Those going into in-house legal roles today face a very different remit than those who did so a generation ago. Once upon a time, the General Counsel was there to fulfill legal duties — contracts, entity formation, due diligence and so on — but today, the General Counsel is being called upon to play a greater role in the running of companies, particularly in the management of risk.
In its report Beyond the Law, KPMG presents a global study of how General Counsel are turning risk to advantage. As business models change and become more global and more complex, and as the regulatory environment becomes more intrusive and prescriptive, “it seems,” they write, “a company’s General Counsel, its chief legal adviser, should have a major role in these decisions, helping the Board to shape strategy and achieve its corporate objectives.”
If the General Counsel, then, is the “barometer” for how an organization is faring — given the issues and feedback that cross the General Counsel’s desk on a daily basis — where does that leave the role of the General Counsel in entity governance? As legal operations teams become more prevalent and the General Counsel takes on a more strategic and advisory role, what role does the Chief Legal Officer have to play in how entity management is handled within a company or group of companies?
The Difference Between the Chief Compliance Officer and the Chief Legal Officer
With the rise of regulation increasing the workload for legal operations within an organization, in-house legal teams find their responsibilities increasing. There are the new filings, the gauges of risk in entity management, and the need to file and maintain much more documentation. This is why many organizations now have either a Chief Compliance Officer or an increased legal operations team to help manage the workload.
But what does a Chief Compliance Officer do that a Chief Legal Officer, or General Counsel, cannot? If we consider that the modern General Counsel is now advising senior management and Boards on strategic moves, as well as managing that organization’s legal matters, examining and creating contracts and draft agreements, and conducting legal research, some of those more day-to-day factors, like preserving all corporate records, managing an organization’s intellectual property and handling statutory filings, can be handed over to compliance.
General Counsel are no longer solely charged with ensuring that their organizations are complying with the law; they must now balance organizational risk and corporate objectives. They are becoming well-rounded business advisors, with increasing responsibilities and influence outside the traditional legal space, says Deloitte, which added that the Chief Legal Officer (CLO) must now balance the need to manage risk and maintain independence with the need to be actively vested in the strategy and vision of the organization.
By contrast, the Chief Compliance Officer (CCO) and their team must remain neutral. A relatively new role in the world of governance and compliance, the Chief Compliance Officer is referenced in the US Federal Sentencing Guidelines for Organizations, the bible of sorts for American compliance. The role of the CCO is to operate the compliance program and to report to the Board, and its duties are those day-to-day operations of the compliance and governance program.
Both the General Counsel and the CCO have responsibility for the organization’s compliance with laws, regulations and standards, but they diverge in how they work to achieve this objective. The General Counsel provides legal advice on how the organization can comply with the law while attaining its business objectives; the CCO’s role is essentially a management function that incorporates legal considerations while influencing organizational processes and practices.
This distinction can cause issues where the General Counsel plays the dual role of Chief Legal Officer and Chief Compliance Officer, but pressure from governments and regulators has that dual role starting to disappear. It’s advisable to keep space and distance between legal strategy and day-to-day compliance operations.
Where Does This Leave the Role of the General Counsel in Entity Governance?
The previously mentioned KPMG report looks at the relationship General Counsel have with the Board across the world, finding:
- 43% report to and participate in Board business, but are not members of the Board;
- 38% sit on the main Board; and
- 19% report to the Board indirectly.
But there is a clear difference depending on where the Board is located — around 40% of mature market General Counsel sit on the executive committee or the main Board (46% in North America), falling to 30% in high-growth markets and just 20% in Asia-Pacific (APAC). That makes the role of the General Counsel in entity governance slightly trickier in APAC, as they don’t have the direct representation to influence governance matters.
Regardless of whether the Chief Legal Officer sits on the Board or not, it’s clear Boards are looking for the General Counsel to proactively advise on business opportunities and strategic matters, and to identify impending problems and risks in business strategy. This means the General Counsel has an important role to play in entity governance. They must have an eye on the entire entity structure, be knowledgeable about the risks and rewards across jurisdictions, and know how far to push entity governance risk before it becomes too much.
The role of the General Counsel in entity governance encompasses risk management, strategy and decision-making, and dynamics and culture — and that’s why it’s important to retain independence while providing the essential advisory role.
They may not be doing the day-to-day work of compliance and governance anymore, leaving those important matters to the compliance or legal operations teams, but the General Counsel is the Board’s essential insight into the risk or strategic decisions and the impact a move may have on entity governance.
Giving the General Counsel the Tools to Manage Entity Governance
One thing’s for sure: In this world of increased regulatory burdens and more complex legal requirements, the role of the General Counsel in entity management gets much easier with a little technical support. Technology advances are transforming every industry, and the legal sector is no exception.
General Counsel and in-house legal operations are now leveraging data-driven insights and applying them to a range of issues, from managing legal spending to streamlining workflow, from assessing whether a corporate move into a new jurisdiction is advisable to assessing whether restructuring could improve efficiencies in a range of areas.
Entity management software, such as that offered by Diligent, creates a single source of truth for all entity-related information, in turn making the role of the General Counsel and their legal operations teams more streamlined and easy to manage. Entity diagramming brings a clear picture of the state of the structure while highlighting potential governance and compliance risks. Meanwhile, operating from a secure place in the cloud means that all legal team members can have direct access to those documents and dashboards they need to do their jobs efficiently and effectively.
Document and knowledge management are of paramount importance to the General Counsel and to the wider legal team; inadvertently accessing the wrong version of a contract or the wrong details for a director could be disastrous for operations. Get in touch with us and request a demo to see how entity management software can help streamline legal operations and help the General Counsel to make data-driven decisions.