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Episode 104
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Ethics and Professional Responsibility Practice Management and Business Skills
Stakeholder Primacy? Putting Purpose at the Heart of Legal Practice
Law as stated: 3 November 2023
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This episode was published and is accurate as at this date.
Karen Iles, Founder and Principal Solicitor of Violet Co Legal and Consulting, joins David in Curiosity to explore the emerging world of social enterprises in legal practice. Covering what a social enterprise is, how they’re structured, and the purposes they pursue.
Ethics and Professional Responsibility
Practice Management and Business Skills| What area(s) of law does this episode consider? | Social enterprises in legal practice. |
| Why is this topic relevant? | In 2018, former Royal Commissioner Kenneth Hayne wrote in the Banking Royal Commission Interim Report that “…pursuit of profit has trumped consideration of how the profit is made”. That statement was about Australia’s banks, but the concern about the relentless pursuit of better returns to shareholders to the detriment of other stakeholders is not unique to the financial services industry. In 2023, social enterprises – businesses at the crossroads of profit and purpose – have emerged as a transformative force in today’s corporate and legal landscape. Founded on the belief that business can be a catalyst for positive societal change, social enterprises are redefining success by prioritising not only financial gains but also social and environmental impact. |
| What cases were considered in this episode? | Dodge v Ford Motor Co, 204 Mich. 459
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| What are the main points? |
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| What are the practical takeaways? |
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| Show notes | Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure, Michael Jensen and William Meckling, 1976. National Pro Bono Target, Australian Pro Bono Centre. |
DT = David Turner; KI = Karen Iles; RD = Ross Davis
| 00:00:00 | DT: | Hello and welcome to Hearsay the Legal Podcast, a CPD podcast that allows Australian lawyers to earn their CPD points on the go and at a time that suits them. I’m your host David Turner. Hearsay The Legal podcast is proudly supported by Lext Australia. Lext’s mission is to improve user experiences in the law and legal services and Hearsay the Legal Podcast is how we’re improving the experience of CPD. In 2018, former Royal Commissioner Kenneth Hayne wrote in the Banking Royal Commission Interim Report that “pursuit of profit has trumped consideration of how that profit is made”. Now that statement was about Australia’s banks, but the concern about the relentless pursuit of better returns to shareholders, to the detriment of other stakeholders, isn’t unique to the financial services industry. In 2023, social enterprises – businesses that are at the crossroads of profit and purpose – have emerged as a transformative force in today’s corporate and legal landscape across the globe. Founded on the belief that business can be a catalyst for positive societal change, social enterprises are redefining success by prioritising not only financial gains for shareholders, but also social and environmental impact. In 2016, the Centre for Social Impact at the University of Swinburne estimated that there were 20,000 social enterprises throughout Australia. Now the founder of one of these social enterprises joins us today. Karen Iles is the Founder, Director and Principal Solicitor at Violet Co. Legal and Consulting, a social enterprise dedicated to changing the world for women and Indigenous peoples. And she joins us today to speak about social enterprises in legal practice. Karen, thank you so much for joining me on Hearsay the Legal Podcast! |
| 00:01:51 | KI: | Thank you. |
| 00:01:51 | DT: | Now, before we dive into our topic for today, social enterprises, first, tell us a little bit about yourself and your journey in the law. |
| 00:01:58 | KI: | I think growing up through high school – I’m showing my age! – but it was a time when the Mabo decision had come down. It was a time of a lot of social change. But when I was in high school, John Howard got elected and all of a sudden there was real dramatic change in our social and political landscape. So, for me, I was very involved back then in social justice movements. And I think that’s a natural segue into studying law at university. So that’s how I ended up studying law. I then have probably taken a pretty unconventional route through legal practice. So, for me, I left university before I graduated from either my arts degree or my law degree and went and worked for a trade union. And I did that because I wanted to get involved in social justice, employment rights and change the world. And so there I was an industrial officer – an industrial and legal officer – and represented workers in all sorts of things from unfair dismissals, workers’ compensation, discrimination. And it was a really, really amazing point in time in my career. I then throughout the years finished my law degree slowly and steadily on weekends and evenings. And back then, listening to cassette tapes of recorded lectures that I’d missed through the week because I was working full time. And when I was working at Amnesty International, I finally graduated from my law degree. I then went and worked in the corporate sector, mostly in corporate social responsibility and that nexus between social policy and how corporates can get involved in making positive change. And through that time, I also did some in-house legal practice, which was terrific. And that background in employment law was really helpful to bring into that employment rights, human resources, industrial relations landscape when you’re working in-house. So, I did some in-house practice. I then went on to a private practice and led their pro-bono and corporate responsibility area. And then in late 2018, I took the leap, and I just turned 40 and decided now’s the time to do my own thing. And that’s what I’ve been doing for the last, gosh, almost five years is my own little boutique legal practice. |
