Balancing commercial vs. legal decision making to drive value at board level

On 16 and 17 May 2024, Blake Morgan was delighted to host four roundtable discussions at “The Lawyer GC Strategy Summit” in Portugal. Chaired by Blake Morgan Partners, Penny Rinta-Suksi and Gemma Spiceley, the roundtables brought together GCs and Heads of Legal from a range of organisations across various sectors, who shared different viewpoints and ideas on the focus topic: “Balancing commercial vs. legal decision making to drive value at board level”.

There was much thought-provoking discussion which identified different themes across each roundtable. We have collated these themes into a summary paper for our Counsel+ community which we hope will prove insightful and help identify strategies that our GC community might be able to employ in their businesses.

The key themes from the roundtables are set out below:

What we mean by commerciality and what is material value for your business and stakeholders?

• As a GC, it is important to understand your organisation’s tolerance for risk and the risk level of any matter under discussion – don’t sweat the small stuff and don’t just point out the risks.
• Be a business partner – understand the business and the sales process, from product development all the way through to the after sales service.
• Based on their in-depth knowledge of the business, the GC can help the board make informed decisions / reach conclusions. GCs need to look at what the solutions to problems can be and help the business find palatable, workable pathways.
• Build trust within the organisation so the board trust the advice from the GC and any commercial suggestions that are made.
• A GC has a 360^o view of the organisation therefore can help to set strategy for the business. Some felt they had a better 360 snapshot than their board members, as they knew what was happening in HR, business, marketing functions etc.. so had a holistic understanding of the effect of the relevant action, risk or decision.
• Context is important and the size of the organisation. In some cases, the ideas stage happens at the coalface; in other cases, it happens at the board – it depends on the organisation.
• There was irritation at the expression “you’re not being commercial!” being used by some colleagues as a false accusation where the GC is not endorsing a particular action.
• Understanding on the board needs to be built-up, on how business incentives might drive certain behaviours e.g. sales bonuses or commissions etc..
• Good GCs take the long-term view. It was felt essential for the business and colleagues to understand ‘commercial value’ is for the long-term, and not just for short-term decision making.
• Legal are looking at value creation and preservation, not just short term decisions e.g. what happens to valuable Intellectual Property Rights created in a project?
• Legal analysis is an important factor in commercial strategy.
• Cost benefit analysis – what assumptions are being made, what trade-offs are the board prepared to accept? GCs need to understand the business’ drivers and goals. Understand when there’s a commercial or legal redline and when there is flexibility.
• As part of commercial decision making, there needs to be a proper understanding of revenue, assumptions, compromises and trade-offs before advice can be given.
• Some GCs felt that they were often more aware that a deal was not commercial than the commercial team itself. There was a concern that some colleagues thought ‘legals’ were a separate language absolving colleagues of basic responsibility to check terms. This is not effective as they ought to be on top of the commercial deal.
• Whether the organisation is regulated or not affects the level of autonomy that a GC will have.
• Legal need to be cost-effective and speedy in delivery.
• The advice given does not always need to be 100% perfect – think bigger picture. The “Daily Mail” test can be helpful – “will what we do now be in alignment with the organisation’s ethos and reputation?” – what would be the consequences if it ended up on the front page?

How your contribution as in-house legal is valued:

This was a controversial subject. One strand followed this theme:

• If the GC has to show value then they are doing something wrong.
• Valuing legal is linked to ego, and has no place within an organisation.
• GCs must support the wider teams in the organisation – there is inherent value from helping others do their role better.
• Value is evident when the business involves legal early on – means GC is trusted and therefore adding value.
• Don’t reduce legal to a line item in the balance sheet. Legal does not need to be measured / data driven to show its value.
• The GC is the safe hand on the rudder – there is value in steering the organisation in the right direction.
• Build the correct culture in the organisation then it will know the value of legal.

Others disagreed and followed this theme:

• GCs should control the narrative and voluntarily offer information to colleagues and the board on their contribution, on the basis that this will help with legal team recognition; allow others to better understand the contribution legal make; and support pay rise and bonus discussions.
• It was, on balance, more widely thought that legal should evidence what the team brings to the table. Especially useful for pay rises / performance bonuses.
• There was concern that strong incentivising bonus arrangements around success were not put in place for legal, in addition to the usual salary budgets. Given the important contribution legal have to the success of the organisation, this was thought to be a missed opportunity.
• Some questioned how legal should be compared and valued – should it be in the same way as other teams within an organisation e.g. sales? What is value? Is it in the eye of the customer? Does it relate to value-add or not?
• Use similar data sets to the business e.g. KPIs / data on performance / scorecard for legal teams to evidence when they add value.
• Broadly it was agreed that when legal does a job well, the real value is in the outcome which is not necessarily obvious and easy to measure. However, some of the value can be ascertained from spontaneous feedback and soundbites from the rest of the business.
• There was a concern that some internal colleagues e.g. sales teams had a vested interest in getting a quick sign-up. They would try turning pressure tactics on legal and paint a picture of legal being obstructive. They want “sign-off” but unclear what is meant by that term, and some hide behind it. Some of these ‘saves’ should be quantified, measured and shared with the board as real value-add.

We wish to thank all of the roundtable attendees who provided such an engaging and dynamic discussion.

Penny is a commercial and projects partner, and Gemma is a corporate partner. If you would like to contact Penny or Gemma concerning anything raised during the roundtable, or are looking for any commercial, regulatory or corporate support, they would be very pleased to hear from you.

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