The role of the general counsel in corporate governance
The role of the General Counsel (GC) has become increasingly important and complex. Corporate scandals, financial crises and the globalization of, well, everything, have dramatically elevated the importance of ethical guidance and long-term risk management. Despite some successful efforts to reduce the onslaught of litigation with the implementation of alternative dispute-resolution programs and legislative reform, business continues to address an increase in lawsuits and the means of financing them with an accompanying upward march in the size of verdicts.
Add to these increased duties an ever-growing desire to restructure relationships with high-priced law firms, bring work in-house or establish temporary on-call legal services programs, and one can see how the managerial responsibilities of the GC to oversee these efforts has transformed the role. Far from playing a solely advisory role, the GC is now often required to manage a department in similar fashion to operational units, with a focus on cost-effectiveness and performance metrics.
This growth in the importance of the GC and the corporate law department has led to a corresponding desire to securely integrate the GC's role with the business and its objectives. Where, for example, the GC might have been asked to oversee the preparation of acquisition agreements in the past, today the law department is likely to be brought in at earlier stages to assist in evaluating the very decision to consider an acquisition. Though it perhaps has not received the attention it should, all of the above factors that have intensified the GC's relationship with the CEO as well as interactions with the board of directors, which functions at the heart of the company's long-term risk assessment and strategic initiatives.
Emerging Role of the General Counsel With the Board
The late Ben Heineman, a former General Counsel of GE, once stated, "The General Counsel should ask not just whether something is legal, but whether it is right." This is more of a shift in focus than one might recognize. The advice is particularly applicable to today's environment. The GC can no longer effectively serve the board if he or she accepts the role of a legal backstop, simply opining whether a proposed board decision will comply with current law.
A company's integrity and its business reputation are critical in today's global business environment, and the GC is in an ideal position to assure that the board recognizes this and acts accordingly. Playing a proactive role to encourage a culture of ethical behavior and compliance is of paramount importance.
Similarly, the GC is expected to go beyond the straightforward role of legal advisor in strategic planning. It is incumbent upon the GC to bring his or her knowledge of relevant regulatory and legal frameworks to decisions and creatively counsel the board on how these guidelines might be employed to maximize a company's competitive advantage.
The GC as Board Educator
It is likely that many boards and new board members may not fully appreciate the proactive ethical and strategic role that the GC can play with the board. It certainly behooves the GC to educate the board about the enhanced role the GC intends to exercise. Additionally, the GC can engage in a joint role with the Chairman and the CEO to develop specific education programs for the board addressing specific risks and opportunities that current business and legal environments present. Some particular areas of interest to board members include:
- The development and rationale of the corporate by-laws and their implications on board composition, competency and expectations
- Crisis management protocol
- Communication practice and, where applicable, SEC requirements
- Criteria for establishing committees and the selection of advisors
- Educating new members about the business to enhance effectiveness
The GC's Direct Role With the Board
The GC must always remember that the guiding principle for any action is "the best interests of the company," his or her client. This means that while the GC may interact most frequently with the CEO, the CEO is not the client. Nor, for that matter, are any of the individual board members who undoubtedly will seek advice about their individual actions or potential conflicts from time to time.
In practice, this means that while organizational charts may show a direct reporting relationship between the GC and the CEO, it is the GC's responsibility to craft the necessary understanding that he or she will, at the GC's discretion, interact with the board directly, in many cases without the CEO's presence. This structure should be established at the outset and preferably incorporated into the company's governing documents.
A crucial responsibility of the GC will be to create the necessary trust with the board so that the board does not hesitate to approach the GC with inquiries, confident that confidentiality will be respected, and that the GC's allegiance to the company will prevail in all matters. In the end, this personal trust, rather than formal reporting protocols, will determine the success or failure of the GC's responsibilities.
Issue Awareness
Of all the changing roles of the GC and the factors discussed above that have created the need for a proactive GC, perhaps the most useful role the GC can play with respect to the board is one that he or she was trained for from the early days of law school — persuader. Lawyers are trained to both "spot issues" and persuade others to follow a certain course. In today's complex environment, there are few better situated to identify issues that the company and board should address than a well-informed and forward-thinking GC.
For example, cybersecurity is one of the most significant threats facing all companies today. There is near-unanimous consensus that the board must play a much deeper role in addressing the cybersecurity threat. Who better to understand both the laws governing this evolving field and the consequences of inadequate protection reflected in both breaches and subsequent litigation than the GC? This is one area where a proactive and dynamic GC can shift a board's focus and facilitate an aggressive approach.
General Counsel's Impact On Corporate Governance
Today's global challenges have heightened the importance of the role that the GC plays with the board of directors. At the same time, financial, legal and reputational challenges have dramatically increased opportunities for the GC to fully utilize his or her legal, analytical and persuasive training to have an important impact on the board and the direction it takes. No longer is the GC expected to act passively, only offering legal advice on decisions that are about to be made. Today, the GC needs to truly be a part of the process to develop solutions to today's cutting-edge problems and positioned at the heart of critical decisions. In the end, the success that the GC will have in this empowered role will be more dependent upon their personal team-building skills than on structural roles defined in the governing documents.
