General counsel must adopt a forward-looking approach to assessing and mitigating legal risk

In a 2010 paper, former General Electric general counsel Ben Heineman laid out a vision in which the "ideal of the modern general counsel… is an acute lawyer, a wise counsellor and company leader" and that the essence of filling this role "is to move beyond the first question: 'is it legal?' to the ultimate question: 'is it right?'" He argues that the job "involves not just dealing with past problems, but charting future courses; not just playing defence, but playing offence".

I must admit that when I first read this, I thought it sounded idealistic and perhaps even unrealistic. I no longer think so. Instead, I believe there is now no way to give first-rate legal advice without effectively adopting that broader mindset. I think for senior lawyers, especially in global companies in highly regulated industries, Heineman's two questions – 'is it legal?' and 'is it right?' – are increasingly merging into one.

Helping a business navigate the current external environment requires its senior lawyers to be conscious not only of what the law is in any particular jurisdiction, but also of how the law might evolve in the future. They must also be aware of how the company might be judged based on the application of broad standards, by several regulators, perhaps in numerous jurisdictions, all while acting with the benefit of hindsight.

By and large, lawyers are not trained for this sort of approach. Rather, they are trained to understand, interpret and apply existing rules to a particular set of circumstances.

I also recognise that this approach is easier said than done. In potentially going too far, we run the risk of 'boxing in' the business unnecessarily – by declaring a course of action to be 'unlawful', when we really mean it is 'imprudent' in light of evolving standards. Therefore we need to make clear these different gradations in giving our advice, so that the client can factor those into its decision-making.

That said, the best legal advice will need to encompass all of these broader considerations. So how can this mentality be fostered? There are probably a variety of ways to do it, but let me describe how we have approached it at HSBC.

First, and perhaps simplest, is that it is necessary to articulate that this is the expectation. Lawyers must understand that it is their job to express these kinds of views even when not solicited from those they are advising.

Second, the culture must promote and even reward the proactive escalation of concerns. If a lawyer sees red flags, raises them and then those concerns are not addressed, the lawyer must feel empowered to escalate the issue. Among other things, that makes it important, especially in a global company, that the chief legal officer has all of the in-house lawyers ultimately report to, and have their compensation determined by, him or her.

Finally, at HSBC we have formally incorporated into each lawyer's performance scorecard – the basis for their evaluations at the end of the year – the identification and mitigation of forward-looking legal risks faced by the bank.

One danger, of course, with fostering this mindset is that the chief legal officer or other senior lawyers might become marginalised because they are viewed as not 'commercial' or not 'business friendly'.

To prevent this, the right culture must exist within the company. The board and the CEO have to be receptive to, and even demand, this kind of advice from the lawyers. That is certainly the case at HSBC, where the institution's reforms and cultural shift were prompted by an acknowledgment that HSBC needed to change its business model to continue to be successful and, as the group CEO likes to say, "future proof" itself.

This article is based on a speech given by Stuart Levey, chief legal officer at HSBC, at The Economist's recent general counsel forum.