No, GCs Should Not Be on the Board

Posted by Benjamin W. Heineman, Jr., Harvard Law School Program on Corporate Governance and Harvard Kennedy School of Government, on Wednesday September 11, 2013 at 3:12 pm
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Editor’s Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that appeared in Corporate Counsel.

A provocative headline recently topped a CorpCounsel.com story: “Should GCs Be on the Board? GCs Say Yes.”

This former GC says “no.”

In fact, the story presented a much more modest and qualified account of that issue in describing “The General Counsel Excellence Report 2013,” prepared by the news site Global Legal Post, in association with legal referral network TerraLex and based on a survey of 270 chief legal officers globally.

Only 9 percent of the GCs surveyed were on their companies’ boards, and only 20 percent thought that GCs should be on the board. Those 20 percent, in my view, are wrong—and it is a mistake for a trend to develop among general counsel to aspire to membership on their company’s board.

As this site’s readers know well, the GC represents the company, not the CEO. The representative of the owners of the company—who protect both shareholder and stakeholder interests—is, of course, the board of directors. So, the directors are the day-to-day representatives of the company, not management, and thus the ultimate client of the GC.

To me, it is obvious that the GC should not be both lawyer and client, as this creates insoluble conflicts of interest. It makes no sense to be on the board when the GC has to recuse herself, as she must, from every decision on issues in which she is involved as lawyer/counselor. The GC’s job is to provide advice and recommendations on a variety of hard issues, acting as a wise counselor who seeks to help the company fuse high performance with high integrity. The board’s job is to make decisions based on those and other management inputs.

This is really the beginning and end of GCs as board members for their own company. No—because of conflicting roles—period. Full stop.

But GCs should be engaged with the activities of the board, even if not as a formal board member. The key is that the GC should be an integral part of board culture. Only the CEO should be on the board, but other key business leaders—vice chairs, CFO, and GC—should be present at every board meeting strictly in their capacity as management. And they should also be present at key committee meetings—audit, nomination/governance, risk, public responsibilities—with the exception of compensation. They should also be involved in board dinners, board travel, and other board events.

And as a key participant in the board culture, without being a member of the board, these executives can be free to comment at board meetings, either if asked or if they believe it is appropriate to elucidate an issue. By being part of the board culture, they will also develop relationships with directors who will feel free to call the vice chairs or CFO or GC if they have a question between board meetings and don’t want to bother the CEO. If necessary, the non-board management attendees (including the GC) can be asked to leave either board meeting or committee meeting if the board wishes to deliberate alone, although this is likely to be a rare occurrence in part because of the now-common practice of boards meeting by themselves—before or after board meetings—without anyone from management present, including the CEO.

I believe that having top management attending board meetings and events and becoming part of the board culture, so that their voices are readily available to directors, is a best practice. With the exception of the CEO, having top management be actual members of the board is a bad practice, as it compromises the necessary independence of the board and, in the GCs’ case, creates insoluble conflicts of interest.

  1. Right on, Ben. Outside counsel who work for the company also should not serve as directors, for the same reasons you cite. Nearly 50 years ago when I started practice, it was common for a public company’s lawyer and commercial or investment banker to serve on the board but that practice has long been abandoned by most sensible companies. The company lawyer’s job, inside or outside, is to give the best legal advice (s)he can to the corporation, including, when called for the directors in the discharge of their duties. To do that you have to stand back and exercise independent legal judgment as a lawyer who is not also a client. As the old adage goes, “A lawyer who represents himself has a fool for a client.”

    Comment by John Olson — September 12, 2013 @ 1:03 pm

  2. Dear Mr. Heineman,

    In today’s increasing volume and complexity of regulation, do you think it’s good practice to have legal professional as board member if such professional is neither an external consultant nor GC?

    Thank you.

    Sincerely,

    Nurlan Sarsenov.

    Comment by Nurlan Sarsenov — September 14, 2013 @ 9:42 pm

  3. In this discussion, there are two different, but legitimate questions that are not being treated as such:

    (1) Should the company’s GC or Corporate Secretary be a member of that company’s board of directors? To that question, the answer is most definitely “No.”

    (2) Should boards look at current or retired GCs or Corporate Secretaries of other companies in their search for potential independent director nominees? In my mind, the answer to that question is “Yes.” This doesn’t mean every board should include a lawyer, and it doesn’t mean that every GC or Corporate Secretary would make a good board member, but certainly those pools of talent should not be ruled out, especially when we are trying to expand the pool of people we look at as potential director nominees, with board diversity (however one may define that concept) in mind.

    Comment by Doug Chia — March 5, 2014 @ 10:00 am

  4. In fact, it sounds like he is saying that ALL directors should be OUTSIDE directors and the CEO should be the only representative of management. This is a bigger issue than just the GC on the board.

    Comment by Theodore Casparian — March 6, 2014 @ 12:28 pm

 

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