Leverage The Lawyer

Are boards utilizing the full value of the GC? A recent survey finds plenty of room for improvement.

Six years ago, research conducted by Corporate Board Member and executive search firm BarkerGilmore found that the general counsel’s primary role was steadily expanding beyond that of safeguarding the organization against legal and ethical transgressions to encompass strategic advisory responsibilities. At the time, 79 percent of corporate directors surveyed predicted that as early as 2020, one of the GC’s most valuable functions would be to advise the board and executive team on business strategy. 

The prediction proved apt. Three-quarters of directors participating in our January 2022 study on the GC’s value for boards reported that they would like their GC to express views on business strategy and actively participate in strategic planning in addition to their core responsibilities as legal counselor and manager of legal risk. 

The thinking reflects growing acknowledgement that today’s business environment is rife with risks that have the potential to disrupt operations and derail growth. Regulatory changes, ESG pressure, stakeholder activism, workforce disruption, privacy concerns, economic and geopolitical upheaval are all areas where directors are looking to the general counsel to provide sound business counsel in addition to legal advice.

Nicole Sandford, who serves on the board of Aspira Women’s Health, feels strongly enough on the issue that she recommends that boards that don’t feel their GC is adding value to those conversations step back and ask whether they have the right general counsel. “There’s a huge difference between the role today and the role 10, 15, 20 years ago. And not everybody has evolved,” she says. “When you have a really good, dynamic general counsel in your boardroom, you don’t really want to go back. You see the value.”

The image of the “old-school GC as a right hand to the CEO” has evolved into more of a business-minded general counsel, she explains. “That’s what people are really looking for now. And I think with this new style of general counsel, boards are much more comfortable having a different kind of relationship.”

Yet, finding someone who fits the bill can be challenging. In fact, when board members were asked to rate their level of satisfaction with their GC across various competencies such as business acumen, EQ, integrity, leadership and communication skills, strategic perspective ranked low on the list. “In my experience with six boards, it is hard to find a GC who has the breadth to make contributions at a strategic or business level,” observes a director who participated in the survey. “Their interest is in risk avoidance or mitigation, whereas the business takes risk to make a return.”

LAW FIRST, STRATEGY SECOND

While acknowledging the value a business- savvy GC can bring, the majority of directors surveyed still prioritize competencies more traditionally associated with the role over strategic acumen. Only 19 percent of those surveyed rated strategic acumen one of the top competencies for a GC to possess. (The most important were high integrity at 76 percent and sound judgment at 72 percent, the same top two criteria cited in the 2016 study.)

In fact, when asked across which areas of risk the GC’s perspective is most valuable to boards, the response was overwhelmingly skewed toward traditional legal counsel responsibilities: Litigation (96 percent), investigations (89 percent) and regulatory matters (84 percent) topped the list by large margins. New risks, such as Covid-related mandates, work arrangements, workplace safety, andeven contingency planning and cybersecurity all ranked low on the list, with less than a quarter of the votes.

Notably, there were directors who expressed skepticism about GCs contributing on strategy across business functions. “I’m not sure I would expect any GC to be able to totally guide a board on risk issues,” says Hazel McNeilage, a director on the board of Reinsurance Group of America. “Depending on the type of risk that we’re talking about, there are going to be a range of other people at the table. A lot of companies will have, depending on their sector, a chief risk officer who clearly would be involved. If we are talking about, for example, human capital-related risks, I would expect that the CHRO is going to be front and center in those kinds of conversations. I would expect the GC to participate. The GC may well have contributions to make, but I don’t want to see the GC as the main person directing those kinds of conversations with the board.”

Others, however, argue that having the GC participate in all risk-related conversations adds a much-needed layer of protection for the corporation—and for the board. “There’s no reason why a general counsel shouldn’t weigh in on any of that,” says Warren Phillips, lead director on the board of CACI International.

Phillips is a proponent of the idea that boards should also avail themselves of outside, independent counsel to ensure they fulfill their duty of care. He says having both internal and external counsel on certain matters can provide some strong differences of opinion, which, he says, helps make the case to Delaware Courts “that you’ve done your homework and tried your best to come up with the right answer.”

“If you look at some of the larger court cases where boards have been found guilty of inappropriate decision- making, it has primarily come from an [in]ability to show a proper duty of care on the part of the board with regard to reaching a decision,” he says. “Not that they didn’t reach the right decision, but they didn’t use enough care, research, thinking, homework, if you will, to get it.” He cites cases such as BlackBerry’s plane purchase controversy amid layoffs and revenue losses or Boeing’s aircraft safety measures as examples.

McNeilage says there are, indeed, situations where outside counsel is warranted— and indicated—for the board; for instance, when conducting a transaction or when there’s potential for large conflicts of interest. “Clearly in that situation, the board would need their own counsel,” she says, adding that boards can always avail themselves of their own counsel for any reason outside of that, but it’s just not a practice she’s experienced personally.

McNeilage says when it comes to working with the GC, the most important, perhaps, in the board’s eyes is for the person to have a good understanding of the purpose, vision and strategy of the company in order to provide counsel that is targeted and specific. “I have, in the past, had situations where GCs tended to a lot of legal provisions, but if they’re not able to relate them to the company in a practical way, well, then you’re kind of left wondering, ‘What do I do with this?’” she says.

TAKING IT TO THE NEXT LEVEL

Overall, the survey reveals opportunities for boards and their GCs to improve on their relationship and expand their contributions beyond the issues of corporate governance, compliance, ethics and regulatory compliance. While deep knowledge of corporate laws and regulations are inevitably top of mind when choosing a general counsel—and unsurprisingly topping the list of skills and attributes most important for the job, according to directors—in order for boards to derive added value from their GC and, more specifically, the strategic insights they seek from the role, the focus may need to change.

“The GC these days needs to be much more than a lawyer. They need to function as the backbone of the organization,” says another survey respondent.

For many companies, that’s already the case, says Pamela Marcogliese, partner in the corporate advisory, financing and capital markets practice of Freshfields Bruckhaus Deringer, adding that in her experience, the most significant strategic decisions are now made in consultation with the general counsel. “The general counsel is no longer the naysayer, the one who says, ‘You can’t do this, you can’t do that,’ but rather the one who tries to flag the issues, guides the team toward what’s doable and balances business objectives versus risks,” she says.

With the proliferation of risks, she adds, including new risks that have the potential to blow up a company and bring about significant litigation and liability, from #MeToo complaints to changes in the regulatory landscape to ESG pressure from shareholders to Covid-related mandates, boards are best served to ensure the GC has a prominent place at the discussion table.

“Many of the things today’s GCs have direct supervision of are the things that are some of the most critical risks companies are facing,” she says. “That person is uniquely situated to speak to liabilities and the risk analysis…. To me, there are very few decisions that aren’t made better by having the general counsel involved.”

Incorporating the GC into conversations about strategy can also help better align the company’s approach to risk with its business objectives, says Marcogliese. GCs whose roles have evolved “know that their job today is to figure out, along with the management team, the amount of risk that makes sense for the company,” she says.

“It’s very clear that today’s general counsel is a real business partner who brings a unique perspective as to how to calibrate risk—and that’s integral to making good business decisions.”


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