2012 Chief Legal Officer Leadership Forum (Washington, D.C.)
May 24, 2012
Executive Vice President, Legal, Governmental Affairs and Sustainability, and CLO
Cliffs Natural Resources, Inc.
“Reflections of the Evolving Role of the CLO”
[Man]: Our final speaker of the day has a great presentation entitled “Reflections of the Evolving Role of the CLO”. It is being presented by Kelly Tompkins, EVP, Legal, Government Affairs and Sustainability, and Chief Legal Officer, Cliffs Natural Resources.
[Kelly Tompkins]: It’s hard to be the cleanup hitter of the day, but I’ll do the best I can. It’s nice to bookend the day with my friend Terry Linnert, who started this morning. I’m going to look at this topic from a personal perspective. As I was putting this together, I tried to not simply follow a great new book that many of you have probably read by Norm Veasey, “The Indispensable Counsel.” Can I come up with something new? The first thing I realized was that he was a wonderful expert and a Delaware judge, but he’s never been in-house before. What does he really know? Secondly, I’ve never been outside before, so what do I know?
I’ve been in-house my whole career. I’ve been in-house for 31 plus years, so that’s one perspective. Secondly, I’m going to look at it through the C suite, not just from the chief legal officer perspective but as a former chief administrative officer and a former chief financial officer. I’m very pleased to say that I’m very glad that I’m no longer the chief financial officer, having been that during the global financial crisis. I received dog years of experience. It was a wonderful, diversifying career move, but I’ll never go back to do that again, I can assure you.
Let’s look back for a minute. This is a little editorial from The Economist magazine. It talks about what the in-house practice looked like at one time. I really resent the way that description reads, but nonetheless, that was this particular writer’s view. When you look back over two decades, there was a dominant law firm, often with a partner on the board of a company. In today’s environment, that might be frowned upon or viewed as somewhat of a conflict.
Bills. I can remember looking at a bill as a second year lawyer from a Wall Street law firm. The bill was just under a seven-figure bill and it just simply said “For services rendered.” The arrogance of that time was remarkable when you look back on it compared to today. No general counsel or chief legal officer today would keep his or her jobs very long approving bills with that sparse information.
Once again, things started to change. Outside counsel costs were going up as bigger companies started to in source the work, and then by total coincidence I passed the bar in November 1981. A group of general counsels led by Bob Banks, the former general counsel of Xerox, got together and said. “Hey, we don’t think the organized bar is really representing our in-house practice.” That was the precursor of ACCA. I guess it’s now ACC. It’s not ACCA anymore.
My career, in a sense, paralleled that evolution of that bar association and the practice.
We started to see and know high profile GCs like Ben [inaudible] started that move of being recruited into big corporations, top partners leaving big law firms going in, so the practice really started to change and become much more of a desirable place to be. That was where quality legal work was conducted.
Where did I start? I started out with an affiliate of Exxon Corporation, a diversified manufacturing company, a 15 person legal department. The CEO of Reliance, who was an Exxon chemical executive, told me, “It would be good for you to get some experience going to the mother ship. I want you to go to Houston.” I was a corporate lawyer trained mostly in anti-trust work. I said that sounds like a good gig. I’ll go down to Houston, get my Good Housekeeping seal from the mother ship, and about a month before I was ready to go they said, “Well, we have a little bit of a change in plans. We’re going to put you in the downstream litigation department.”
All right. I’m a transactional guy, so what do I know about litigation? Well, I learned very fast. I learned very quickly losing a summary judgment motion and standing in front of the judge with my knees shaking, making my first argument in court. It was a wonderful experience, but it was also a huge global law department that was ahead of its time in many respects at that point.
I came back. We did an LBO. Reliance Electric was an affiliate of Exxon. It spun off on a management-led LBO. I was invited to come back to Ohio. Who wouldn’t turn down an opportunity to take an equity stake in an LBO? That same CEO that sent me to Houston then said, “It’s about time for you to earn an honest living.” I said, “What do you mean by that?” and he said, “You need to go out into operations and really learn the pulse of the business.” Or, in the words of the great movie The Gladiator, they said that the heartbeat of Rome is not in the marbled floor of the senate, but in the sand of the coliseum. Go out and get dirty with the business was the message.
