The Case for the GC on the Board
In a time of increasing regulatory risk, global complexity and shareholder activism, the role of the corporate general counsel in the boardroom has never been more important.
January 22, 2015 at 03:08 AM
7 minute read
In a time of increasing regulatory risk, global complexity and shareholder activism, the role of the corporate general counsel in the boardroom has never been more important. Yet, companies have been slow to recruit general counsel or seasoned attorneys to serve as independent directors. Among the nearly 3,900 independent directors of publicly traded Fortune 500 companies just 5.1% are or have been general counsel.
Why such low representation? Some of it is based on questionable logic. “We already have a GC in the room,” goes one argument. “We don't need another one.” Of course, most boards already have the benefit of the perspective of the company's CFO in the boardroom, but that does not deter them from recruiting outside CFOs to serve as independent directors. In fact, CFOs and former CFOs account for 16.5 percent of independent board seats among the Fortune 500. Though some of the relative over-representation of CFOs compared with GCs can be attributed to the Sarbanes-Oxley requirement that a Board's audit committee include at least one “financial expert,” the unique experience and insight of a GC clearly is undervalued when boards consider new candidates.
The Role of the GC
The GC role has evolved dramatically in the last 15 years, and today encompasses much more than delivering legal advice in a corporate setting. Today's GC serves as a trusted adviser to senior management and boards of directors on a wide range of strategic and operational matters. General counsel as a whole have risen to a new level of responsibility, becoming their companies' first lines of defense, proactively looking over the hill at what's coming at them, and acting as a strategic business partner. Against the backdrop of an increasingly complex business environment, this evolution of the GC role and the competencies necessary for success in the role, can make high-performing GCs, including many recently retired, ideal board candidates.
A recent survey Heidrick & Struggles conducted of general counsel currently sitting on corporate boards offers one indicator of the heightened role of GCs. Virtually all of them, in their home companies, attained the status of strategic business partner with their CEOs. They have played a particularly valuable role in company success when it comes to the many risks organizations face—legal, regulatory, reputational, financial and operational—not only in the country where they are headquartered, but around the world. Today's GC is central in determining where the company faces the greatest risks, how multiple risks interact, and how those risks can be managed consistent with the company's business objectives.
How They Operate
Rather than simply controlling every risk at the expense of the organization's mission, these business-savvy GCs operate within a framework of acceptable risk, helping the CEO weigh the benefits and drawbacks of different courses of action and, when obstacles arise, helping develop alternatives that advance the business strategy. Further, in working with other members of the senior executive team, these strategically minded GCs are brought into discussions of major initiatives at their inception, bringing to bear their business insight as well as legal skill. This strategic experience and perspective is particularly valuable today as boards increasingly return to their traditional role as sounding boards for corporate strategy.
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