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After a few glasses of vino, and the chance to ruminate over the ‘steak and sole’ menu, the Chatham House discussion at the inaugural General Counsel and Company Secretary “Connect” Drinks, Dinner and Discussion last week was a very personal choice, but it seemed equally familiar to the GCs and Company Secretaries in attendance: ‘Managing internal duties and conflicts - the role of the General Counsel, Company Secretary and Executive Committee Member’.
As an organisation’s senior lawyer, it is customary for the General Counsel to report to the Executive, whether that be the CFO or more often the CEO. In so doing, Management can hopefully run the business without getting into legal and regulatory tangles (avoiding potential criminal or civil liabilities). Amongst other things, having the GC working in lock-step with Management as their immediately on-hand lawyer should help expedite commercial transactions, mitigating broader business risk, and help with stakeholder management and controlling external legal spend.
As an employee, the GC has contractual duties and obligations owed to the employer and, as a lawyer, professional duties as prescribed by The Law Society.
But what if the General Counsel is also appointed a member of the organisation’s Executive Committee and is a core member of the Management team that is appointed by the Board to deliver on the organisation’s overriding commercial ambition?
One can quickly understand that a legally robust path may not be what an ambitious dynamic commercial Management team are sometimes interested in, and this inevitably has the potential to create tensions and conflict as a General Counsel and Executive Committee member seeks to wear two different hats.
And what if the General Counsel also acts as Company Secretary?
In that instance, the GC becomes an officer of the company, with additional statutory duties as set out in the Companies Act. The primary role of the Company Secretary is to advise the Board and facilitate the good governance of the company. As such, the Company Secretary often reports to the Chairman of the Board.
So, our in-house professional may now have two masters – the CEO and the Chairman. Hopefully the two are on the same page, but that may not always be the case and occasionally interests and priorities may diverge. For example (and most obviously) when it comes to remuneration, the Chair may be operating as an independent director for a fixed fee, while the CEO is non-independent and subject to significant financial incentivisation for delivering both short-term and long-term results.
Not only does the GC and Company Secretary have two masters, she or he may be asked to give advice to the Board as Company Secretary on, for example, matters of governance that may be unpopular with Management if it is likely to slow done the commercial machine.
And if our GC and Company Secretary is also an Executive Committee member, they are even more likely to come under commercial pressure from colleagues in Management – and indeed they themselves are often subject to remuneration packages with a large degree of commercial incentivisation and upside. Delivering independent advice to the Board can be riddled with potential conflict, both professional and personal.
Managing these different roles, with sometimes competing demands, differing duties and reporting lines is not easy. Here are a few pointers though that may help smooth the journey:
Clarity. Be clear as to what the role is, where the reporting lines are and who expects what. Hopefully it will avoid mis-understandings and nasty surprises.
Communication. Make sure the CEO and Chair, especially if they are relatively green in their roles, understand that the role of the GC, Executive Committee Member and that of the Company Secretary can come into conflict. Discuss that and what happens in those situations.
And finally, connect with a few members of your peer group that you can talk to in challenging times or when questions linger and when you do not know which way to go. The chances are that someone in your GC and Company Secretary community will have been through the same challenges or, if not, will provide an excellent sounding board to help you crystallise views and make better decisions.