The Role of the General Counsel in Corporate Governance

There is a growing trend in the UK to separate the function of the company secretary and that of the general counsel. But the latter has a key role to play in assuring good corporate governance, and should have a specific input into certain areas like risk management, strategy, decision-making, boardroom dynamics and culture. Effective corporate legal management depends, first of all, on good corporate governance. The general counsel can only fulfil her/his role as a business partner and a guardian to the company if the essential governance elements are in place. The independence of the general counsel is thus a critical element of a company’s corporate governance framework.

General counsel is the guardian of compliance

There is a growing trend in the UK to separate the function of the company secretary and that of the general counsel – whereas once the two were usually combined. But the company secretary is emerging as the ‘corporate governance guide’ in the UK; this does not mean that the general counsel does not still have a significant role to play in governance and compliance.

“When it comes to being an effective guardian of governance and compliance, the general counsel must be vigilant in supporting the company secretary. The problem with governance and compliance is that it is so complex, covering areas such as regulation, risk assessment, compliance monitoring and advice, legal structure, internal audit… the list goes on. So what will help general counsels in ensuring that they can adequately support the company secretary and protect the organisations they work for?” writes governance consultant Ian White in a recent article.

General counsel’s role in corporate governance

In fact, there are specific areas of corporate governance in which the support of the general counsel can be invaluable. For example:

1 – Risk management

As White points out: “First, there is a need to remember that business is about risk and so no system will eradicate all risks. And nor should it because of course risk can be positive as well as negative.  Most boards have a huge number of risks which they assess with various ratings in their risk register. However, this makes risk difficult to understand and assess. The general counsel can help here [by] directing the board to focus on those two or three risks which can shut the organisation down and ensuring that comprehensive action plans are in place for these. Other less important risks need targeting but not to the same degree, so it is very much a case of prioritisation.

2 – Strategy and decision-making

With the responsibility to provide legal guidance, the general counsel takes part in strategy and decision-making at the board level, and with management.

“The general counsel is, as a rule, a member of the management committee. They are systematically involved in all important decision-making processes; they co-decide and bear full responsibility. Many, if not to say most, corporate legal accidents are a result of non- or late involvement of the general counsel in top-level decision-making processes. The general counsel can only fulfil her/his role if she/he is systematically and from the beginning on involved in all important steps of the corporate decision-making process. Not having the general counsel at the table is – if the company is in luck – inefficient and (only) costs money or – if things go wrong – highly damaging to the reputation, the assets and the freedom of the company and its managers,” explains Daniel Lucien Buhr, general counsel with LALIVE.

3 – Dynamics and culture

Building a culture based on corporate governance and its values is critical to the efficient functioning of an organisation. This culture should be reflected in the dynamics of the boardroom – the board should engage in lively debate, incorporating a broad selection of different viewpoints, before making a decision. The general counsel has work to do in both of these respects. “This includes looking at team dynamics, assessing the effectiveness of the board and making sure that directors both know the company’s values and live by them. The general counsel shares the role with the company secretary of ‘conscience of the company.’ This imbues both counsel and secretary with authority as an influential trusted adviser and they should leverage off this to ensure the board acts with the highest integrity and therefore safeguards governance and compliance,” White says.

Importance of general counsel’s independence

In order to make all of these contributions to safeguarding corporate governance, the general counsel’s independence must be assured.

“The guardian role of the general counsel is an important element of the checks and balances of a company. The general counsel can only be a guardian to the company, if she/he is independent. The key elements of organisational independence of the general counsel are a direct (solid) reporting line to the CEO and a (dotted) strategic reporting line to the board. The dotted reporting line to the board and the Chairman’s approval of the general counsel’s appointment and termination are key organisational measures for an effective independent legal function,” Lucien Buhr concludes.

Diligent Governance Cloud supports good governance

Even while the market has placed the importance of practising good corporate governance in the limelight, governance solutions have lagged behind risk and compliance solutions.

Diligent designed the Governance Cloud with the processes of board directors, executives, general counsels and corporate secretaries in mind. No other company offers such a comprehensive array of software tools that are cohesive and connected to fully meet the needs of today’s board directors.

The few governance solutions that are in the market today have largely been fragmented and disconnected from other processes. Board directors, general counsels and corporate secretaries are realising the need for governance solutions that help them manage governance activities effectively and efficiently. Boards need products to help them streamline duties for compliance, regulation and governance while keeping all processes in a highly secure, confidential platform.

The Governance Cloud, the only integrated enterprise governance management solution that enables organisations to achieve best-in-class governance, is an ecosystem of software tools that digitises the various activities and tasks for the board of directors. As organisations grow more complex and regulations more stringent, the scope of governance responsibilities evolves. The Governance Cloud allows boards of directors to meet the demands in the boardroom and beyond with the ability to select the products they need that help them perform their best and work within their allotted budgets.