Managing governance, risk and compliance, or GRC, is the day-to-day role of the General Counsel’s legal department. This team is tasked with collecting, storing and processing entity data, working hand-in-hand with risk managers to run reports and analyze data relating to performance and strategy.
In this way, the General Counsel is the company’s GRC gatekeeper, performing an essential role in facilitating information flows between the Board and executives and the rest of the business. Under General Counsel best practices, it’s their team that must collate the data, ensure the right parameters are in place to push in the right direction, and that all of this happens in a way that is compliant with the regulatory pressures of every jurisdiction in which the company has an entity.
This gatekeeper role is becoming even more important to the General Counsel’s remit, with the increasing regulatory pressures and requirements for transparency meaning that there is a need for a bridge between management and the board — and the wider business.
What’s happening in the UK with Section 172?
Take the UK, for example, where the vital link role played by the General Counsel and corporate secretary has become even more important thanks to an amendment to the UK Companies Act 2006 in 2018. This amendment requires companies meeting certain criteria to report on their compliance with Section 172 of the Act. The section in question defines the duties of a company director and their duty to promote the success of the company, and aims to strengthen stakeholder rights.
The UK Institute of Directors says: “What is noteworthy about Section 172 is the diverse range of stakeholders whose interests are said to feature in the ‘success of the company’ — shareholders, employees, suppliers and local communities affected by company activities are all included.”
Those companies who qualify will meet two of the following three criteria:
- Turnover above £36 million
- Balance sheet assets above £18 million
- More than 250 employees
And qualifying companies will be required to include a Section 172 statement within their annual Strategic Report, something that must be clearly identifiable and separate from the main report body, and the statement must also be available online.
This means that General Counsel best practices in the UK have grown to include performing a more fact-finding and communications-based role. Those on the Board are generally not plugged-in to the wider business, only hearing those matters directly relating to their own remit or issues that need to be raised at the top. It’s important, then, for the General Counsel to facilitate the information flow to ensure Section 172 reporting can be robust enough to pass regulatory rigor.
This is not just a UK issue, though
However, while Section 172 is strictly a UK regulation, it’s among General Counsel best practices to ensure information is flowing two ways — both from the wider business up to the board, but also from the board down to the wider business.
Research from the Diligent Institute suggests Directors think they are doing a good job on engaging stakeholders, and there is frustration that this isn’t translating into better relationships. The General Counsel and the corporate secretary must develop processes and policies for information-sharing to help bridge the gap between management and the board and support the Board to ensure they can champion the business across the whole structure.
The General Counsel is in a valuable position whereby they can help bridge the gap between the board and the business — that means those in the management and executive, but also frontline employees, third-party partners and even suppliers. They can help to link the different countries and regions, and the different brands and entities, within the wider business. And they can help to ensure investors, regulators and other stakeholders have the information they need to carry out their own work.
There is a key role for the General Counsel to play here:
- Onboarding and training Directors from day one, ensuring they are fully aware of their role and responsibilities, and where they can find information
- Embracing new regulations to go beyond ticking the box, using it instead to influence the culture and policies of both the board and the whole organization
- Working with the business to ensure what the Board is doing is communicated down, and concerns from all stakeholders are fed back up the ladder, too
General Counsel best practices revolve around tracking compliance and governance
So, how can they do this? It’s a big ask to play this gatekeeper role, to be the bridge between the Board and the rest of the business and its stakeholders, but no one expects the General Counsel to act alone or to do this manually. General Counsel best practices can be supported and enabled by harnessing technology such as Board portals and entity management software.
Entity governance management using a system such as Diligent Entities can help organizations to centralize, manage and effectively structure their corporate record to improve entity governance. This, in turn, helps to better ensure compliance, mitigate risk and improve decision-making through an integrated governance solution.
More than that, though, these systems act as a central repository for the corporate record, ensuring the business has a single source of truth for performance and other entity data. They provide a central place to store entity information, documents and organizational charts in a highly secure format, and enable the General Counsel and legal operations teams to report on governance and compliance requirements using the most up-to-date, real-time entity data.
By surfacing the right information to the right people at the right time, entity management software helps the General Counsel to build that bridge between management and the Board. And by working with a cloud-based system, the General Counsel can ensure those board members can access the information from anywhere at any time, no matter where in the world they are — there is no need to be in the office or on the company network to access secure and confidential company information.
Diligent Entities and Diligent Boards also seamlessly integrate with a secure file-sharing platform and other solutions to create the Governance Cloud, which can support General Counsel best practices and add further structure to that management/board bridge. Get in touch and request a demo to see how Diligent’s suite of GRC solutions can help you to support more robust and Section 172-friendly communications.