Recently, the topic of culture has rocketed up the corporate agenda. Look no further than our interview with Nick Donofrio and Helene Gayle, who recently led a Blue Ribbon Commission on culture for the National Association of Corporate Directors (see p. 8). Why take a hard look now at a “soft” topic such as culture? Check the headlines, says Donofrio, a member of the NACD board.
“Our audience is the directors who, in the end, are left holding the bag,” he says.
The NACD report dips into the GC’s role in corporate culture, but it’s very much to be supporting role. “Across the entire legal function,” Donofrio says, “their attitude needs to be to keep pushing these issues in front of the board and make sure the board is being thoughtful about culture.”
Picking up the theme, the Association of Corporate Counsel decided to take a deeper dive. The result is a white paper, “Leveraging Legal Leadership: The General Counsel as a Corporate Culture Influencer,” by ACC CEO Veta T. Richardson and Director of Advocacy and Public Policy Mary Blatch. The subject was not an obvious choice.
“Corporate culture is not a topic typically linked to a company’s general counsel and legal department, but the failure to draw that link may be shortsighted on the part of the board,” the ACC white paper says. “Given the importance of the general counsel in matters of ethics, compliance, and risk and reputation management, the general counsel should be a key ally and partner in establishing a corporate culture that supports corporate performance without compromising ethical behavior and legal and regulatory compliance.”
Richardson, who spent more than a decade in-house with Sunoco, Inc., elaborated in a recent program at the John L. Weinberg Center for Corporate Governance at the University of Delaware. The moderator was Ann Mulé, associate director of the center, who said some of the data she saw about GC engagement with boards was cause for concern. Richardson, her former in-house colleague at Sunoco, voiced similar concerns.
“As we examined the body of discourse, we did not see much about the GC,” Richardson said. “It struck us that the GC is a key ally to the board and the executive team in helping to set the correct tone at the top.”
Joining the discussion at the Weinberg Center was Gloria Santona, who recently stepped down as executive VP, general counsel and corporate secretary after a 30-year career at McDonald’s. The fast food company, she said, had the “ideal” configuration: a direct line to the CEO and an independent board chair.
“As GC, it’s a much more comfortable way to operate,” Santona said. “There’s a huge amount of risk reporting to the CFO or someone else.”
That’s why the ACC considers a badly positioned GC as a red flag for the board. “Experts consider corporate culture to be the intangible framework meant to guide individual and organizational behavior when there are gray areas,” the ACC white paper says. “With her legal background, ‘gray area’ is a space that the general counsel regularly occupies as most laws, cases, or regulations fail to offer a ‘bright line’ rule.”
A strong, empowered GC is key to shaping a culture of ethics and integrity, ACC says, while a weak, marginalized GC paves the way for a focus on short-term returns at the expense of long-term corporate well-being. It’s the distinction between in-house counsel as janitorial service cleaning up messes and in-house counsel as proactive player preventing messes from happening in the first place.
In the event that the board is unclear about where their GC stands, ACC’s white paper lays out five indicators to gauge the GC’s influence on corporate culture:
Does the GC report directly to the CEO, and is she a player on the executive team?
The ACC 2017 Chief Legal Officers survey shows that 72 percent of general counsel report to the CEO. In 2004, that number was 64 percent. “The needle moved less than 10 percent,” Richardson said. “We see that as a big problem.”
Does the GC have regular contact with the board?
The same survey shows that two-thirds of GCs regularly attend board meetings, which means many do not. Santona, who as corporate secretary at McDonald’s regularly attended board and committee meetings, emphasizes the importance of building independent relationships with directors. “A well-run board arranges for situations where senior management will meet with the board outside of board meetings,” she said. “I think it’s critically important because you have to have that relationship. How do you establish that if the only time they see you is when you’re reading from your notes?”
Is the GC seen as independent from the management team?
This requires a delicate balance. Ben W. Heineman, Jr., who spent 20 years as the top legal executive at General Electric and redefined the role of the modern GC, emphasizes the need for striking that balance in his book, “The Inside Counsel Revolution.” “I do not believe that the choice for general counsel and inside lawyers is to go native as a yea-sayer for the business side and be legally or ethically compromised, or to be an inveterate naysayer excluded from key discussions and decisions and from other core corporate activity,” he writes. “Indeed, I think being both an effective partner of business leaders and respected guardian of the corporation is critical to the performance of each role.” “Striking that balance,” added Santona, “is an art, not a science.”
Does the GC’s advice extend beyond traditional legal matters?
The GC’s role has expanded. It frequently sweeps in government affairs, crisis management, corporate social responsibility and more. Today’s GC has a view that spans the entire organization, Santona said, which opens the door to opportunities for expansive influence, if you take advantage of it. She pointed to the words of wisdom imparted to her by the independent board chair at McDonald’s: “You don’t have a vote in the boardroom, but you do have a voice. I expect you to use it.”
Do the business units regularly include in-house counsel in decision-making?
“The lawyer has to have a seat at the table for important business discussions,” said Richardson. “Those discussions do not just take place at the top.” “As a GC, you’re only as good as your team,” added Santona, noting that her department’s strategic plan called for even junior team members to have a seat at the table. “It might be a very small table,” she said, “but it got them in the right mindset.”
The ACC white paper concludes with an important caveat. Mulé called it the “garbage in, garbage out” indicator. It happens when line attorneys, often reporting directly to business leaders in a decentralized corporate structure, fail to elevate signs of troubling conduct.
“Even if all the other indicators are good,” Mulé said, “it’s going to be garbage in to the GC and garbage out to the CEO and the board.”
Published November 16, 2017.