| 00:04:11 | DT: | Fantastic. I guess that background in industrial relations, corporate social responsibility, really feeds in nicely to founding a social enterprise, which is all about trading off both financial performance and performance for a purpose beyond profit. And it’s interesting having you on the show because you’re coming at it from two perspectives. On the one hand, you’re coming at it from the perspective of a lawyer, but also as the founder of a social enterprise. And we should probably start by hearing a little bit about the purpose of Violet Co. So, tell us a little bit about the area of the law you work in and the purpose of the business. |
| 00:04:44 | KI: | Yeah, sure. For me, when I took the jump and went out on my own, I just knew that I wanted to work really around the two areas that are important to me and are two parts of my identity. So as a woman and as a First Nations woman. So, for me, I just wanted to create the type of practice that would be able to work with and for people like myself – not exclusively like me! And I just think that there are so many human rights issues that really impact women and First Nations people. So, for me, that was where I knew I wanted to focus. It’s also where I’ve always focused throughout my employment, my career, my studies, my arts degree was in women’s studies. So, it’s a nice coming together of all of that for me. So, the purpose of the business was pretty clear. And I suppose the other decision point was around blending legal services with consulting services. And for me, I think that’s really important, especially when you’re working with organisations as clients, that they’re often coming with a challenge around wanting to make positive change for women, for gender diverse people, for First Nations people, and many other aspects, but they’re wanting to make positive change. And part of the picture is legal frameworks. Part of the picture is policy. Part of it is culture. Part of it is your social programs that you do as a business. Part of it is your purpose as a business. Part of it’s your strategy. Part of it’s your core business. You know, there’s so many intersecting pieces. And what I found from working in both the not-for-profit sectors and the corporate sector is that we often have law firms or consultants or HR professionals coming into a business and giving advice that doesn’t marry up with the other areas. And so, it’s in these silos. For me… |
| 00:06:42 | DT: | So, mono-faceted… |
| 00:06:43 | KI: | Totally. And sometimes contradictory. Particularly in that area of employment law, you’ll have a HR professional sometimes say one thing and a lawyer say something else. Or a culture and change expert say; “Oh my gosh, do not go about it the way your black little lawyer is suggesting that’s a disaster from a culture perspective”. |
| 00:07:02 | DT: | Yeah, that’s right. |
| 00:07:02 | KI: | So, for me it was like, how do we work in that space around women’s rights and First Nations peoples’ rights in a way that brings that whole toolkit so that where possible you’re minimising those dealing with an issue in silos and understanding how it all works across the different facets of the organisation. |
| 00:07:21 | DT: | Not looking at it as a legal problem that needs a legal solution but as a problem that needs a solution and that might be a multidisciplinary, that might be an interdisciplinary solution. |
| 00:07:29 | KI: | Yeah. And, fantastically, there’s a market for that. I remember when I started out and did my first DIY website and we were having dinner with some friends of mine and I showed them my fabulous new handmade website and they said; “Oh, okay. Women and First Nations people, that’s pretty bespoke.” And I was like; “Yeah, well, I’m going to give it a go. That’s my area, that’s my vibe”. And I’ve got to say it’s been flat chat the whole way through because there is a real desire, I think, from the whole community to want to do something positively for gender equality and for First Nations peoples’ justice. So, no shortage of work. But we also represent individuals and a lot of that work we do a blend of either fee paying or pro-bono and for that work we’ll either represent individuals in workplace disputes where it might be an unfair dismissal, it might be a discrimination matter, it might be a sexual harassment and sexual assault matter in a workplace. And then we also specialise in supporting victim-survivors of sexual assault, come forward and identify what type of justice response they want to have a go at trying and access to justice. Maybe we can talk about it further in the podcast. I don’t want to go too much down a rabbit hole but access to justice for victim-survivors of sexual assault is miniscule in this country and so recognising that there’s a real need there for people who have experienced sexual assault to understand what their options for remedy is and there are often multiple options and working with them to identify the right option for them and supporting them through that process. So that’s what we do. And everything in between. But I think as well the one rule I’ve kind of had and, you know, coming out of corporate is just working with good people on good projects and for me that’s been a principle that I have not compromised on and it’s served me well because the couple of times where I’ve gone out on a bit of a limb and done something a little bit different and your gut tells you; “Oh I don’t know about that”; it’s proved not to be the best thing to do. So having that principle of who you want to work with and what you want to work on has been pretty clear from the start which has been good. |