I went out and became a product manager and did a few other things during. All of the sudden I started to see the in-house track expanding and saying there is opportunity here on the business side.
I left after a hostile takeover by Rockwell. I worked on the integration. I can remember very vividly experiencing what Terry talked about this morning. It’s one thing when you’re working on the integration, in a case where you are the target and you know you’re basically sawing off the limb that you’re standing on because you are about to lose your job. For two years I was a consultant in between going to RPM.
I was then recruited by RPM because they wanted a lawyer with so-called business skills. My first reaction to that was “Really? Or is this a management team that wants a very malleable lawyer?” It was a little of both.
It was a wonderfully interesting experience. RPM was a very decentralized company, with very inquisitive and a very passionate CEO. I’ll put “passionate” in quotes. Like most CEOs, he was quite opinionated. I learned very early on that this was going to be a healthy tension. I understand what Ben [inaudible] talks about, that balancing act. I learned that very well.
I was then asked to take over some other corporate functions as the administrative officer. Finally, because a CFO that we hired just simply didn’t work out from a cultural standpoint, who’s going to step in as CFO? Well, we had a really good controller, a great treasury guy, so the board said, “How about we let Kelly do it? He has enough background, he’s done IR and PR in the past, he knows the numbers pretty well.” I thus did that for my final stint at RPM.
I should have known when I interviewed at RPM. I sat with the chairman of the board, the CEO and chief operating officer, and the chairman leaned over to me and said, “I have two questions for you.” He said, “The first question is how old a guy are you?” I’m sitting here with the incumbent general counsel sitting around the table. I thought for a minute and said, “Well, I really want this job. I’ll tell you what, if I were your general counsel, my first piece of advice would be that’s a highly inappropriate and possibly even an unlawful question to ask. I want this job, though, so I’m going to answer it.”
I answered the question, and he said, “Let me ask you the other question. What am I going to really pay you to do as our to-be general counsel?” The GC was going to be retiring when I joined the company, so that was a much more profound question. It started really getting me to think that I was never going to be an expert on every technical aspect of law and regulation that any company confronts. I said, “You know, it boils down to this: to exercise good judgment on behalf of the corporation. I can hire smart lawyers, there are a lot of smart businesspeople, but I have to be in a position to simply exercise good judgment.” He seemed to like the answer so I got hired.
Fast forward to today. This is the next sentence in that same economist. We go from being the in-house lawyers where the lawyers who couldn’t quite cut it go, to now all of the sudden we occupy a position in the C suite. We’re now accorded all this power. We are almost as influential as the CFO, so it’s a much different reality. I’m sure in every company it may be a little different in terms of how you’re viewed. We’ve heard about it all day today, including the panel before the previous speaker.
Regulatory issues, post-Enron, post-GFC, the pendulum, as it always does, and the politicians and the regulators. They are slow to react, but when they react they overreact. The pendulum always swings pretty far. We’re in this era where we have stepped up regulatory environment, we have the complexity of globalization and the new risk profile that comes with companies operating around the world, and then we have this whole backdrop of public distrust, polarized political environment, and the challenges of in-house lawyers, challenges to the privilege. What does our profession mean?
When I start to think about issues that at least I didn’t before, we’ve moved to this position where we’re in the C suite with that coveted partner with the CEO. Are we going to have Stockholm syndrome? Can we maintain our independent objective professional perspective?
The company I am with now is a mining company. Mining companies are a very interesting industry. That’s our basic profile of a company. We do underground coal mining, open pit iron ore mining, operate exploration projects all over the world. We confront a myriad of issues, not the least of which are safety, environmental issues, social license to operate that was discussed earlier, emerging market risks, permitting risks, building infrastructure, the [inaudible] project that’s noted up there in Northern Ontario. We have to build a 400 kilometer road. We have to build a port. We have to build a rail line to move the product. It brings into question permitting and interesting government challenges. There are first nations and indigenous people’s issues.
I didn’t even know how to spell indigenous before I joined Cliffs.
