How Legal Teams Can Enable Corporate Innovation

Corporate legal and compliance (L&C) teams are usually considered the very antithesis of corporate innovation. The perennial “no” amidst a wide-eyed crowd enthusiastic with the prospect of shaking up the status quo and creating something new.

It is not without reason.

Established organisations have all implemented systems, processes and recruited people to keep the business afloat and keep it delivering on a repeatable and scaleable business model.

For organisations in industries such as healthcare and financial services, this goes one step further to ensuring that the delivery of this business model does not contravene any governing regulation.

While startups can often avoid the attention of regulators while they are small but as they find traction, grow and become more profitable, is is far more likely that they will capture the attention of regulators, as UBER and Airbnb discovered during their growth curve. The cost can often be hundreds of thousands if not millions of dollars in penalties, reputational damage, loss of business and worst of all a suspension or revocation of license to operate.

So how then do organisations with regulators watching over their every move run experiments to test new ideas, a process fundamental to the science of innovation?

Legal and compliance can actually play a critical role in helping established organisations to innovate.

It is often not L&C who stands in the way of innovation but the rest of the organisation adopting what becomes the self-fulfilling prophecy of “we can’t innovate because our industry is too regulated”. Employees are often paralysed by fear of failure and of regulators beating down their doors.

L&C can help organisations use legislation to their advantage so that they can actually run experiments, test ideas, gather customer feedback and get closer to solutions that work.

To demonstrate this point, the team at Collective Campus recently hosted a hackathon for Australian Unity, the purpose of which was to quickly build experiments to test key assumptions underpinning a number of private health insurance (PHI) policy ideas to determine whether there was enough positive feedback to progress ideas to the next stage, or kill ideas minus the wasted time and money that comes with commercialising the wrong ideas.

Undercover economist Tim Harford and author of Messy: The Power of Disorder to Transform Our Lives says that “unexpected change of plans, unfamiliar people, and unforeseen events can help generate new ideas and opportunities” so it’s critical that we get cross-functional people in the room, all with their own perspectives and world views.

Accordingly, the group was not only full of cross-functional employees, but two representatives from legal and compliance.

My initial feeling was that they might block experiments such as landing pages, Facebook and Google ads but my assumption proved to be false.

Rather than block the experiments, L&C enabled them simply by suggesting ways that the experiments could be performed without raising the ire of regulators. Whether it was subtle language changes making it clear that the proposed policy did not actually exist yet or the addition of small disclaimers pertaining the the Privacy Act and the responsible collection, storage and use of data, L&C moved the team closer to experiments that they could run with a good conscience.

In other cases, corporate legal teams might be familiar with exemptions that exist for the purposes of testing new ideas but the wider organisation may not.

In Australia, ASIC recently released a world-first licensing exemption for fintech businesses to test certain specified services without holding an Australian Financial Services License (AFSL).

In the United States, the SEC’s Regulation A contains a ‘test the waters’ provision that permits companies to solicit interest in contemplated securities offerings before filing an offering statement with the SEC and incurring the full range of legal, accounting and other associated costs. This is all pursuant to certain language being used in experiments that, as was the case with Australian Unity, notifies budding investors that no money is being solicited nor will be accepted. Most employees are usually not aware of such provisions.

But before you fire an email off to your legal team asking them to take part in your innovation initiative, take some time to determine whether they would model the positive behaviours of Australian Unity’s legal team or stifle innovation. Not all legal teams are created equal and many are still risk averse, conservative and ultimately want to protect their reputations, positions and livelihoods. Have legal been exposed to innovation initiatives previously? Have they received training in the innovation? Do they understand their role as one that can go beyond mere regulatory compliance and actually help drive innovation? Answer these questions first. If the answer is no, it is imperative that the organisation addresses these shortcomings.

When all was said and done we ran 36 experiments in a two-day period, validating some assumptions, invalidating others and uncovering completely new insights that lead to new ideas. By moving quickly organisations can move away from merely improving what they deliver already and move closer to those game changing new ideas.