| 00:09:42 | DT: | Brilliant. Now we’re talking about social enterprises and some of our listeners may not have heard of a social enterprise because as a distinct legal structure they don’t really exist in Australia, right? We don’t have a B Corp, for example, like there is in the United States which has a distinct legal structure and has its own tax treatmentm for example. TIP: You’ll hear “B Corp” quite a bit during this episode and it generally has one of two meanings. The first is the legal structure that David just alluded to. It arises out of the United States and the B in B Corp in this meaning stands for benefit – so it’s a benefit corporation. In the US this is a separate for-profit entity but the explicit, stated goals of the enterprise are not just profit for the benefit of shareholders. These started emerging in the United States around 2010 with Maryland becoming the first State in the Union to enact benefit corporation legislation. To understand why this development was important, we should dive into the history of the idea of shareholder primacy and its spread through the US and globally. Almost 100 years prior, in 1919 in the then-industrial heartland of the US in Michigan, the Michigan Supreme Court handed down its decision in Dodge v Ford Motor Co. Now, Dodge was a monumental decision with a cascading wave of corporate theory to follow. In the decision, the Michigan court held that Henry Ford of the Ford Motor Company was to operate the company solely in the interests of shareholders – not stakeholders such as the community, customers, or employees as Ford wanted to do. In an earlier decision in the Circuit Court, under cross-examination, Henry Ford had stated “[FMC is] organised to do as much good as we can, everywhere, for everybody concerned. And incidentally to make money”. Sound familiar? The Michigan Supreme Court did not appreciate this stance and held that agents of the corporation “can not arbitrarily withhold profits earned by the company, or apply them to any use which is not authorised by the company’s charter”. The decision was a clear, unequivocal restatement of the idea of shareholder primacy and it led to some seminal works of capitalist corporate theory such as the infamous Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure by Jensen and Meckling decades later. It should be stated that Ford is not an individual worth emulating, and at its highest, he was a ruthless capitalist set on expanding his industry and crushing any competition. But those other considerations – that of employee, community, and a redistribution of profits are the important message here. Fast forward to today – benefit corporations must, by their operation, create a public benefit and have a material positive impact on society. By law, they must consider how their decisions impact stakeholders like employees and the community and they must report on their performance. The second meaning that you’ll hear discussed today is B Corp in the sense of B Corp Certification. This is a private entity process and, similar to Social Traders which Karen will mention shortly, it assesses organisations for their environmental and social impact. So maybe you can help our listeners understand what a social enterprise is, maybe by analogy because you’ve practised in the corporate world in private practice and you’re running a social enterprise now. Maybe looking at the legal practice side less so the policy side but on the legal practice side how does legal practice look different in a social enterprise compared to in your traditional for-profit law firm? |
| 00:13:38 | KI: | Yeah, sure. I think it looks pretty different. The social enterprise as you say is not a distinct legal structure for businesses here in Australia. So, if I say that a social enterprise is a business with its purpose being for social or environmental good. So, for my business the purpose is to really make a positive difference in the lives of women, gender diverse, and First Nations peoples. And we do that through the ways we’ve just talked about. And it means that as a social enterprise you structure the business in terms of what you do and how you do it to achieve that purpose. So, it’s business for good, business to achieve that purpose. It is different from a charity or a not-for-profit in terms of legal structuring in the sense that a social enterprise is a normal proprietary limited company, just a standard company that most other legal practices would either be an incorporated legal practice or a partnership structure. So, we’re set up as an incorporated legal practice the way any normal legal practice would incorporate. The difference is that the type of law and the type of work we want to do is defined by its social purpose. So instead of going okay; “we are an employment law firm that does X, Y, Z” or “we are a taxation practice” or “we’re an insurance practice that does X, Y, Z”. What we do and how we do it is defined by our purpose. The other component of a social enterprise is there’s three different categories for a social enterprise. One is that you employ people who ordinarily wouldn’t have those opportunities. So, you might think of somewhere like that celebrity chef Jamie Oliver, he set up Jamie’s Kitchen, I think it was called – no plug for Jamie’s Kitchen, just an analogy. I remain silent on whether their pasta is any good! And for him he was giving young people a shot who might not ordinarily have a shot of working in hospitality and working as a chef. |
| 00:15:44 | DT: | So that first category, employment generating, creating employment opportunities for maybe a disadvantaged class or an underserved class of employee, what’s that second category? |
| 00:15:54 | KI: | Yeah, the second category of social enterprise is around creating products for the market that are somewhat meeting a social or community need. For example, I remember seeing this great case study of a business based in Naarm (Melbourne), Australia and they were making clothes that were really helpful for people with a physical disability. So instead of having really fiddly buttons, it was different zippers or things like that that were… |
| 00:16:19 | DT: | I’ve heard of that one actually. |
| 00:16:19 | KI: | Yeah, yeah, they’re really great. So that’s an example of the second type of social enterprise. And the third type of social enterprise, which is what Violet Co is, which is about making sure that you’re redistributing the profits of the business back into that social or environmental purpose. An example of a social enterprise in that category would be Thank You Hand Soap. They donate a share of their profits. Or I think it was Tom’s Shoes, they donated shoes to kids who were economically disadvantaged, and footwear is really important for health. I think even Who Gives a Crap, the toilet paper, is a social enterprise on that category as well. |
| 00:16:59 | DT: | Yeah, well, they’re almost in a fourth category, I guess, although maybe it’s a kind of profit redistribution in that their cost model is based on using renewable or sustainable raw materials and having a logistics function that’s more sustainable as well. |