All of the sudden, we’re working on this project and we’re in parallel path doing an environmental permitting assessment, we’re working through negotiations with the provinces to do public/private financing. We then get a bunch of letters from seven different first nations communities. These are Native Indians in Canada who have ancestral, cultural and certain sovereign legal rights to the land that we want to develop. I thought dealing with the plaintiff’s bar in the asbestos arena was challenging. Try dealing with indigenous people who play by a whole different set of rules. I thought negotiating with the Chinese was a challenge in terms of just the cultural differences and the time expectations of doing things. Working with an indigenous people’s group is far more complex and nuanced in terms of their view of time. They’ve been on that land for hundreds if not thousands of years. Who are we to say, “We need our permit in 18 months”? I’m sorry, we don’t work that way.
It’s very interesting. We have our own Enron-type issues. Massey. Twenty-nine miners killed in an underground mine disaster. Just like what Enron did to many corporations who were otherwise good actors, that pendulum swings too far, so the Massey incident all of the sudden paints the brush that every mining company is unsafe. The regulatory pendulum swings with that.
Let me just talk a little bit about my current role and how I think it reflects much of where this evolution has gone. This is our basic structure. I have six direct reports, two of whom are general counsels. I have two general counsels in our structure. One group focuses on corporate affairs and is secretary to the board business development. The other group, including a lawyer in Perth and one in Montreal, focuses on the operations of the company. They’re the ones that are most intimate with the business units involved. I then have a head of sustainability, labor relations, government public affairs, and environmental.
I don’t know if many of you have stepped back and looked at where you spend your time. It was really startling to me in some respects that I spend a significant amount of time with the board. I’ll talk in a couple of slides more specifically about what that means beyond taking the minutes of the board meeting. It’s a whole different engagement with the board.
The subject matter expert – LEGS, my acronym for Legal and Environment Government Sustainability, the short-hand acronym – a significant amount of time working with the leadership team in saying, “Another reason for the two general counsel structure is I’m not convinced in any given time I could sustain the privilege because of the different hats that I’m wearing.” I have two general counsels that have a more pure role as lawyers and I have to be very cautious, having been deposed before. It’s an unpleasant experience, as many of you know, as a general counsel, to be deposed. I don’t want to have it happen again. I sure don’t want to be deposed over whether or not my advice was privileged or not. I just realized that reality in terms of how this structure works.
There’s also management responsibility for a number of other functions. One common denominator in all these functions is a very significant external-facing role. I think chief legal officers are increasingly dealing with external third parties, whether they’re government officials or there’s a lot of community work. I spent a lot of time out in the communities that we’re working in. Our CEO is a spokesperson for the industry and he’s the lead guy to get M&A projects started. Oftentimes, though, I’m out in the community with our local public affairs people making sure that the Cliffs name, our social license to operate, our reputation is reinforced in the community.
Next is the shared responsibility with other functions, including our chief risk officer in terms of ethics and risk.
In terms of board work, I’m just going to focus on the bottom of the slide, which is the communications piece. Our board meets six times a year. I think the norm today for public companies is five. We feel like we’re in a perpetual board cycle. There are a couple of folks here that I had an opportunity to meet that we share a board member or two, so it’s always interesting to get a perspective of “How does my director act at your company?” and vice versa. Of course, those are off the record conversations.
This whole notion of communications with the board is so critical. My CEO has been very good. He is an outstanding communicator on a one-on-one, just sit down over a beer and talk, but he’s not real good in terms of formal written communications. He’s just much more of a plainspoken guy. He says, “You communicate with the board. You make sure the board is getting the timely information” so they have that context.
We all know much of board decisions are really teed up and made in between the meetings. The point of socializing the issues, finding more and more the board expects there’s a formality of process, but they want matters to be socialized early on. They want to know whether they’re simply going to be asked to be informed or to act. What do we think is the complexity of a given issue? If we think it’s something like big dollars, there are complications, don’t tee it up for one meeting and here’s the resolution, let’s call a vote. Plan ahead. It has to be prepared over a course of a couple of meetings. It’s giving that board that context to make the decision.
