Do You Know Where Your Legal Fees Sleep?

The Case for Supporting Socially Responsible Service Providers

By John Katovich

In a recent New York Times article, The Tyranny of Billable Hours, the veil is lifted on a law firm practice that, even when viewed in the best possible light, exposes the dark side of many law firms’ motives.  In my 15 years as a General Counsel at the Pacific Stock Exchange, Boston Stock Exchange, and two start-ups that raised over $400 million, I worked with many different law firms, and came to this realization: while most of the individual lawyers that I worked with were knowledgeable, responsive, and personally good people, the mainstream legal services system itself was completely flawed when examined from a sustainable business perspective.

The foundation that law firms are typically built upon is providing legal services to all manner of clients, regardless of what impact those clients’ activities may have on society and the planet. Clients are typically chosen based on ability to pay, not on whether their practices support sustainability.

Even in the very few law firms that espouse some form of sustainability, services are provided to any client with cash, regardless of clients’ impacts on their workers, suppliers, communities or the planet. If, in the words of age-old wisdom, “your attention is your intention,” then few, if any, of these firms could be found to honestly and whole-heartedly advocate sustainable communities.

As I entered private law practice, I found no example of a firm that filtered its client base to avoid supporting activities detrimental to the planet – nor were any firms solely focused on sustainable companies.

Just as businesses committed to sustainable practices have switched to sourcing from locally-owned suppliers, moved their money to responsible banks, and divested from holdings that damage the planet, the practice of employing mission-aligned service providers should be no exception. Businesses that truly value the restoration of a healthy planet for future generations throughout all of their operations should apply the same admonition when it comes to selecting a socially and environmentally responsiblel aw firm.

If these businesses are truly committed to sustainability, they should always be asking the crucial question – “Where do our dollars sleep after we have spent them?” 

Leaving in-house practice, I had many ambitious goals: to help align the organization and governance of the corporate structure with the public interest; to bring transparency and accountability to reporting; and to develop an alternative capital market that would provide opportunities for small, local, community businesses to receive investments from all types of investors (accredited and non-accredited) – thereby restoring dignity and democracy to how we capitalize and support each other.

To achieve these goals, I joined Allen White and Marjorie Kelly’s project to reform the corporation (Corporation 2020);  I joined the Board of Sustainability Accounting Standards Board; and with my partner, Jenny Kassan, we started Cutting Edge Capital to create healthier capital market structures.

Underlying all of this was my goal to transform the way in which legal services are provided by creating a new law firm model that like-minded clients would want to support, and eventually that other firms might want to adopt.  This model focuses its attention and resources completely towards offering a full range of services to clients whose missions are aligned with sustainability principles, while at the same time adopting sustainable internal practices.

Attracting clients and lawyers to a new paradigm of practice that provides services only to sustainable and socially-responsible clients has its share of challenges. Other firms create confusion about what it means to be a sustainable law firm by sponsoring events focused on their few socially-responsible clients or showcasing their sustainability practices within the firm. These firms may have good intentions, and may in fact offer good services to their clients, but the majority of their practice has nothing to do with behaving sustainably. In fact quite the opposite is the case – many of their clients may have practices that harm workers, the environment, and their communities.

For those truly committed to sustainability, who practice Environmental, Social and Governance (ESG) principles; support community well-being; and invest only in sustainable and responsible businesses, a fundamental question to ask before using any service provider is whether that provider is also fully committed to sustainable practices.  Full commitment means that they only offer their services to other sustainable businesses. A firm that claims to support sustainable practices while representing clients that care little for all of our futures should not be put in the category of a truly sustainable business.

When an organization has a choice between service providers that are fully committed to sustainability and those that only pay lip service to it, choosing the latter is a vote against sustainability. Such organizations are voting with their dollars for the support of, and contribution to, the very same companies that care little or not at all about sustainability and continue to harm the planet.

Visionary investors know that you cannot just invest a portion of your funds in local sustainable movements while continuing to invest in other companies that detract from, or worse, contribute to conflict, depletion of the planet’s resources, and the violation of human rights. Such investors would not finance unsustainable real estate developers, arms dealers, corrupt banks, or the coal/oil/gas companies that fuel our climate’s destruction, all so that they can sustain richer lifestyles. That model would be a complete contradiction in terms of what they are trying to accomplish. They would be fueling the very thing that is counter to their mission, and one would negate the other.

Similarly, many of us choose not to shop at a big box store even though the prices may be lower because we understand that supporting locally owned businesses that circulate dollars in the community creates a much higher value overall.

Our choosing is the embodiment of what we believe to be essential for the planet to survive.  And we choose the alternative with the intention that, at some tipping point in the future, our choice will no longer be the alternative but instead become the norm.

How different is that from a sustainably-minded organization hiring law firms that, perhaps at best, lend only a small amount of support to the socially responsible businesses while focusing the majority of their practice on companies that do not? If we have seen the benefits of moving money to a sustainable community bank or if we invest in ESG companies to obtain both financial and social returns, or if we support local businesses even though they may not be the lowest cost provider, why should there be any difference for which law firm you use (assuming of course that the quality of work is not compromised)?

It is a complex and still sometimes radical notion to make sure your values and missions are aligned with the firms that you hire – it takes some diligence and requires transparency. Yet just as it took years of dis-entanglement of financial assets from portfolios to contribute to the end of apartheid in South Africa, or what it will now take to do the same with oil, coal and gas to end the climate’s demise, our community must look behind the rhetoric and ask what you are supporting when you give your money to a mainstream corporate law firm.

As more businesses migrate to firms that truly “live, eat, and breathe” sustainability, more individual practitioners will understand that there is an alternative path that allows them to work at such firms, maintain their values, keep their dignity, AND provide themselves with a decent living. A dozen years back, our firm may have been one of the few alternatives out there. Today, however, we are beginning to see a rise in the number of firms and individuals that are choosing to practice law in a sustainable and socially responsible manner without compromise. The more we all support those firms, the more we will see them grow into an accepted and substantial part of our community and the more they will be able to provide better services to the companies that are creating a new, healthier, more sustainable world.

 

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Thanks to Vince Siciliano of New Resource Bank for this title, as he has often asked the question where the dollars at your bank sleep.

For a thorough review of what the term Sustainable means, I recommend Steve Lydenberg’s excellent paper “On Materiality and Sustainability” which can be found here on the SASB website.  For example, Lydenberg offers the following examples:

“Sustainability is a characteristic of a successful system. . . ‘a living system.’ It is not, for example, the characteristic of something as limited as a product . . . . Sustainability can be defined as the attributes of a complex system that allow its interrelated members to thrive and to survive unpredictable shocks over extended periods of time. It is . . .‘the possibility that human and other life can flourish forever.’” (internal citations omitted)

and

“All the definitions [of sustainability] have to do with: Living within the limits; Understanding the interconnections among economy, society, and environment; Equitable distribution of resources and opportunities.” (internal citations omitted).

John Katovich founded Katovich & Kassan Law Group (K2), committed to fostering ESG practices for business, non-profits and communities, and Cutting Edge Capital, offering strategies for the impact economy. John was Adjunct Professor at: UC Berkeley; INSEAD; and Presidio Graduate School, and now continues his efforts to merge socially responsible investing with local capital markets.