| 00:17:12 | KI: | Yeah. You’ll see a lot of businesses run by Indigenous people in Australia are automatically and naturally social enterprises because the research shows that with Indigenous people in business, their motivation for being in business is often connected to that social and community purpose or caring for Country, for example. So, the whole purpose of being in business is so often back to those motivations. So, I think there are a lot of social enterprises that are not recognised or spoken about in that way. For me, I decided to go down the path of certifying the business, the legal practice as a social enterprise, which was a really great process. |
| 00:17:56 | DT: | And what does that process look like? Because it’s not a government certification, is it? It’s provided by a private enterprise. |
| 00:18:01 | KI: | That’s right. So Social Traders in Australia is the peak body that certifies social enterprises and supply nation is the peak body in Australia that certifies Indigenous businesses as Indigenous owned and led. With Social Traders, they basically take you through a process to really examine the purpose of your business. They look at the books and check out where the profit is actually going. They look at, in our case, we redistribute profits through an enormous amount of pro-bono work that we do. So, it’s a rigorous process. It’s not easy to get through, but really worth it. I think it’s important to put our money where our mouth is. And it’s a really good thing to do. For me, with a small practice, a B Corp Certification, we have gone through that process of collating everything, and we haven’t taken that next step to actually certify because we’re a small practice and there’s a lot in there that is just not particularly relevant to us. But I think it’s a really important thing to do. And it can change the face of legal practice in Australia if firms redefined what they’re doing, how they’re doing and what their profit model looks like. |
| 00:19:12 | DT: | Yeah. Well, I mean, that third party certification is an interesting way to look at the incentives for pro-bono practice, because I think giving back to the community doing pro-bono work is probably something that most of our listeners would say in the abstract is kind of an ethical responsibility for the profession. But I think most lawyers in Australia do less than one hour of pro-bono legal work in a month. So, there’s very little of that abstract concept of pro-bono as an ethical responsibility being translated into practice. But having that accountability to a third party that certifies you as a social enterprise, I think necessarily changes that, doesn’t it? Because it becomes part of your organisation’s identity. Now, on that topic, as we said at the top of the episode, we don’t have a separate type of legal entity for social enterprises in Australia. They are proprietary limited companies. And that can sometimes mean that the responsibilities of the directors or the executives of a corporation under the Corporations Act are at odds with some of the things that a social enterprise certification might be asking of you. For yourself, for example, as the sole shareholder of Violet Co, you don’t have this issue. You’re free to give your profits away if you want. But for businesses that are run by directors who are not the shareholders of the company, they have a responsibility to manage the company in the best interests of the company and for a proper purpose. And when we talk about the best interests of the company, we’re almost always talking about the best interests of the shareholders – except we might be close to insolvency, in which case we’re adding creditors into the mix. But in either case, it’s this very sort of Keynesian view of what best interests look like. Well, it’s about maximising shareholder value. And personally, I’ve always thought about, as a corporate lawyer myself, about a director’s responsibilities to the corporation in that way. It’s all about maximising shareholder value. And maybe it’s the case that maximising shareholder value in the long run means looking after our environment, means looking after our people, means looking after our communities, because that’s what’s going to maximise shareholder value in the long run, not just for the next quarter. But I can see how some of those definitions of what a social enterprise might be, especially the profit redistribution ones that might, in a way, require the distribution of a substantial amount of profit that might otherwise be available for distribution as a dividend to a social purpose might run afoul of some of those duties unless the shareholders are on board. So, for those business owners or those directors of an enterprise who are trying to walk that tightrope, trying to balance the purposes of a social enterprise with the legal responsibilities to shareholders, how do they reconcile those objectives? |
| 00:21:58 | KI: | Look, I think it comes back to that real soul searching. And it’s easy to do when you’re a business or you’re setting up a legal practice because you’ve got that blank slate. And you can sit back and go; “okay, what change do we want to create in the world and who do we want to create that change with?”. If we want to create change at all, I mean, I think that everything we do creates change, whether it’s change for who and what kind of impact, we all create change through our legal practice day in, day out. So, when you’re starting a legal practice, it’s much easier because you’ve got that moment in time to kind of sit back and go; “okay, what do I want to do? What’s the purpose of this practice going to be?”. And at that point, it’s the time to go; “okay, great. Well, the purpose of being a lawyer is absolutely to work in your chosen area of practice, to work really well and hard for your client’s best interests”, absolutely. And as practitioners, we also have an obligation that I think is higher than our client, which is to justice and the justice system. So, with that in mind, I think it’s a great opportunity when you’re starting a practice to really be thinking about what is my purpose as a lawyer and how do I reflect that purpose into the legal practice I’m creating and the legal services we’re going to deliver. And at that point, you’ve got your purpose component of the social enterprise sorted out and then you look at your profit model and how you’re going to work. I mean, the baseline is that 50% of profits go back into that social purpose. So, it’s also one of those questions. and back to the point of the Hayne Banking Royal Commission of; “well, okay, as a lawyer, I shouldn’t be expected to live on the bread line. I’m, you know, an accomplished professional and I deserve to get paid for my work”. I’m not saying that this needs to be an off the skin of your teeth kind of enterprise, but it’s that commitment of can we afford as lawyers to give 50% of our profits back into that social purpose? And I think yes. And for established legal practices, it’s that moment of going back to the purpose of the legal practice and go; “what are we all here for? What is the point?”