In terms of my role with the executive leadership team, it boils down to a handful of things. Beyond providing the input in the areas I’m responsible for, it’s critical that my functions are aligned and really driven by the overall strategic plan of the company.
Someone else said earlier today that their department’s objectives really are the business objectives of the company. That’s very much the approach we take.
I think it’s incumbent upon me to provide that outside perspective. Our CFO can certainly provide the perspective of the investment community, but I think our training as lawyers allows us to think about issues from several dimensions. This notion of stepping outside the company and looking in is very critical.
I think our training allows us to be more objective and to bring more light than heat. Businesspeople are inherently passionate about what they do. They’ll marshal the facts to their advantage, oftentimes running amok over things they don’t consider to be facts. There are apparent facts, hoped for facts, wished for facts versus real facts. They try to bring that sense of discipline to their decision making.
Very importantly, you need bring a board perspective. I’m not saying that because I think I’m a director. I see issues brought before the board and committees, and very often I see a senior manager come in for the first time to present to the board. There’s a lot of time spent on preparing that individual. This is the Super Bowl. They better be prepared the first time they are in front of the board. Help management says, “How would the board look at this? Let’s step back and look at it from a different perspective.”
Certainly, our chairman and CEO ultimately is expected to do that, but that’s something that I think I’m expected to do as well.
A handful of things on partnering with my peers on the leadership team. Obviously, there’s driving strategy, focusing on the key messages. The parenthetical on the second bullet point. We talked about tone at the top, or a couple speakers referenced that. I like to look at it more as a pyramid. Everybody focuses on the tone at the top, but what about the message in the middle? What about the buzz at the bottom? Ultimately, whether it’s a values-based approach to compliance or whether it’s simply cascading a message down through the organization, I know even sitting at the chief legal officer position and as a member of the executive team, I get information that is sanitized, sugar coated, politicized, short changed. It’s very difficult to get the right information while conversely, the messages that we think come from the top don’t always trickle down to the bottom.
It’s that notion of making sure that we’re all focused on driving messages, enterprise risk management, this notion of cross-functional teaming, talent management, and our core values. We conduct our compliance program very much on a values basis. When I interviewed with Cliffs I probably spent two hours with the CEO simply talking about our core values. I asked what they meant to him and did they really work in practice?
In terms of the legal department, we have 20 lawyers in the department, including myself. It’s the inside being proactive in terms of our inside advice, but managing effectively and efficiently all of the outside providers. It’s risk-based decision making. Training and education is a huge part of it. The things that we can only do as lawyers in terms of maintaining corporate records, whether it’s literally the document retention piece or determining what should be documented and the privilege.
I think the privilege is something that is very often overlooked. I think it’s never an issue until it comes up in litigation and you’re fighting to protect it. We in the legal department are the only ones that can obviously really support maintaining the privilege.
There’s also this whole idea of managing. Lawyers didn’t go to law school to be trained to be business managers. Here’s a budget. My wife will say, “How was your day?” and I’ll say, “Well, if it wasn’t for the people I had to manage sometimes, it’d have been a great day.” Just managing people can be the greatest source of satisfaction and the greatest source of frustration. I’m finding I spent a disproportionate amount of time on the people side.
How many of you, if you sit and look back on what you do day-to-day, spend time on leadership development of your teams and on talent management? Yes, we recruit and we hire, we do everything we can to retain good people, but how much time do you spend on the leadership development of those people, whether it’s your own succession planning? We know board rooms should be preoccupied with that. Let’s say a CEO gets run over by a truck or wins the lottery. How much time are we as lawyers spending on that? I find that to be a significant challenge to do that. That is what we’re expected to do, just like any other manager of the company.
The other dimension of my role is this whole social license to operate. A lot of people say, “What is sustainability?” Does it mean being green? Does it mean corporate responsibility? Being a good citizen? What exactly does that mean? For us, it boils down simply to the social license to operate.
What do I mean by that? Lawyers focus on getting permits and clearing regulatory hurdles. You can do all that, but if you don’t have the support of the community in which you’re operating, or if you haven’t identified and really understand the external stakeholders that are increasingly going to influence your business, you’ll lose your social license to operate. This will implicate your reputation, so we spend a significant amount of time on that aspect.
