bargaining power and its might to put in whatever clauses it wanted.
But here's what it said. It didn't want to do that. The Chief Legal Officer, I'm going to quote the Chief Legal Officer here, he said, the mergers and acquisitions process is outdated, inefficient, unnecessarily combative, with too much time and energy spent negotiating deal terms, and not enough on what matters most: building great products together and delivering more customer value.
In other words, Atlassian is saying we want to focus on building relationships that are full of trust with our newly acquired businesses and partners. And we're going to accept a measure of risk to get there. And being open with the term sheet, the Chief Legal Officer said demonstrates the trust that we are placing in you, the founder and a future leader at Atlassian.
That is the bigger picture. If you're a lawyer who is developing, you're in your early years in the profession, I would advise you to take a look at where your client might be telling you something like this. Where your client's saying I'm willing to take a risk, because I want, in exchange for that, I want to build trust somewhere with a stakeholder. When you see points being traded off in a negotiation, take note, because those are the areas, the opportunities where you're going to learn where clients are willing to accept risk for trust.
It will pay to understand, do the research and understand what the legal reasons are behind those clauses. What are the black-letter legal risks of giving up a particular point, as well as what are the real-life risks and gains. So in the future, you can advise your client, on what those risks are, and you can guide them on making an informed decision where they can be prepared to accept a risk in pursuit of trust.
Ultimately, trust is what makes a society. Not protecting against every risk that there is. A society or community that lacks trust is going to fall apart very quickly.
So that's it from me. Those are my thoughts on trust, how trust can make us better lawyers or dealing with trust can make us better lawyers. If you've liked this episode, then please like it on social media, and think about following the New Earth lawyer on our social media channels. Thank you and goodbye.