. And again, you then look at your profit model. And if the directors of the existing legal practice, and if they do have shareholders or it’s a partnership model, what is the purpose? And if everyone is on board with that purpose, then doing the redistribution out is easy. And I don’t see it as a conflict with the best interest of the shareholders, because that’s what the shareholders are wanting. |
| 00:24:35 | DT: | I think that’s right. We don’t have that distinct legal structure, but we do have a lot of flexibility in the drafting of a proprietary limited companies’ constitution. And if your company is established with particular objectives set out in that constitution and the terms on which shares in that company are held are really clear, both to founding shareholders and new shareholders coming in, then there’s no reason why you can’t operate a proprietary limited company consistent with this social enterprise kind of structure. |
| 00:25:07 | KI: | And I think increasingly in corporate law, there is a real driver to look beyond the single bottom line around profits as an indicator of putting the company’s best interests and therefore the shareholders first, that actually it’s looking beyond shareholders to stakeholders is what directors have responsibility for, is to a broader sense of stakeholders. And so, I think it’s also about existing or new legal practices, looking at, well, who are our stakeholders as a legal practice? It might be the owners, but it’s also your employees, it’s your suppliers, it’s the community that you sit within, it’s the environment and directors’ responsibilities to climate change that are increasingly being brought up in cases as well. So, it’s a changing space, which is exciting. And I think as well, most lawyers are good people, and we enter this profession because we are committed to justice. |
| 00:26:05 | DT: | Well, yeah. I mean, you said it right at the top of the episode that it was a passion for social justice that brought you to law school. I think that’s a story that’ll sound familiar to a lot of listeners. A lot of us pursue that path because we have that passion for social justice, that passion for change, that passion for standing up for the rights of others. And maybe we don’t all get to practice in that sort of area, or maybe we decide we don’t want to. But I think that initial passion is one that all of us share. And I’m so glad that you mentioned the higher duty to the administration of justice, because one of the other criticisms that sometimes leveled at law firms as social enterprises is, well, not only do you have the responsibility to your shareholders or to your partner base to maximise return, you also have a responsibility to your clients. And what do you do when the best interests of your client are inconsistent with the purpose that you’ve decided to pursue? As you’ve correctly said, we already have a responsibility to put a social purpose ahead of the interests of our clients sometimes because our primary duty is to the interests of justice and to the administration of justice. But I suppose there’s a question there around the purposes that we choose, if we’re running a social enterprise, what does happen where the outcome that a client needs that you might be working for may be at odds with the purpose that you want to pursue as a social enterprise? What if you’re doing some work for an organisation whose interests will be best served by something that’s at odds with the values that you want to demonstrate as an organisation? |
| 00:27:40 | KI: | Yeah, there are so many lawyers in Australia, there are so many different practices with different sets of expertise, different passions and different approaches. So, for me, I’ve only been in that situation once where I’ve had a client that we’ve accepted as a client, and we thought aligned with our values and our purpose that turned out not to have that match. And we simply referred them to a different firm. And I think that as solicitors, we’ve got the luxury of doing that, that we do get to choose which clients we take on and which clients we don’t take on. And there’s plenty of law firms to go around. And I think your team and your staff appreciate that because they want to be working on things that align with their values and the purpose of the organisation, the firm that they’ve bought into. So, they don’t want to be working on a matter that just is completely at odds with your social purpose either. |
| 00:28:32 | DT: | Yeah, absolutely. And you’re right. We don’t have the cab rank principle that barristers are required to abide by, to accept any brief that they have the capacity to accept. We can choose our clients. And some solicitors may decide; “Well, I might not have a duty under the rules to follow the cab rank principle, but I have an ethical duty in my own heart. I have a moral duty to do that”. And you can operate a practice according to that principle, according to that purpose. But equally, you can make that choice to pursue a different purpose as well. I asked you before about how a social enterprise might differ to for-profit practice, the way that you work on matters, the way that you might operate the firm, the way that you distribute profit. You have a background working in corporate social responsibility teams in for-profit businesses. I want to ask you now, how does running a social enterprise differ from pursuing a corporate social responsibility strategy or a corporate social responsibility program in a for-profit business? How are they different? |
