General counsel must pay attention to evolving stakeholder pressure: Lex Mundi report

The shifting landscape of stakeholder pressure – in particular the tilt toward sharper regulatory action – necessitates a change in risk management, stakeholder diligence and qualitative horizon scanning, according to a new report by Lex Mundi.

The Lex Mundi GC Summit Report 2023 titled Global Crosswinds, Stakeholderism and General Counsel concludes that:

• General counsel will need to get to grips with a perfect storm of negotiating lender KPIs and regulations that target carbon emissions against the backdrop of rising borrowing and energy costs. GCs and their management teams are only just now becoming aware of how environmental, social and governance requirements will shape refinancings, divestments, acquisitions, or business unit restructurings. Ccentral banks are imposing additional pressure on lending institutions. The report foresees GCs collaborating more with finance teams on negotiation of borrowing terms and with management on adherence to covenants and performance targets.
   
• Across different stakeholder groups examined in the report, some countervailing trends are surfacing, the exception being regulation which has become both more expansive and defined to include the ‘unwritten rule of law’. Data from 2022 implies that activism among shareholders has only increased and is more focused on environmental and social issues. The conversation around the tilt toward regulatory activism also brought to light the concept of the unwritten rule of law, in which courts draw upon alternative sources to fill a void of law and regulation as a basis for judgments that hold companies liable for climate change or other adverse ESG-related impact. 
   
• The combination of global crosswinds, stakeholderism and regulation are causing some general counsel to sharpen their focus on bridging external and internal constituencies.   While GCs may be less vulnerable to information asymmetries compared to other corporate functions, some are still taking steps to be better positioned for engagement based on deeper diligence and more time-intensive qualitative horizon scanning techniques, in order to support risk management, strategy and operations.

“The stakeholder governance paradigm is showing impressive durability against strong global crosswinds in terms of markets, geopolitics, and the energy transition,” said Eric Staal, vice president (global markets) at Lex Mundi.