Elena Gabdulkhaeva, Legal & Corporate Policy Director at Uniper Russia, reflects on the potential risks of combining the legal function with those of compliance and regulatory affairs.
Amid rapidly changing market conditions, there is a great demand for multifunctionality. Making one manager responsible for legal and corporate governance as well as compliance is a well-established trend across many industries. In practice, one manager often becomes involved in policy-related projects and regulatory affairs, or even becomes directly responsible for them. This happens especially in cases where a company needs to take a specific approach to public policy due to its operations on highly regulated and socially sensitive markets. The ultimate goal of the approach to public policy in this environment would be to balance public regulation with the company’s corporate governance and to build the public-policy strategy around the public regulatory interest.
In many cases, political experts (backed, to a limited degree, by policy and regulatory experts) are the ones who drive the development and promotion of public policy with their knowledge of political processes and insight into the workings of the government. These political experts transform a business’s proposals and initiatives into communication and liaison tactics needed to achieve the feasible short-term goals to further business operations.
In certain cases, companies operating in a self-regulating environment need to reorganize policymaking activities in order to allocate the key role to regulatory experts. Regulatory affairs become a cornerstone of public policy. Regulatory legal experts take on the role of policy-makers for a wide range of policy issues. Apart from regulatory expertise, they ultimately need to have a deep understanding of the industry, and enough political altitude and business acumen to proceed with policy-making activities successfully. In recent years, it seems that in-house lawyers are expected to have industry knowledge and business acumen. Political aptitude is added to this list when regulatory affairs are allocated to lawyers. Hence, regulatory lawyers handle policy-making issues on highly regulated markets successfully when the regulatory agenda implicitly dictates the company’s agenda for public policy.
It is interesting that in this kind of environment, public policy is more inclined to pursue a systemic long-term approach, rather than taking a defensive approach, or one with a narrow focus on individual projects. Policy-making activities generally aim to reshape the regulatory framework of the market as a whole, through a number of interrelated proposals to adjust certain individual rules. Russia’s wholesale energy market is a perfect example, where the market stakeholders – members of the NP Market Council – adopt a significant share of market regulations under the general umbrella of relevant federal laws and government regulations. Both producers and consumers on the electricity and capacity market regularly come forward with various legislative initiatives concerning specific regulatory topics, although the overall target of this regulatory association is to shift the balance in terms of market payments. Given the social sensitivity of the market, the company’s public policy needs to advance public interests – as interpreted by relevant public bodies – to be able to meet its private corporate interests in the proper way. The lawyers who also deal with regulatory affairs are savvy enough to combine all of these aspects, as on the one hand they have a clear realistic view of the regulatory environment, including the social and public background of the regulatory framework, and on the other hand they understand the industry, the company’s standpoint on the market, and its business priorities. By engaging in legal and regulatory affairs, public policy-making can be improved with expertise, and by being able to view the market and the company’s priorities from different angles, with involvement in all aspects of the company’s operations.
However, managing both public policy issues and corporate governance or even compliance can be problematic, as these functions can conflict in certain circumstances. First, certain public-policy methods may of course appear controversial from a governance and/or compliance perspective. Second, all of these spheres require a different approach to communication, and an equal balance needs to be struck. Finally, policy-making and governance may have different short-term priorities, and they need to be carefully balanced in order to manage these functions successfully in the long run. The correct way of dealing with the issues outlined is always subject to the specific industry and company, and in a number of cases, combining public policy and governance, for instance, may not be the best solution. However, close cooperation in corporate governance may still benefit policy-making activities.
One of the core aspects of corporate governance is facilitating relations between management, the board, and the shareholders, in order to ensure powers are balanced properly. Understanding the general principles of governance as well as the governance set-up within the company allows it to respond rapidly and efficiently to policy challenges, ensuring along with this the proper decision-making process. Competent leveraging of extensive relations on various corporate levels creates a stronger basis for convincing decision-makers to accept the policy-making strategy. The close cooperation of corporate bodies in their daily work enables them to share a wealth of knowledge and offers a great insight into the company’s priorities, targets, and any potential changes in the business agenda, as well as an insight into the reasoning behind corporate decisions. Overall, policymakers can benefit from having a high-level corporate governance manager involved. The question remains whether corporate governance, regulatory affairs, and policymaking can be managed effectively by one person, and what kinds of meaningful benefits this could have for the company apart from reducing executive personnel costs.
The following conclusion can be drawn: Governance and public policy may have conflicting agendas. Governance targets risk prevention by ensuring the proper management and control of the company. Public policy often aims to resolve immediate risks at hand, and policymakers take a defensive and short-term approach. Being responsible for both functions makes it easier to complete the task of balancing internal governance and public policy from a strategic perspective. Having a deep understanding of the regulatory market and its underlying processes makes it possible to predict potential risks from a more long-term perspective, and then arrange those risks and governance expectations in the order necessary to form the relevant policymaking plan to mitigate the risks. Regulatory and legal expertise increases the company’s political influence as a respected voice in the industry, and this is increasingly the case in a self-regulating market.
Thus, by combining legal, regulatory, governance, and policy expertise, a long-term public policy, one that is more balanced and proactive, can be implemented.