| 00:29:27 | KI: | I mean, I think how corporate social responsibility or sustainability or whatever phrase it is that’s used, responsible business gets thrown in there too, business for human rights. One of the things that is a real challenge in that space is that they’re often not guiding the core principles and the core work of that business. And you do see this in legal practice. In the big firms, you’ll have a diversity and inclusion team. You’ll have a work health and safety team or strategy. You’ll have a pro-bono team. You’ll have a responsible business or corporate social responsibility team. And they’re all doing great work and that’s terrific. However, when the core business of the firm or the practice is completely at odds with those principles that are happening within the diversity and inclusion team or within work health and safety or those other teams, you’ve just got this really hard push-pull on everyone in the firm and in the practice. And so, I think the difference with social enterprise is there’s that commitment that actually essentially, you’re not going to have that push-pull, that these are the values, this is the social purpose, let’s go do that. And it minimises that push-pull, I think. I mean, we’re all pretty familiar with some of the challenges that the legal profession has had with underpayment and overworking, particularly graduates, with sexual harassment, with racism in the workplace. There’s a lot of examples. I don’t think there’s a legal practice or a barrister’s chambers that has been exempt from those things. It’s a social-wide problem, these challenges. But on the one hand, if you’ve got your corporate social responsibility program going off and representing women who’ve experienced sexual harassment and then on the other hand, you’ve got your commercial part of the business representing employers to defend claims of workplace sexual harassment against them and then you’ve got, in the firm itself, workplace sexual harassment happening to women and gender diverse solicitors, then you’ve just got these complete mixed messages and it actually represents reputational risk for the business. So, what’s helpful with social enterprise is it really challenges businesses to think about what their purpose is and really live by those values. And B Corp does that as well. I mean, B Corp is more about the way you work, that there is a genuine commitment to work health and safety, and this is what it looks like. There’s a genuine commitment to environmental sustainability and this is what it looks like. So, you’re really using that B Corp framework to minimise that disconnect between your operations and how you work. So for legal practices that don’t feel as though they can throw the existing operating model out the window and refocus their purpose on a social or environmental purpose and then align their work with that purpose, a really great step is to certify as a B Corp because a B Corp isn’t necessarily about your purpose as a business, it is about how you do business and how you make sure that your practice is running in a way that we would all say is a good thing. And there are a couple of law firms in Australia that have certified as B Corps as a certified social enterprise. I think that my legal practice is still the only law firm that has certified as a social enterprise with Social Traders. So, there’s room to get involved, people. Start looking at your firms and how you’re wanting to work and what you’re wanting to work on |
| 00:33:18 | DT: | And I think one of those things that really distinguishes a social enterprise, as you said, from a for-profit business that has a corporate social responsibility strategy is that view of what your core purpose is. What is the end goal? Because as I said, there is a Keynesian view of the role of a corporation and it’s one I’ve often subscribed to which is, yes, the goal is to maximise shareholder return but it might be that in order to maximise shareholder return you need to maintain your social licence to operate. And maintaining your social licence to operate might mean doing what society in the community expects of you, including contributing to solving problems around climate change, contributing to diversity and inclusion, contributing in other ways that aren’t directly linked to increasing the bottom line this quarter but will produce returns for shareholders in the long run because you maintain a social licence to operate. If you’re pursuing it for that purpose, to maintain a social licence to operate so that you can pursue the core objective of shareholder return, then you have a corporate social responsibility strategy, but you are not a social enterprise. If you’re doing those things because that’s the very purpose for which the business was founded and your shareholders are 100% on board with pursuing that goal even if it means slightly less in the dividend distribution this year, then you are a social enterprise. |
| 00:34:34 | KI: | Yeah. There’s lots of research around about the value of social enterprise or the value of Indigenous business back to our community. So, it’s that kind of if you take an impact investing perspective and many of your listeners would do impact investing either through their superannuation funds or other initiatives that they’re getting involved in and supporting which is great. So social enterprise in Australia is shown to have a greater return. You might be forgoing some profit in your back pocket but in doing that, you’re creating social value that is many more times in that dollar in your pocket. So, I think it’s actually a really wonderful way to contribute back to our community. |
| 00:35:17 | DT: | I suppose one of the things that really distinguishes a for-profit business from a social enterprise is the way you measure success as well, not just how you define it, but how you measure it. As we’ve said a few times on this show, if you don’t measure something, you can’t manage it. So, all of our businesses, whether they’re for-profit or social enterprises, need performance metrics, need something to measure. How do your performance metrics change when you’re a social enterprise? How do you measure your impact? |
