Persuasive Counseling At PepsiCo

Wednesday, August 1, 2007 - 01:00

The Editor interviews Larry D. Thompson, Senior Vice President, Government Affairs, General Counsel and Secretary, PepsiCo, Inc.

Editor: Larry, please describe your career leading up to your present position.

Thompson: I spent a good part of my career as an associate and then a partner at King & Spalding with breaks to serve as U.S. Attorney for the Northern District of Georgia (1982-1986) and in 1995 as an independent counsel investigating contracts awarded by the Department of Housing and Urban Development during the Reagan administration. That was a part-time responsibility. In 2001, I left the firm to become U.S. Deputy Attorney General. After that, I became a visiting professor at the University of Georgia Law School and a senior fellow at The Brookings Institution.

Editor: Why do you believe that general counsel is uniquely suited for the role of persuasive counselor?

Thompson: In using the word "persuasive counselor," Norm Veasey put a name to what a good general counsel has always been. What is different is that corporate governance and compliance concerns have enhanced the role and importance of general counsel in their organizations and the weight given to their recommendations.

In most corporations you have highly qualified and ethical people in the CEO position who want to do the right thing and maintain the best relationship with the board and you have highly professional boards that take very seriously their responsibilities to the corporate entity. My experience is that there is generally no daylight between the CEO and board in terms of ethics and integrity. In this environment, the good counsel that general counsel gives with respect to issues of compliance and governance should never fall on deaf ears.

In the role of persuasive counsel, general counsel must bring to the table their legal knowledge and experiences as lawyers to help the company achieve its business objectives within the law and ethical standards. In my particular case, I feel fortunate that I have had such a wide variety of experiences, including that of being a prosecutor who has seen what can happen to a business when compliance failures occur. An important attribute that characterizes a good general counsel is professional courage. You have to be able to make a tough decision in difficult situations and you cannot abandon the gatekeeper role - and yet you must also still help the entity achieve its legitimate business objectives.

Editor: Does the term "persuasive counselor" also involve risk assessment?

Thompson: General counsel are drawn into the area of risk assessment more and more because the world in which modern corporations find themselves is so complex. The Tylenol situation confronted by Johnson & Johnson some years ago is typical of the kinds of risk assessments into which general counsel are drawn and which frequently have global dimensions. Such situations may involve not only legal issues, but a variety of other issues involving a corporation's stakeholders throughout the world. You bring your experience to bear on the policy and the government issues. You find yourself using your legal training and experiences to identify areas of risk and advising the client about acceptable levels of risk.

Editor: How is the role of the general counsel affected by the ability of the CEO to hire, fire and determine the compensation of the general counsel?

Thompson: It should not detract from the general counsel's independence. I do not believe that anyone in today's environment should take one of these jobs and worry about their tenure. The CEO can fire the person - but it is unlikely in today's world that they will do it without consulting with the board.

Editor: Norm Veasey proposed that general counsel should regularly attend meetings of the independent directors in executive session.

Thompson: I think that is an excellent idea. Certainly, at a minimum you should meet in executive session with the audit committee. I would consider this a best practice today. Your involvement gives you greater credibility not only with the independent directors but throughout the organization.

Editor: Would a requirement for a regular direct report by the general counsel to the CEO and independent directors with respect to legal issues (including those relating to compliance and governance) help assure that the flow of information to the general counsel is kept open?

Thompson: I do this on a regular basis. It is part of my regular reporting relationship to the CEO. I also make regular reports to the audit committee. They are eager for me and the law department to get the most complete information about the corporation and its business so that I am in a position to be knowledgeable about the legal implications of business decisions. To do this, they know that I have to be plugged into what is going on in the business. Of course, as Secretary, I attend all board meetings.

Editor: What about board committee meetings?

Thompson: I attend both audit committee meetings and nominating and corporate governance committee meetings. I have an executive session with the audit committee at every audit committee meeting. One of the lawyers who reports to me attends the compensation committee meetings, except where that would not be appropriate such as the portion of the meeting where personal compensation and performance matters are discussed.

Editor: How does information flow up to you from below?

Thompson: Lawyers reporting to me are on the executive committees of the respective divisions. They are integral parts of the division's management. I receive monthly written reports from my direct reports and as well as conduct biweekly telephone conferences with my direct reports and all division counsel. Of course, we have a formal Part 205 reporting up process.

Editor: What about having specialized in-house lawyers?

Thompson: One of the attractions to in-house work is that you get exposure to a wide range of legal issues. However, it is important to have some specialists, especially those whose specialty is germane to your business. In order to catch mistakes in financial reporting, we have in-house lawyers who are experts in securities law. They are also very familiar with accounting issues and work closely with our controller and financial reporting staff.

Editor: What about the relationship with outside counsel? Should the business heads of divisions or subsidiaries hire outside lawyers?

Thompson: We develop close relationships with outside counsel because they provide specialized backup for our legal staff on an ongoing basis. Outside counsel are also brought in where independent counsel are needed to conduct an investigation or review. On a rare occasion, you may advise the board or a board committee that an outside lawyer needs to be retained by it. When appropriate, you might also suggest candidates.

Where a business person seeks legal advice, it should be done through the general counsel's office and not by others in the organization unless the lawyers are involved in routine work that is unlikely to have broader corporate legal implications. For example, our human resources department retains immigration lawyers since we are constantly transferring people around the world.

All outside counsel are made aware of our code of conduct. They are sensitized to their responsibility to report something that they perceive to be wrong.

Editor: Should all lawyers in a company have a direct reporting relationship to general counsel?

Thompson: Yes, with the exception I mentioned. It is important that all the lawyers in the company report to the general counsel and for their compensation to be determined by the general counsel. You want to avoid a situation where a legal department is so decentralized that the general counsel simply does not know what is going on.

Editor: There seems to be a trend toward general counsel taking on additional responsibilities?

Thompson: Government affairs and public policy report to me. You do need to be careful about getting enmeshed in so much administrative detail that it detracts from your legal responsibilities.

Editor: Does compliance report to you?

Thompson: Yes, it does, but it is a separate department. Our compliance department has a matrixed responsibility to work with the law department, internal audit, HR, and security. In private practice, I found that for compliance departments to function effectively they needed to interface properly with the law department. Once that interface has been established, I am somewhat ambivalent about the reporting relationship.

Editor: What should a general counsel do if denied the necessary resources?

Thompson: I believe that you need to press the issue with the CEO and, if necessary, the board if you feel that you do not have enough resources. Lack of legal resources becomes a risk factor which you may need to report to the outside auditor. If you really cannot do your job and you have been left without adequate resources, you are placed in an untenable situation.

Editor: Does persuasive counseling also involve long range strategic issues?

Thompson: Yes, there are long range social policy issues that can influence legal outcomes down the road. Some need to be addressed now in order to properly position the company for the future. In our industry, these would include issues such as obesity and other health concerns, the environment and how, as a global company, we can best contribute to the needs of the communities in which we serve throughout the world.

It is also important that the law department also discharge its responsibilities in such areas as diversity and pro bono work. We not only practice diversity in the law department, but also encourage our outside counsel to become more diverse. There are solid business reasons for this approach. Being a global company, it is important that all our lawyers, both inside and outside, reflect a diversity of views, backgrounds and experiences - and we find that the client is better served by having diverse lawyers represent it in a diverse world.

Pro bono is important for lawyers regardless of the setting in which they work. We are a profession and have an obligation to serve society in a broader sense. It not only contributes to assuring justice for all, but also leads to greater job and professional satisfaction.