Spotlight on Corporate Boards Shines Brightest on GCs

The following was published on July 18 in ALM’s Corporate Counsel magazine.   silvae - Fotolia

This column, the first in a series, is drawn from the Global Counsel Leaders Circle Target Topic report provided in the link in the article below. The second part of the series focuses on the new skills required of general counsel to meet expectations of corporate boards. Part three suggests measures the GC can take to protect him or herself.

A few weeks ago in New York the deputy general counsel of a large global company said to me, “In our legal team we say that if you’re not at the table, there’s a high likelihood you’ll be on the menu.” It’s a good line, and I agree—but being at the table for most GCs today is also highly risky.Just ask Michael Millikin of General Motors Co.

A powerful convergence of factors has put boards in the spotlight and elevates the general counsel’s job, says the Global Counsel Leaders Circle’s new study on governance trends. After interviewing senior corporate counsel and top executives in North America and Europe, the report (“Sea Change: How New Corporate Governance Demands are Elevating the General Counsel’s Job") finds that the key factors are widespread global business and regulatory trends:

• More aggressive enforcement actions by regulators worldwide.
• Greater involvement and oversight by regulators in how companies are governed.
• Increased shareholders’ activism in listed companies, particularly in the United States.
• More frequent crises, owing to an interconnected global economy, public interest in private sector activity, and fast information flows via the Internet and social media.
• An increase in the strategic importance of compliance due to threat of reputational damage, enforcement actions, negative financial performance and more disputes.
• Mistrust of business, a fallout of the financial services crisis and highly publicized frauds (Enron, Parmalat, etc.).

The general counsel’s workload has increased because each of these factors can produce serious legal risks or legal consequences. Today’s responsible board of directors expects much more from the general counsel, those interviewed for the report said. They see a tremendous increase in the time they spend working with boards, audit and other committees

“Boards have [gradually] become more aware and savvy about legal risks, with the rise of data protection and anti-bribery legislation, in particular,” said Bill Mordan, general counsel of Reckitt Benckiser Group plc, a U.K.-headquartered home products multinational. “That rising awareness applies directly to a higher expectation of what directors require of general counsel.”

One general counsel interviewed said, “Boards are interested in things they would never have raised a few years ago. For example, when we recently entered a new line of business relating to offering our own prepaid debit cards, the board wanted a deep dive on our processes on anti-money laundering.”

Shareholder activism comes up as a top issue driving boards of U.S.-headquartered companies to expect more from the general counsel. Tom Sabatino, general counsel of Walgreen Co., said in the report, “The increasing aggressiveness of both traditional shareholder activists as well as financial players like hedge funds have made directors feel like they have someone always looking over their shoulders. It is natural to turn to the general counsel to help them navigate these tricky waters.”

The underlying factors listed above translate to the general counsel having more dealings with diverse stakeholders. Peter Beshar, SVP and general counsel of Marsh & McLennan Companies, has responsibility for both government relations and communications. “More often today, general counsel play the role of public advocate for the company, rather than other corporate executives,” he explained. “To advocate effectively, the general counsel must be out in front on issues and build and maintain diverse networks of influence.”

Changes in expectations have heightened the importance of excellent communications skills in the general counsel. John Stout, a Fredrikson & Byron partner who chairs the ABA’s Committee on Corporate Governance and sits on the Governing Council of the ABA Business Law section, said in the Global Counsel Leaders Circle report:

“Given what the board needs from the legal chief today, today’s general counsel must have a very broad vision, a deep skill set and be a superb communicator. It’s a very challenging job, with many stakeholders in and outside of the company whose concerns must be balanced and whose demands increasingly require the legal chief’s attention. It’s no surprise, given their multi-faceted role, that chief legal officers are increasingly considered as CEO candidates.”

The report outlines new expectations of general counsel by corporate boards, including:

1. General counsel increasingly run linked functions in larger international companies, including legal, compliance, ethics, government relations, corporate social responsibility, and other areas, with an overarching focus on reputation protection.

2. Boards of directors and audit committees proactively ask the general counsel for legal guidance, particularly on risk identification and disclosures, since they expect to be more involved on legal and governance issues.

3. Boards expect from the general counsel both assurance and clarity of processes and procedures demonstrating that the company is acting responsibly to reduce risks and promote good ethics.

4. Boards expect that the general counsel fully understands the company’s own corporate governance, and can draw on a wide breadth of knowledge about key corporate functions and various stakeholder interests and perspectives.

In some countries, corporate board members are unclear about what information and guidance they can and should expect from corporate counsel. Not asking for help can create its own problems, especially when senior counsel don’t have a seat at the table where they can give advice and insight.