General Counsels As Corporate Directors

Monday, September 23, 2013 - 16:36

The Editor presents a discussion of general counsels as corporate directors. The participants are Joanne Pace, Managing Director and COO (retired), Morgan Stanley Investment Management; Director, The Oppenheimer Funds and Horizon BCBSNJ; Member, The Alberleen Group Advisory Board; Paul Williams, Office Managing Partner (Chicago), Major Lindsey and Africa; and Director, State Auto Financial Corporation, Bob Evans Farms, Inc., and Compass Minerals, Inc.; and Linda Willett, Senior Vice President, General Counsel and Secretary, Horizon BCBSNJ.

Editor: Paul, you have been a corporate general counsel and are now an executive recruiter who also sits on corporate boards. Historically, public company boards have not routinely sought out general counsels for director seats. There have been exceptions, but why, in your opinion, has the recruiting of the “lawyer director” not been more widespread?

Williams: It’s due to the traditional skepticism about whether lawyers have a narrow legal perspective rather than being pragmatic business partners with business savvy. There is also the traditional belief that lawyers may make things a little bit more complicated than they actually need to be. The very good news is that general counsels have demonstrated, particularly in recent years, that they can add value from a business standpoint by being pragmatic.

Editor: Has the trend in recruiting general counsels as directors changed over the past year or two and, if so, how and why?

Williams: Absolutely. There is an uptick in the number of general counsels and former general counsels who are serving as directors of publicly traded companies. Currently about 42 percent of public company boards now have at least one lawyer serving on their board. The reason is the perceived importance of the things that lawyers know a lot about such as compliance, regulatory issues, governance and litigation. There is also the much-warranted feeling that lawyers are strong communicators with outstanding interpersonal skills who can bridge the gaps that sometimes arise within boards. General counsels are really adept at building consensus. For this reason, they are also serving as lead directors more frequently.

Editor: Linda, you are the general counsel and corporate secretary at a company whose board has several directors who are practicing lawyers and a few directors who attended law school but never practiced law. Has the presence of lawyers made a difference in how you interact with the board?

Willett: Yes. I prepare for board and committee meetings the way I always have, however, I am mindful that I may get questions that are informed by many years of experience of practicing law. Accordingly, I try to convey information in the context of risk-balancing since all of our directors are keenly focused on risk oversight. Additionally, although it might seem like a small point, I always include citations to pertinent laws and regulations in my notes just in case someone asks for them.

Editor: Have you ever had an occasion where the “lawyer director” second-guessed your legal counsel to the board? If so, how did you handle that?

Willett: Happily, I have not. In fact, I have always found our directors to be very supportive of the expertise of in-house counsel, both my own expertise and that of lawyers that we invite to address our board. They also respect the roles of other members of management who address the board. However, I admit that I do on occasion get the “have you thought about this or that” type of question from one of our directors who is either a lawyer or has law as a background. Given the board’s oversight role, I always appreciate those types of questions because they demonstrate that the directors are doing their jobs.

Editor: Joanne, you have had a significant corporate career both as a top executive and director. As a director, you are charged with a host of oversight duties, but need to keep in mind the distinction between the roles of management and the board. Do you ever find yourself wanting to provide management advice to the companies whose boards you sit on, and, if so, what do you do to ensure that you do not overstep your role as director?

Pace: As a board director, you have to respect that management is in the seat and responsible for the day-to-day management while the board is responsible for a number of oversight duties, including holding management accountable. When I was part of management, I always appreciated the respect that I was given as well as the honest and direct feedback and advice that I received from the board. All of that, as well as the frequently very tough questions posed by the board, made me better at my job. Now that I am on the other side of the table as a board director, I try to do the same thing that they did.

Editor: Do you think it is any more, or less, difficult for the “lawyer director” to stay in the role of a director as compared to directors with other training and backgrounds?

Pace: The talented lawyers that I have been fortunate to work with in both my management and board careers balance the theoretical with the practical in a way that provides useful legal and commercial advice. It is a career that naturally lends itself to making the transition to being a board director. As to whether it is more or less difficult to stay in that role, I think that has less to do with someone’s functional role and more to do with the transition to being a board director, which involves understanding the key distinction between the roles of management and the board.

Editor: Linda, most general counsels spend a good bit of time on corporate governance and addressing enterprise risk issues. How do those skill sets translate into being a corporate director?

Willett: Companies have come under increasing regulatory scrutiny and litigation exposure over the past decade. As a result, corporate boards and their committees have a heightened focus on compliance and enterprise risk management. The general counsel has to work with management to ensure that directors receive all of the information that they need to exercise that oversight role.

Our board frequently asks for additional information beyond the information that is provided at board meetings. Anticipating those types of requests helps the general counsel to develop a keen sense for risk issues to which the board should be alerted. I think that skill also enables the general counsel to ask the right questions as a director.

Editor: If you were searching for a director on one of your boards, what are the top five characteristics that you would look for? Conversely, what are the things that would be red flags in a search?

Pace: The following characteristics are key: (1) diverse skills, perspective, and points of view; (2) relevant and translatable experience, even if it’s outside the industry; (3) ability to deal with conflict in a constructive and productive manner; (4) skill in asking tough and direct questions in a productive yet thoughtful way to elicit the best thinking and result; and (5) collegiality and the ability to work collaboratively. Red flags, I would say are: no passion or enthusiasm, not an active listener and not likely to ask questions or provide thoughtful insights.

Williams: I absolutely agree with the list that Joanne gave. I think that collegiality and interpersonal skills are most important. That’s why general counsels make good directors. A board should be careful when including those former CEOs who have a command/control approach to things.

Editor: Finally, I am going to ask each of you, should boards be more actively seeking general counsels as directors and, if so, why?

Williams: Unequivocally, yes, they should be seeking general counsels as directors. The first and foremost reason is that general counsels bring value. Their experience and the skill sets that they’ve honed include being good at navigating complex situations and dynamics with other people. Having a diversity of perspective on a board is critical. You don’t want people who all have similar backgrounds in terms of the functional areas that they headed. A board that consists only of present or former CEOs is too narrow.

Pace: Given the current environment and all that boards are dealing with, having a GC on the board would be invaluable.

Willett: As you would expect from the comments of all the participants in this discussion, my answer is a very definite yes.