Policy advocacy and political relations. I don’t think government affairs and political engagement ever was a spectator sport. It’s full contact now, that’s for sure. I think we’re going to be in an environment where government and regulatory “involvement” in our businesses is not going to swing back for quite some time. This whole notion of understanding that whole aspect of stakeholder engagement is critical.
What do we see looking ahead to that last point? This was a McKinsey article about a year ago, and it’s startling to me. This is a survey of CEOs looking at what stakeholders are going to be most influential over a company for the next three to five years. These are large public companies. To think that government and regulators are closing in on customers, there’s something fundamentally wrong with that. I’m not making a political statement, but it puts our profession in a pretty unique role where I think the chief legal officer function has ample opportunities to expand into a lot of other arenas given just this one influence alone.
What’s the environment that we’re going to be operating in? This is really a view of Congress. It’s a view of the political environment we’re in, this notion of a tsunami of regulations. Someone said that it used to be a highly regulated industry. We are all in that.
Public opinion. Technical word, the “yuck factor.” The public is increasingly willing to make a change. This notion of institutional loyalty is not there anymore like it was. What are the implications of that in terms of how our companies are perceived, how we engage with employees, and what they think?
The environment, this notion of a heightened degree of skepticism, both of big government, corporate America, our profession. Look at the polarization. We have the Tea Party on one side and we have Occupy Wall Street on the other, and some of those dots get connected. I don’t think it’s totally accidental that we also see movements in terms of proxy, disclosure, what’s the multiple of the CEOs pay in terms of the average worker sort of thing? This whole notion of economic wealth gaps, class warfare.
Earlier this morning people were talking about privacy issues and social media. The issue of science and how we hear about junk science in terms of litigation. This increasing notion that we’re going to be in battles of experts. The fact that in the environmental space, technology allows us to measure more and more things, smaller and smaller things. The regulators very often have made the leap of faith that therefore, we can regulate it and therefore, companies can conduct themselves in a manner. Those two worlds don’t always align.
Here are a few closing thoughts. There is this notion of interconnected risk complexity. This is the world that we’re in. We’re as involved in China as we are in Mongolia and in Canada as we are in Chile, but these huge mega forces, whether it’s climate change, water scarcity, things that you might dismiss as environmental is the backdrop in which our businesses are going to be operating for quite a long time to come.
What does it mean? This is my simple depiction of more complexity and more unprecedented and uncertainty.
I think that I’m an adrenaline junkie. I love change. I think this represents great opportunities for our profession, but it’s an interesting paradox because our profession is predicated on stability of law, respect for rules, precedent – all the things we were taught in school, yet we’re in an environment that has nothing to do with that. It’s perpetual change. I think there’s a bridge between the two. [Inaudible] saying we have as lawyers trained that disciplined mind to be able to help navigate that context.
Here are my last couple of comments. We’ve got ourselves in the C suite. I am increasingly finding a natural and ongoing alignment with the CFO of the company. We are very much birds of the same feather in the sense of how we look at the business. I think there’s going to be an increasing premium on what Ben [inaudible] has referred to as the lawyer statesman rule. I like to call it the citizen lawyer rule. This tension, this gatekeeper/guardian tension, the business partner/facilitator partner, that tension is going to I think not only persist, but the stakes are going to continue to get bigger. Likewise, I think it represents opportunity.
Corporate governance. We’ve got ourselves in the board room. We have an opportunity to continue to influence policy by virtue of that position. I think governance is going to continue to be a significant factor.
I think the gentleman from Robert [inaudible] was talking about this. If you look at the skills that you’re recruiting for now in your legal department, we know we can get all the technical expertise we want. Technical proficiency is table stakes. What really is making a difference, whether you call it emotional intelligence, whether you call it bedside manner, whether you see how much hospitals are doing and training physicians on bedside manner, that is increasingly that broader sense of judgment and discernment rather than just being smart. I think it’s going to continue to be a premium for our profession.
