Currently serving as Chair of Newcrest Mining and Australia Pacific Airports Corporation, until recently Peter served as chair of Vicinity Centres and has previously held board positions at GUD Holdings, Alumina, ANZ and NBN. He has a strong background and breadth of experience in business, corporate law, finance and investment banking advisory work. Peter was a partner of Freehills until 2005, where he served as Chief Executive Officer from 2000 and is a former member of the Australian Takeovers Panel. He has also had significant involvement in advising governments and government owned enterprises and remains a member of the AICD’s Corporate Governance Committee.
ACC Australia spoke to Peter Hay recently and asked him to draw on that experience by sharing his insights across organisational leadership, of how the General Counsel/Chief Legal Officer can gain a ‘seat at the table’ and deliver added value to their organisations.
1. How do you measure your success as a leader – what guides you now that you have the benefit of so much experience and perspective as a leader?
The performance of the enterprise is most important and one thing I take close notice of is whether people are proud to work in the organisation. If the workforce takes pride in what they’re doing, they collectively understand the business purpose and they’re part of that journey, then that’s a fair sign that the leadership of the organisation is on the right track. There are all sorts of mechanisms to measure how the organisation is performing and these include customer feedback and the relationship with suppliers and employees. These are all sources of valid feedback that reflect whether you as a leader and an organisation are succeeding on your own terms. You can define success as partly financial, but it’s also about achieving the desired market position and the different sort of non-financial criteria you want to apply.
2. Association of Corporate Counsel (ACC) research shows that in Australia, fewer General Counsel (GC)/Chief Legal Officers (CLOs) report to the Chief Executive Officer (CEO). As an experienced board chair, do you think it important for the GC to have a direct reporting line to the CEO?
I’m not sure the reporting line itself is important, but I believe it is important that the General Counsel has a clear line of communication to the CEO. The doors to both offices should always be open and either party should be able to engage with one another without necessarily having hierarchical barriers in the way. What’s also important is for the CEO to be seeking input from the General Counsel on what I term ‘critical decision making’; spanning a wide range of issues, from M&A deals to risk management, compliance and a range of broader legal issues.
I really believe it’s more a matter of how the job is fashioned than of identifying a specific formal reporting line. I’ve seen a number of examples where the GC doesn’t specifically report to the CEO, yet they still have an open working relationship and the GC is still included in critical decision making.
3. What advice would you give to a GC that doesn’t have that direct line of communication with the CEO? How should they seek to elevate themselves to have that sort of collaborative relationship?
The first question the GC should ask is, why don’t I have that line of communication? What is it about my role that leads the CEO to not want that level of engagement with me? What is it that leads the CEO to not want to include me in that critical decision making? Is it something I can change or is it a situation that won’t change? If I can’t change it, then it’s probably not a situation that’s worth staying in. I must admit I don’t think I’ve ever witnessed a situation where the GC doesn’t have a direct relationship with the CEO and that includes where they haven’t had that direct reporting line. Importantly, however the GC has still been included in critical decision making.
4. How can boards ensure the GC can provide independent advice to the board?
As chairperson I would always take an interest in the hiring of the GC, of making sure we have the right person. Then it’s a matter of monitoring performance. The GC’s independence is critical and that can be threatened by management seeking to exert a level of pressure to ensure they’re following the company line. As a board member you do get some insight into that and whether an independent view is being delivered. As a chairperson, I always make a point of ensuring an open dialogue exists with the GC and I think that’s valuable in terms of supporting that independence. The board always has the option of seeking external advice and that can be a way of validating or being seen to be validating the view of the GC.
5. What advice would you provide to GCs or aspiring GCs in building relationships with a board of directors and building credibility within their organisations?
I think in any job you have to work on establishing your purpose. It’s always worth asking, what am I contributing to this organisation that makes me worth having around? Or, to put it another way, how am I contributing to the critical decision-making forums in our organisation and is it worth having me involved in them? In reality, only performance can get you there. You either have to be hired on the basis that you will be included in those forums, or if you haven’t you have to ‘muscle’ your way into them to demonstrate that you should be there. This is not only a matter of demonstrating your legal skills but also importantly, your legal leadership skills because you are leading a function and often a team of people. I’d also point to the importance of demonstrating a high level of business acumen. A GC should be expected to be able to demonstrate a high level of understanding of the assorted legal and risk issues within the context of the company, but again it’s also and in some cases, equally important for that person to demonstrate a level of business acumen that shows an understanding of the company, the wider industry and the assorted external factors at play. I would emphasise though that in all roles in life, you need to think about, how can I demonstrate to the people I work with that it’s worthwhile having me involved when key decisions are being discussed.
