Understanding the Relationship Between General Counsel and the Board of Directors

Those who take on the role of general counsel (a board’s primary legal advisor) have much to worry about today. The U.S. and various markets around the world are facing political turmoil. Serious threats involving cybersecurity, artificial intelligence, climate change, inflation, and even global health greatly impact the legislative and regulatory landscape.

Because of these increasingly complex issues, the general counsel is called upon more than ever to work closely with the board on keeping compliance up to date and counting the potential legal costs of strategic business decisions. Consequently, it’s becoming more important that the person appointed to this role be able to balance business performance with ensuring ethical behavior at every level.

This is best done by giving the general counsel an extended role in corporate governance. However, whether GCs are successful with this expanded role depends heavily on the relationships they are able to form with board members. 

As boards look to increase risk management awareness and success, they can follow these suggestions to ensure their relationships help them accomplish that goal.

General Counsel and the CEO

The general counsel–CEO relationship is often the closest of all ties a legal chief might form. Given the complex business landscape, CEOs frequently rely on the GC to understand the legal implications of their decisions. 

This relationship can face complexities. The GC must work with the CEO on legal and compliance aspects of business strategy while also maintaining an independent perspective when the need arises. The GC must be able to move past the CEO and speak directly with the board when contestable issues arise or ethics are at stake.

Consequently, developing relationships with the chairman and other board members is crucial for general counsel. Meeting regularly with audit and other committees is necessary. 

It is also important to include in official statutes the GC’s right to have direct access to the board. This helps the GC develop trust with the board, demonstrate their allegiance to ethical behavior, and ensure that all decisions are in the best interests of the company.

General Counsel and Subsidiary Boards

While corporate leaders generally think of a company as one large business entity, appointing one general counsel for the entire company and all its affiliates can sometimes present a conflict of interest. This is especially common in bankruptcy situations that put the parent company and the subsidiary at odds with one another. 

For this and other reasons that may result in board members facing serious legal accusations, boards may want to consider appointing separate GCs for company subsidiaries. At the very least, the GC should advise subsidiary boards on foundational legal matters to reduce compliance risk and protect all stakeholders.

It’s crucial that the GC become familiar with the laws and regulations in all sectors and jurisdictions in which the subsidiary companies are involved. This will not only help them provide accurate counsel but also deepen their trust with the board and prove their value to the corporation at every level. 

General Counsel and the Secretary 

In the United States, many corporations currently combine the roles of general counsel and company secretary. However, as expectations for the GC have become broader and more complex, there has been a push to uncouple these roles. 

Because of political, technological, criminal, and ecological issues emerging around the world, regulations in just about every area are getting tighter. This has sparked an intense focus on risk management and compliance.

This focus makes the GC role more important — and more cumbersome — than ever. Can boards truly expect the GC to handle the secretary role while keeping up with all their legal responsibilities?

The answer to that question clearly depends on a number of factors, including the size of the company and whether it provides products and services in a highly regulated industry (such as finance). If the company decides to create two separate roles, it will be crucial for the GC and the secretary (who is usually a member of senior management) to maintain tight communication to ensure all duties are accounted for.

For the GC, this often means keeping a focus on the company-wide legal function. For the company secretary, it involves ensuring internal rules (including codes of ethics and bylaws) are understood and followed at all times. For both roles, this means maintaining strong and direct communication with the chairman of the board to ensure good governance remains the priority.

Should General Counsel Earn a Seat on the Board?

In recent years, the question of whether general counsel should be given a seat on the board of directors has arisen in legal and business circles. Some believe that the GC has much expertise to share with the board on how to navigate the legal risk that comes with business activities. A board seat makes sharing this expertise more practical.

However, others point out that in companies where the GC and the company secretary play the same role, they already attend board meetings and can provide their insight without being members of the board. Additionally, because the GC is bound to act in the best interests of the business and not the board, being on the board can present a conflict of interest and jeopardize the GC’s independence.

This doesn’t have to stop GCs from engaging at the board level in any capacity. As some point out, the role makes top lawyers great candidates for non-executive board seats at other companies where they can clearly bring valuable insight absent of any ethical conflict.

Good Relationships Are the Foundation of Good Governance

As the role of general counsel continues to evolve, having the right relationships with board members will be critical for success. Though the GC should work closely with the CEO, they must also maintain their stance as an independent actor with a direct line of communication to the board of directors. 

When it comes to the GC’s relationship with subsidiaries, avoiding conflicts of interest while maintaining the ability to advise on legal matters is key. Finally, if GCs do not take on the company secretary role, they must work alongside the person who does to ensure all internal and external compliance duties are fulfilled. 

By forming and nurturing direct and ethical relationships at every level, GCs can ensure company success without compromising themselves or the company.