Wanted: Lawyers with business acumen
Natasha Palacio, Commonwell Mutual Insurance Group
When Amgen Canada assigned its top management committee last year to oversee a three-year strategic plan to guide the drug maker’s future, Senior Counsel Ryan Lennox was among those named to the team.
He was tapped for his legal expertise, of course, but for something else too: his grasp of business issues. With some of Amgen’s long-lived patents expiring for the first time in its 25-year history—and its new patent-protected medicines coming on stream in the next few years—the company turned to top officials for a roadmap, as Lennox puts it, “to get us from now to the future.”
His involvement in shaping Amgen’s future typifies the growing demand for in-house counsel to be financially literate so they can read a balance sheet, ask pertinent questions of the chief financial officer and, when necessary, raise red flags. Often, lawyers are not trained in the language of numbers, so learning to interpret them for bottom-line impact is fast becoming a necessity.
“There is an increasing expectation that lawyers are going to have these [business] skills,” says Lennox, who joined Amgen four years ago, eager to contribute more than his legal acumen. “I have always had a bit of this business inclination,” he says. “How can I get in there and be closer to the business and add value?”
That ability to combine legal skills and business smarts carries a premium in today’s corporate environment, with increased legislative and regulatory demands for fiscal accountability; a proliferation of complex global trade agreements with monetary consequences for contracts; and unpredictable, potentially costly, hits to the bottom line from cyber security and other external threats.
“The in-house counsel in the senior management team has to be financially literate and, beyond that, has to have financial capabilities to be a meaningful member of that senior team,” says Stephen Rotstein, Vice-President of Policy and Regulatory Affairs, and General Counsel for the Canadian Financial Planning Council. “That is table stakes now.”
Reinforcing his point is the annual “Top 10 Legal Risks for Business,” published in January by Borden Ladner Gervais. Almost all the listings (including climate change, honesty in law contracts, the Trans-Pacific Partnership and tax authority scrutiny) require some level of financial literacy, observes Andrew Harrison, Managing Partner of BLG’s Toronto office.
The topic of climate change, for example, inevitably leads to questions about pricing carbon emissions, with implications for back-office expenses and product sales, says Harrison. “Yes, these are legal questions but they are also very much bottom-line issues with financial repercussions.”
He likens financial literacy to the ability to speak a foreign language when travelling abroad: “You can get by with English, but if you understand the local language, you can get a much deeper and more refined understanding of what is really going on. That’s the way I would apply financial literacy to almost all of our business risks. You can go to your business clients with a much more nuanced level of advice.”
Back to the classroom
The appetite for knowledge about business concepts is growing.
In recent years, business schools have introduced graduate level programs for working executives that include courses on financial literacy. In other cases, business and law schools collaborate on joint degrees at the undergraduate and graduate levels to equip students in both disciplines. Finally, online professional development programs for practicing lawyers are also increasingly including financial literacy components.
“There are a bunch of issues where the lawyer is a critical player, but if they don’t understand why we are doing it and how we make money on it, then all they can do is quote back the code and the law,” says Rick Robertson, an Ivey Business School professor who teaches an executive education course on financial analysis for non-financial executives.
With the sharp focus on financial literacy, new specialty programs have emerged specifically for in-house counsel. In a move that was the first of its kind, the CCCA and the Rotman School of Management at the University of Toronto introduced the Business Leadership Program for In-House Counsel in 2014, with in-class and online modules offered over 12-14 months leading to a designation of Certified In-House Counsel—Canada (CIC.C).
In school and private practice, lawyers may learn little about business concepts, a gap that becomes evident when they join a company or non-profit as the legal advisor, according to CCCA Interim Executive Director Christine Staley. (Previously, as Director of Professional Development, she worked with Rotman on course content and assessment for the certificate.)
“All of a sudden they [in-house counsel] are immersed in human resources issues, financial issues and very strategic business issues that they would have had no training in,” says Staley. “You need to understand how to play both roles—business advisor and legal advisor—at the same time.”
So far, 64 in-house counsel have graduated from the CIC.C program, with 27 more expected by April 2016.