Lastly, in a world I think that’s grappling with integrity, morality and trying to find that moral compass, reminding ourselves that we are still part of this profession. We all signed and have commitments in terms of professionalism and code of conduct, but I think sometimes we have to be careful we don’t forget that when we’re in-house. That can lead to continuing to be thought leaders in terms of ethical business conduct, our ability to spot issues, connect the dots, solve complex problems, provide that added insight, and hopefully be good communicators in the process.
That’s the last slide, I believe. I’m happy to take questions if there’s time.
[Man]: I have a question about bedside manner. When you interview lawyers for your department and you have an hour with them, how do you test for the bedside manner?
[Kelly Tompkins]: Great question. I think someone referenced earlier that we all know that we look at reference. Who’s going to put a bad reference on a resume? That said, I’ve had that happen once before. The person totally bombed out when I called the reference. Getting the peer-to-peer, how did they interact? If you practice in a community long enough you probably know and can do the back channel reference checking. I like to just talk to people about how they work through an issue. Tell me about how you actually work with your colleagues in a company. I unfortunately had to let one of my senior corporate lawyers go several months ago over this precise issue. He came from a huge law firm, had outstanding subject matter expertise, managed very well up, brutal on the people below.
After two or three times of sitting down and talking, I told them, “The bedside manner is gone. There’s no emotional intelligence. It’s almost robotic in terms of discipline, efficiency, work ethic. That’s wonderful, but there are bodies in your wake. That’s just not the way it’s going to work.” Part of it was thus sending a very strong message to the rest of the team that is conduct not becoming of how we want to run our law department relative to our not only professional responsibilities, but our core values as a company.
[Woman]: You really highlighted that throughout your career you had an opportunity to work in lots of diverse, different positions, whether it was in the legal department or in business roles. Have you implemented some type of rotational program within your own legal department to ensure that your attorneys get a diverse work experience as well?
[Kelly Tompkins]: We’re working on it. What I find interesting is that I’ve asked all of our lawyers, “Step ahead. Tell me what you would like to do from a career path standpoint.” I’m surprised that we’re not getting as many volunteers. I don’t know if it’s inherent nervousness or “Gee, I don’t know. If I go out there I won’t know what I’m doing” That said, whether it’s business development roles, roles in strategic planning, we have opportunities and I strongly encourage it. I have one in particular that I think we’re going to make a move to an entirely different function.
You have to be thinking a step ahead. If you provide that opportunity, they get the development for two years. What’s the lifeline back? I think that’s part of the anxiety of saying, “Okay, that’s a great move. It’ll be a great resume enhancer, but what’s next?” Sometimes the expectation is “I’m going to come back and be an assistant general counsel because I have this stamp” or just fear that “I don’t really want to go off the legal track. I just want to get some experience, so can you make sure I get back?”
I think you have to think through all those things. I’ve been blessed to have those opportunities, so I have to pay it forward as well.
[Man]: Cliffs obviously has a wide range of international operations. You pointed out the different stakeholders that now play a very important role. That obviously would include stakeholders in other countries – China, Mongolia and elsewhere. To what extent does the international exposure or experience of the lawyers that you hire play into the assessment? They obviously have to relate to these stakeholder issues as well and have some cultural empathy. It would seem to be an increasingly important area of professional competence and experience.
[Kelly Tompkins]: Yes, absolutely. It was very much a factor when I moved one of our U.S.-based lawyers over to Perth. The language is the same. The accent is a little different, but the language is the same. There are some cultural differences. We have an opportunity to potentially move one of our lawyers into a Beijing office, our lawyer up in Montreal. We’re looking at it both in terms of saying, “Okay, what do they need to do?” Let’s make sure they have the right support, sometimes from the local law firm they’re working with. The management team needs to know that this person is coming in doesn’t understand all the ways and customs here. I think the organization as a whole and the culture as a whole has reinforced that, though, because we see businesspeople moving around a lot.
The other thing has been getting our Montreal lawyer at some point to say, “Would you come to the U.S. and do a stint?” I think a lot of times we think about it, we want to send people out from the U.S. out to these different outposts, but I think it’s equally important to bring one of the foreign-based lawyers into the U.S. to kind of make that connection as well.
I’ve just been told it’s the end of our session. Thanks very much.
[End of Transcription]
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