| 00:35:40 | KI: | I think we measure our impact on the feedback that we get from our clients around how they feel that either their organisations or them as an individual client have created the outcome that they’re looking for. So, in the case of an organisation, it’s creating a workplace, or a business is much more in step and attuned with what women and First Nations people as employees, as clients, as a society are needing. That’s one measure. I think another measure for when you’re working with individual clients is in a system that is often stacked against women, gender diverse and First Nations people, do they feel as though they’ve had a good crack at trying to achieve justice, recognising all of the limitations and constraints that exist within our justice system for those groups in our society. So, for me, I think that’s how we measure success is on the change and are your clients happy that what they wanted you to do, you’ve had a good old stab at doing it, and walking that journey with them. So that’s how we measure success. The other part of our business is advocacy and systems change. So, at the moment, we’re running a campaign around police accountability and how police do and don’t investigate reports of sexual violence. So, for all of us in the team and other people in the community that are working on that advocacy piece, I think the measure of success will be when we get some new legislation drafted to bring about that change. So that’ll be a good measure of success. So, for me, the bottom dollar doesn’t really factor into that definition of success. |
| 00:37:29 | DT: | I suppose one of the benefits of maintaining that certification on the basis of a profit redistribution as well is that it does give you a kind of quasi-financial metric for measuring impact as well, because you can measure the dollar value of profit redistributed, especially if you’re doing it through pro-bono work, you can measure the opportunity cost at least of doing the pro-bono work. It’s x many hours that would otherwise have been charged at x per hour. And that kind of gives you that tangible value for pro-bono. And I guess for some of our listeners who might be in for-profit practices who are looking for ways to measure their social impact or corporate social responsibility strategy or something like that, that’s a powerful thing to measure. And one thing that I would say that I’ve seen either work or not work, depending on how this is done, is valuing pro-bono hours for the solicitors that do them the same way as billable hours on a chargeable matter. It’s really important to encouraging your solicitors to do the pro-bono work, because when you create a disincentive to do it by not contributing to your monthly budget when you do pro-bono work, you can see that it’s just natural that solicitors are going to start avoiding that work. |
| 00:38:33 | KI: | That’s right. And I think it again comes back to that core purpose of us as lawyers, that we should always be doing what we can in terms of our pro-bono time and supporting the justice system to grow and adapt as our communities and society grows and adapts. The National Pro-bono Centre has the annual pro-bono target, and it asks firms and practices to sign up to commit to, I think it’s 38 hours per year per solicitor. TIP: That target that Karen just mentioned is known as the National Pro Bono Target and it’s an initiative of the Australian Pro Bono Centre. There are two main targets, the first is the one Karen mentioned and it’s around that 35+ hour mark. It’s designed for law firms, incorporated legal practices, barristers’ chambers and individual solicitors and barristers. The second target is the target for in-house and government lawyers. This one is 20 hours. There’s so many, hundreds if not thousands of practices that have signed up. |
| 00:39:43 | DT: | And it’s not a lot. It’s an hour and a half a fortnight. |
| 00:39:45 | KI: | Yeah, it’s not. And I think that’s the thing though, is how does that practice, instead of saying; okay, we want 40, I mean, are they allowed to say 50 or 60 hours billable in your targets? I’m not sure. But you know, the expectation that you’re doing 50 hours of billable work a week, that 50 hours includes five hours of pro-bono. And that is the expectation. And building that into performance targets is really important because when it’s not valued within that billable target that you’ve got, then it does fall by the wayside, which adds to burnout. It adds to a decrease in satisfaction with peoples’ jobs. It then leads to high turnover in staff. So, there are a lot of benefits in addition to just the social purpose that firms and practices can be looking at this model. |
| 00:40:40 | DT: | Absolutely. And speaking of pro-bono, we talk a lot about pro-bono work, but we also talk about sometimes low-bono. That kind of not free work, but significantly discounted work, certainly lower than the private charge out rates that you’d normally see. Are social enterprises part of the answer to providing that low-bono service? So far, we hear a lot of talk about low-bono. We hear a lot of talk about its role in providing services to that missing middle of clients who are neither eligible for free legal advice nor capable of paying charge out rates at the big end of town. Is the social enterprise answer to providing low-bono? |
| 00:41:17 | KI: | It could be. It just depends on the business model, really. I think that the answer for affordable legal services for that missing middle can be solved through all sorts of different structures of legal practices. It can be serviced and supported through a lot of private practitioners with their own practices in the large firms in the city. So, they have a role in our society in providing a different cost structure of legal services. You also have not-for-profit legal practices like the National Justice Project, which I sit on the board, that provides free legal services, but they’re not a community legal centre. The community legal sector is funded by the government. But there’s also, I think, the impetus on large and mid-tier firms to really look at their pricing strategy. Do they need to be charging the rates that they’re charging? Back to Kenneth Hayne and the Banking Royal Commission, is it reasonable to charge those rates? And I think that there’s some solicitors or partners listening today might find that quite a confronting question, but is it reasonable that those rates are charged? And it’s a question that I think our community is grappling with when they look at executives’ pay and they look at the pay of the big four accounting firms that is being examined at the moment by not just our federal parliament, but the state parliament. Is it