Minimising Corporate Liability: Advice from Outside Counsel

Corporate Governance, reputation management, ethics and regulatory compliance.

Board responsibilities in these risk areas have always been important, but they have grown more prominent in our connected world of social media, increased regulation and ethical capitalism.

High profile scandals involving Fortune 500 companies have increased in number and notoriety over the past few years with Wells Fargo and Volkswagen, particularly well-known examples. The opportunities for violation of Corporate Governance and compliance or ethical standards are further amplified by greater complexity in areas such as cybersecurity, data protection and applied technology.

Regulatory regimes such as the Sarbanes Oxley Act of 2002 have sought to deal with some of these weaknesses within complex organisations by seeking to ensure a meaningful separation of power between management and the board. The act recognises that a corporation’s board and its senior management may have conflicting responsibilities and objectives, and expects that board to be an independent watchdog.

In this evolving landscape, the role of General Counsel has become more important and arguably more influential at the top level of organisations. The General Counsel should be a key ally and partner in establishing a corporate culture that supports corporate performance without compromising ethical behaviour, and legal and regulatory compliance.

In the Association of Corporate Counsel’s (ACC) recent survey – Skills for the 21st Century General Counsel – 54 per cent of directors ranked ‘ensuring a company’s compliance with relevant regulations’ as one of the top three ways General Counsel provide value to the company. Further, in the association’s 2017 Chief Legal Officers Survey, 74 per cent of General Counsel rated ethics and compliance as ‘extremely’ or ‘very’ important over the next 12 months — the highest-ranked concern in the survey.

Given these results, a pertinent question must be how General Counsel can carry out their jobs most effectively, ensuring directors understand their liabilities and are held accountable for them.

One major issue seems to be the access some General Counsel have to the CEO and their ability to speak frankly at high-level meetings with c-suite executives.

A recent white paper conducted by the ACC into General Counsel influence, entitled Leveraging Legal Leadership, also quotes the Chief Legal Officers 2017 Survey. It shows that just 72 per cent of General Counsel reported directly to the CEO in 2017, compared to 64 per cent in a survey carried out in 2004.

The paper concludes: ‘the movement of less than 10 percentage points (over 13 years) is a concern given how much more global and complex the challenges businesses face have become.’

Clearly there is a need for General Counsel to exert more influence given the unique position they hold in business. They sit between the board and senior management, with oversight of operations, as well as a detailed understanding of legal, ethical and regulatory roadblocks.

One way of doing this is to bring in independent outside counsel to bolster the in-house legal position on risk, adding weight to arguments over director liability and the importance of proper officer reporting. The value of such counsel is largely in its impartiality, distinct as it is from other outside corporate counsel, and not embedded within the business as is General Counsel.

Now, more than ever, it would seem critical to fortify legal counsel to the board. Having more legal minds in direct contact with the CEO and board ensures that sophisticated arguments don’t get distorted before they reach decision-makers.

The following IR Global report includes contributions from 23 outside counsel across multiple jurisdictions. It touches on the key areas of director liability and governance mechanisms between the board and c-suite executives; as well as current trends within regulatory agencies and courts of which in-house counsel should be aware.

We hope you find it useful.