12 Ways GCs Can Protect Themselves From Governance Risks
The following was published on July 21 in ALM’s Corporate Counsel magazine. By E. Leigh Dance and Bruno Cova, for Corporate Counsel
A general counsel’s major and growing role in corporate governance can often become her or his biggest contribution to the corporation’s and to its many stakeholders’ well-being.
This amplified role for the general counsel comes at a time when legal risks have become of paramount importance to boards of directors and shareholders, and it brings far greater risks for the individual. When a crisis erupts, corporate governance is both an opportunity to shine and the in-house lawyer’s most testing proving ground. It is riddled with difficult choices, obstacles and challenges to the corporate counsel’s independence.
Corporate governance is the battleground where legal careers are launched or may end in ruin. It is a battleground which is here to stay, and will become ever-more important in defining the profession of corporate counsel.
Given the rising risks to the individual, how do you, as senior corporate counsel, ensure that your legal career is defined positively by your contributions to corporate governance rather than end in ruin?
Consider these measures to protect yourself, assembled from discussions with many successful general counsel who have faced their share of difficult challenges (link to source: “Sea Change: How New Corporate Governance Demands are Elevating the General Counsel’s Job"). It may be useful to keep this list handy, and make sure that every member of the corporate legal team has read it.
1. Remember that the general counsel’s main legal risks in corporate governance and crisis management generally come from the reaction to a problem, not from the problem itself. Examples of mistakes made by general counsel in reacting to a corporate crisis include:
- Failing to secure the integrity of evidence or tampering with evidence.
- Behaving in ways that are viewed as obstruction of justice or obstruction of regulatory oversight.
- Providing inaccurate, partial or misleading information to markets, regulators or the board of directors.
2. Take time to find and understand the underlying facts related to the issue, for board communications and when reviewing disclosures to the markets or other stakeholders.
3. Appreciate the high complexity of corporate governance issues—and the high risk of getting it wrong. Before proceeding with a course of action it’s wise to delegate to specialists or seek their advice—within your legal department or with law firms (e.g., to determine how to conduct cross-border internal investigations, or to review public disclosures on complex financial transactions).
4. Take care to protect your independence and how it may be perceived. Avoid actions that suggest you are acting in the interest of individual executives rather than the company. This can often prove very difficult after a crisis erupts, so you should try to ensure that measures to guarantee the general counsel’s independence are already in place (e.g., a “switch” of reporting lines to the board’s audit committee when the general counsel has to deal with issues relating to the CEO or senior management).
5. Devise and recommend corporate governance measures (e.g., the involvement of the board in the selection and replacement of the general counsel) that will ensure that in a corporate governance crisis (such as when the company’s CEO is under investigation) you can act with the necessary independence.
6. Avoid making public comment in a topic area that may be connected with the area of a regulatory inquiry, investigation or dispute in which the company is involved. This is inherently risky ground for the general counsel.
7. Consistently maintain strong reporting or communication lines with the board of directors so that they know you and your competencies, and so that you are better able to balance and withstand management pressure.
8. Stay “employable,” so that you can always do what you think is the “right thing” while knowing that you have viable employment options in the unfortunate event that you lose your job along the way.
9. Seek out sounding boards—either outside counsel or, confidentiality obligations permitting, other general counsel who have had experience in similar situations.
10. Consider using outside counsel or other external experts in the role of “bad cop” to deliver necessary messages to management that they may not like.
11. Be mindful of attorney-client privilege issues.
12. Make sure your company’s director and officer insurance policy covers legal and compliance department leaders.
Corporate counsel hardly need to be reminded that companies today face increased legal risks, heightened enforcement and public attention. You should also be confident that no one within a corporation is as well-equipped as an in-house lawyer to support the board and senior management in addressing these challenges. To do so effectively, it’s essential that you understand the range of issues and potential pitfalls, and take actions to prepare.
E. Leigh Dance is executive director of the Global Counsel Leaders Circle, an invitation-only forum of senior multinational corporate counsel. Dance advises many legal departments worldwide in areas including corporate governance. She is also president of ELD International LLC, a global legal-services consultancy she founded. Contact her at email@example.com.
Bruno Cova, partner and co-leader of the Milan office of Paul Hastings, was formerly general counsel at Eni E&P and Fiat S.p.A.; was chief compliance officer at the European Bank for Reconstruction and Development; and served as chief legal advisor in the Parmalat investigation. He is one of the three-person expert panel appointed to advise the Corporate Governance Committee of the Italian Stock Exchange.