reasonable that these CEOs are on the salaries that they’re on? Is it reasonable that the Qantas CEO and the Qantas Chairperson receive the salary that they receive, comparable to the average salary of the average Australian? And I think legal practices have that same question to ask themselves. Well, is that amount of profit reasonable? Are those charge out rates reasonable for our community? Or is it that by charging those rates you’re actually preventing access to justice, which is completely at odds with our commitment to upholding justice as lawyers? So, I think there’s some tough questions to have a little look at because certainly I think it’s not particularly fair to expect social enterprises that are already giving back 50% of their profits to a social purpose to then, for the fee-paying work that they do, to then have basically at-cost rates is a very difficult model. I think that looking at the affordability of legal services is definitely a factor and I think the big end of town and the mid-tier firms have really got some soul searching to do. |
| 00:43:59 | DT: | It is challenging though, even for a for-profit firm, isn’t it? I mean, I think we were just saying that younger lawyers often feel that they’re underpaid, comparative to how much work that they’re doing, the amount of overtime that they’re doing. So, there’s always pressure to increase salaries in law firms. We know that profit margins in law firms have been eroding for years, that Richard Susskind more-for-less challenge we’re all familiar with. So, it is hard to take a traditionally structured professional services business and just reduce the prices, right? |
| 00:44:28 | KI: | Well, I think it’s for us as a profession to step up to that because as a social enterprise and yes, in professional services where it’s all about billable time, it is difficult to make a profit. However, I think there’s a real responsibility for us to really question that gap that exists between probably the majority of solicitors and the majority of suburban private practices versus these very large and mid-tier firms that have got an incredible disparity in their rates and salaries for executives and partners at the top, as opposed to your early career and graduate levels who are doing a lot of that work. and it precludes ordinary Australians from accessing their rates. and it precludes ordinary Australians, I think, from accessing their services. |
| 00:45:22 | DT: | Karen, we’re nearly out of time, but before we leave our listeners, I thought it’d be nice to finish with a story from your practice in Violet Co. Maybe a success story, one matter that you could share with us where you’ve been able to make an impact that’s consistent with that purpose that you pursue. |
| 00:45:39 | KI: | Well, I think some of the most rewarding work that we do as a practice is with victim-survivors of sexual assault. And there is so much shame in our society that is placed on the shoulders of victim-survivors and there are so many very unfair myths that blame victim-survivors for the abuse and crimes committed against them. So, it’s a very difficult thing for clients to come forward and say; “this thing happened to me, and I need a hand because I want to do something about it”. Overwhelmingly, clients that come to us who have had that experience are wanting to speak out and access justice to stop the alleged perpetrator continuing to reoffend. So already you’ve got clients that themselves are little activists. They’re wanting to, by speaking up themselves, keep other people safe. In a way, that is its own social purpose. And so I think the most rewarding things have been working with a multitude of clients in that space and really taking the time, listening with an open heart and compassion to what they have experienced, and then really leading with that lived experience that myself and my team members have, to really know that they are believed and listened to, which is not the experience that that cohort of clients have with other solicitors. I think if we compare it to a corporate client that is coming in saying; “I’ve got a problem in the insurance space, and this is the situation”. And when they sit down and say that to a lawyer in a firm, they will be believed. That’s their problem. That’s their experience. And the lawyer will take instructions and carry on. Whereas for victim-survivors of sexual assault, even getting a solicitor to believe you and then do something about it is actually a very difficult task. So, I think for me, those have been the most rewarding cases to work on is where we’re working alongside that person to either work through a national redress scheme application and support them in their dealings with No More, the community legal centre that deals with that. Whether it’s supporting someone through a civil process or reporting to police or following up a workplace where something had happened or victim services, victim’s compensation process that allows them to access free counselling. It’s really valuable work and it’s work that other law firms aren’t doing. So yeah, that’s been the most rewarding set of cases and set of clients to work with, I’ve got to say. |
| 00:48:26 | DT: | Well, it does sound very rewarding, very important work. So, thank you for sharing that story with us and thank you for joining me today on Hearsay. |
| 00:48:33 | KI: | It’s been brilliant. Thank you. |
| 00:48:45 | RD: | As always, you’ve been listening to Hearsay the Legal Podcast. I’d like to thank today’s guest, Karen, for being a part of it. As you well know, if you’re an Australian legal practitioner, you can claim one Continuing Professional Development point for listening to this episode. Whether an activity entitles you to claim a CPD unit is self-assessed, but we suggest this episode entitles you to claim a business skills or ethics unit. More information on claiming and tracking your points on Hearsay can be found on our website. Hearsay the Legal Podcast is, as always, brought to you by Lext Australia, a legal innovation company that makes the law easier to access and easier to practice, and that includes your CPD. Hearsay is recorded on the lands of the Gadigal People of the Eora nation and we would like to pay our respects to elders past and present. Thanks for listening and see you all on the next episode of Hearsay! |
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