6. Do you think GCs and in-house lawyers in general have a lot to offer as independent board directors?
I think there are some good examples of people who have made that transition. I think a GC that’s been part of a management group at the top end of a large corporation, would have the opportunity to absorb a huge amount of information and experience. That provides an ideal learning environment to be a board member. But again, it comes back to that business acumen. I don’t think lawyers get on boards just because they’re lawyers, they get there because they’re considered to have achieved a level of business acumen which suggests they can contribute and the legal background is probably secondary at that point.
7. What are some of the key business lessons you’ve learned in your governance career?
One of the first lessons is that you really need to be learning all the time. But there are a huge number of lessons. Through a combination of running a business and being a non-executive director, a lesson I learned early and over again relates to the importance of culture and of ensuring an organisation has a dynamic culture that’s conducive to meeting the objectives of the business.
I really believe that business is about so much more than money. Sure, you have to make a profit, but you’ve also got to do the right thing because you’ll always have a range of stakeholders that are going to be affected by how you run your business and importantly, doing the right thing, should always be a key is a key facet of your culture.
All businesses have to be wary of being dragged into short-termism, that concept of maximising your half-yearly or yearly results at the expense of the long-term good. You can never lose sight of the long-term outlook and the overall outlook for the company.
I personally believe that as a director, you need to ensure that bad news rises fast. If something is going wrong, I want to hear about it straight away and so the issue can be addressed as quickly as possible. I also closely monitor the weight of discussion in boards, what topics are being raised and how often? Some directors complain about getting lost in compliance. To me that’s their own fault. The board should be primarily concerned with strategic issues and outcomes and while compliance belongs on the agenda, it should seldom be allowed to be dominated by it.
I also believe a big part of governance is ensuring the board has the right set of skills, experience and diversity. Risk is obviously important, but my simplistic approach to risk is that most risk is managed by the hiring of competent people.
8. You have experienced a number of crises in your time on Boards, including the current COVID-19 pandemic. What do you see is the role of the General Counsel in a crisis?
I don’t think it’s different necessarily, but some aspects of the role are certainly heightened in times of crisis. No matter whether the crisis is caused by some sort of failure by the company to do something it should have done, or by external factors, the GC has to play a critical role in responding so as to protect the company’s reputation by communicating openly and redressing any damage caused to third parties. It might involve dealing with insurers or with suppliers for example. If it’s a regulatory issue, then obviously the GC is critical in dealing with regulators.
For something like COVID-19 – just knowing the law is critical, because things are changing so quickly. For example, right now the law relating to employees, which is not straightforward in normal times, is even more complicated, and it’s up to the legal team to guide management in that regard. So, to use that example, the crisis heightens the focus on the GC’s legal knowledge and judgement.
9. What are some of the critical skills you believe a General Counsel needs to achieve that position within a listed company?
There are some obvious professional skills in terms of competency as a legal officer, but more broadly, independent thought processes and evidence of that independent thinking is critical. Can they demonstrate a level of business acumen that will allow them to play a wider role in the business, without compromising their independence? I should also emphasise the importance of the GC as part of the leadership of an organisation and the critical role they play in identifying and ensuring the values of the organisation are in place and that mechanisms are in place to ensure those values are being effectively adhered to at all levels.
10. What advice would you give to someone considering going in-house?
If you want to contrast life in a law firm with that in an organisation, I believe companies tend to be more hierarchical. Admittedly, that’s not necessarily a black and white distinction because some organisations are obviously very collegial, others less so. Thinking in terms of a career path, somebody who has a business qualification or a business background, might find it easier to progress in a GC role than someone with pure legal training. It’s also a question of interest. Are you interested in the business or the industry this company operates in? If not, it’s probably not for you. In that respect there’s a distinction between private practice and in-house. In an in-house role, you’re going to be focussed on the company’s business, their industry and that business environment. Contrast that with private practice, where you’re likely to be exposed to a broader range of businesses and industries.
ACC Australia thanks Peter Hay for sharing his insights and experience for the benefit of our members.