How can in-house counsel better talk to their companies about compliance?

Following the collapse of Silicon Valley Bank in part because lobbied-down regulations failed to prevent it from taking the risks it did, companies and their CEOs have begun to look at regulation in a different light. Start-ups, especially, are slowly shaking off the habit of worrying about compliance solely at the hour of need instead of in the regular course of business.

Still, the primordial task of the in-house counsel – telling company leadership how to comply with government regulation – remains a delicate task.

Irene Liu, founder of the general counsel advisory Hypergrowth GC and a regular contributor to Thomson Reuters, sat down with Gunderson Dettmer partner Sangeetha Raghunathan to come up with four suggestions on how in-house and general counsel could more effectively discuss regulatory compliance with their company’s executives and management team.

First: Approach every compliance issue as a brand risk

What companies needed help understanding was that its failure to comply with regulatory requirements was not the sole problem of the in-house counsel but the company as a whole.

“Look at any corporation or financial firm from Main Street to Wall Street, and you’ll see that failure to properly comply with regulatory requirements can cause significant damage to an organisation’s reputation and severely impact the goodwill of its brand in the eyes of consumers and the market,” Liu said. Liu was referring to the U.S. Securities and Exchange Commission’s public charges against over 10 Wall Street brokerages for faulty recordkeeping late last year. The charge cost each of the firms US$ 125 million to settle.

Costs aside, damage to a company’s name could take years and serious investments in marketing to bury, Liu pointed out.

Raghunathan agreed. “A company’s reputation and brand image in the market is crucial to its success, especially in a retail or consumer setting,” she said. “Any damage caused by improper compliance with regulatory requirements can be very harmful to the company going forward, so you can get the ear of the CEO and the business about compliance by positioning it as a brand issue.”

Second: Increase internal influence

“Clearly, it’s much more difficult to make strong cases for adherence to compliance regimes that management might view as overly onerous if your insights and opinions don’t carry much weight, especially around the executive table or the corporate boardroom, and if you don’t fully understand the business,” Liu said.

Her advice was for in-house legal teams and compliance officers to build their influence laterally, or across the company, before earning the attention of the decision makers higher up.

General counsels could collaborate with their companies’ IT, HR, product, or finance teams to better understand company operations and build cooperation across departments. This, in turn, would allow general counsels to raise more informed compliance concerns to management which the relevant department could confirm.

These company departments would also be more open to addressing compliance concerns if they knew the general counsel or in-house counsel was on their side, Liu said.

“… [It’s] actually an important attribute to be curious and connected — simply because you need to know what is going on in the business,” said Raghunathan.

Third: Increase external influence

Liu also suggested that general counsels regularly touch base with allies outside the company, such as trade associations. Among the benefits of staying in touch with trade associations were:

• They were a good source of market information,
• They could provide support in any investigation or case against an in-house counsel’s company, whether by filing amicus briefs supporting the company or helping to locate certain resources, and
• They could help lobby the agencies or Congress for the company’s interests.

“[Despite] a string of losses in court for regulatory agencies like the Federal Trade Commission and the U.S. Department of Justice, many regulatory and enforcement agencies are not changing their stances,” Liu said. “In fact, there seems to be a lot of activism among government agencies right now, so it’s critical that the legal and compliance functions within companies foster allies both inside and outside of the company.”

Fourth: Watch out for AI regulation

Artificial intelligence remains a hot topic, and one emerging question with regard to regulation and compliance is whether – and how – AI should be regulated.

While OpenAI, the creator of the popularly used, generative AI platform ChatGPT, has recently expressed that it wants to be regulated, the U.S. and international governments continue to scratch their heads trying to figure out how to best do so.

Liu said it was “critical” at this moment for in-house counsels in companies in the tech sector and adjacent industries to closely monitor regulatory proceedings involving generative AI.

“It will be extremely interesting to observe whether and how … companies and start-ups deep in the AI space develop their own responsible framework towards AI until the government’s own regime of regulation comes down,” she pointed out.