One recent graduate, Natasha Palacio, recalls the corporate culture shock she experienced after joining the Commonwell Mutual Insurance Group (previously Farmer’s Mutual) as in-house counsel in 2012. An experienced litigator in private practice, she moved to Commonwell to set up its legal department, expecting an emphasis on litigation work. But the job description quickly expanded to include corporate contracts and procurement, thrusting her into all aspects of the mutual insurance business. That posed challenges.
“I found there was a significant language barrier,” recalls Palacio, who ruefully admits she is math-phobic. “When you speak with other business people, it is very difficult for you to speak in a way that they understand you and you understand them.”
Before taking the course, she says, “I was very hands-off in terms of offering my own opinions in ways they would understand.” But the more she was drawn into senior-level meetings, she realized she needed to learn some finance fundamentals.
With the certificate, Palacio says she gained confidence in math and learned how to explain the “value added” of her own department, such as the cost savings accrued by keeping work in-house. Equally as important, she now feels equipped to communicate with others across the organization about financial issues: “I find that I am using the lawyer hat less and less, and the business hat more and more.”
That’s also the experience of Amgen’s Lennox, another CIC.C graduate. Unlike Palacio, he was familiar with financial concepts, having minored in economics at McGill University, completed the Canadian Securities Course and, early in his legal career, worked on mergers and acquisitions. Still, he wanted to hone his management skills to deepen his ability to contribute to Amgen. With his employer’s support, he pursued the certificate.
“Having financial literacy is foundational. It is fundamental to being a good in-house lawyer whether you are in the general counsel chair or you aspire to be there,” he says. As lawyers, he adds, “we are trained to be guardians of corporate integrity, but you have to go beyond that and become a trusted adviser to your client.”
In the renewal of Amgen’s strategic plan through 2018, for example, legal and financial considerations crop up across the company, including the impact of new and expiring patents on the future bottom line. As a member of the senior management team overseeing the plan’s roll-out, Lennox is in regular contact with colleagues to monitor progress. “We are constantly revisiting [the plan] and ensuring it is appropriate as the landscape shifts around you,” he says.
Increased accountability and trust
Meanwhile, changes in the legal profession are feeding interest in financial literacy, says Hugh Arnold, Rotman’s Academic Director of the CIC.C program. “The size of the in-house counsel department is increasing, the quality of the people in them is increasing, and there is a drive from the lawyers themselves as well as from the senior management of the firm to say we have these smart, highly paid people, and we want them to contribute to the whole business,” he says.
By definition, adds Arnold, “a good general counsel is someone who can deliver the legal support and advice needed within the firm and can also appear to his or her organizational peers as part of the senior team.”
Beyond the legal industry, public opinion and regulatory body insistence on accountability add to the imperative for lawyers to understand financial concepts, says Calgary lawyer Patricia McLeod, with 22 years of experience in regulated and deregulated environments.
Ignorance, she emphasizes, is no longer an excuse.
“If your legal professional accountability requires you to be at the [management] table and utilize financial statements, that is where the world is saying there is no excuse to say, well, your CFO didn’t tell you,” says McLeod, General Counsel for CareVest Capital Inc., a Calgary commercial mortgage broker and lender. “Lawyers have had a seat at the executive table for a long time. What is changing is our expectation of leadership in general about financial literacy.”
Even though she earned an undergraduate commerce degree (and later a law degree) from the University of Alberta in the 1990s, McLeod returned to school while working, earning an executive MBA from Queen’s University in 2011.
“The biggest thing for me was getting back to a place where not only did I understand how information rolls into your financial statements but [to refresh] the ability to read the notes,” she says. “Quite often as a lawyer I am not necessarily looking at the numbers; I am looking at the notes for contingent liabilities, litigation notes about pending or in-process lawsuits, recent share issues and basic liquidity.”
For his part, Lennox is thrilled that moving in-house lets him draw on his knowledge of law and business. “It’s fantastic,” he says. “The idea behind leaving private practice was to say, ‘How can you get closer to the business?’ It is a different model and a different mind-set altogether.”
This article was originally published in the Spring 2016 issue of CCCA Magazine.
Jennifer Lewington is a writer based in Stratford, Ontario.