Examining whether general counsel should have a defined role in the UK Corporate Governance Code.
Read More: Governance + Compliance
Last year, the government invited the FRC to strengthen the UK Corporate Governance Code to help restore trust in audit and corporate governance. As part of this, it launched a public consultation on the proposed revisions to the Code with the aim of enhancing its effectiveness in promoting good corporate governance.
The consultation proved more controversial than one would expect, triggering a response from a group of general counsel, who called on the FRC to formally set out the role within the Code. In their response, they said ‘the General Counsel (or Chief Legal Officer) of any company has fundamental professional duties that align with and reinforce the corporate governance objectives of the FRC and the Code.’
As a former general counsel myself, I can relate to this sentiment. General counsel and senior in-house lawyers have a unique and important role, yet too often find themselves struggling to have their voice heard by company leadership. Too many find that their advice is not sought or is disregarded before key decisions are made. Many do not report directly to the CEO, instead reporting to the CFO or COO. Some do not even report to a member of the executive committee, which means they are left out of the loop and not afforded the leadership voice that the role merits.
This is certainly an issue that needs to be resolved, however I would argue that it is not one that can be fixed through the Governance Code. The issue that general counsel face is not ultimately an issue of governance, but one of executive leadership. General counsel do not answer to the board of a company – their client is the company as represented by the executive leadership team. It is the CEO who is responsible for the day-to-day management of a company and so it is the CEO to whom the general counsel should report, not the board.
It is the responsibility of the company secretary to advise the board on matters of company law and corporate governance, rather than the general counsel. As such, the general counsel cannot take on this responsibility without encroaching on the remit of the company secretary, which would not be appropriate or desirable. UK company law is clear that the only people sitting at the board level are directors and the company secretary. The Governance Code cannot override the statutory duties that the company secretary has enshrined in law. As a formal officer, it is the company secretary’s role to ensure that the board is taking decisions on an informed basis. Therefore, if a general counsel wanted to be heard at the board level, they should do so by communicating via the company secretary.
There’s room for two
As someone who has been both a general counsel and a company secretary, I know how critically important both roles are in a business. There is significant overlap between the two, but they are distinct functions serving different purposes. General counsel may need a louder voice within companies, but this equally should not come at the expense of the company secretary. For a business to be properly governed, the two roles should work collaboratively but they must stay within their respective remits.
That is not to say that general counsel have no role to play within governance at all. Indeed, general counsel should, and do, play a critical role in the internal controls within an organisation. However, the proposed guidance already reflects this by specifically identifying general counsel within the amended requirements under content for the declaration on internal control systems.
So, what is the solution for general counsel if it is not a defined role at the board level set out in the UK Corporate Governance Code? The key is to find a way for general counsel to secure the authority and voice that they seek – and deserve – without detracting from the role of the company secretary. One avenue may be promoting good practices in companies to ensure that general counsel are rightly included on executive leadership teams and report directly to the CEO.
CGIUKI commentary
Sara Drake, CEO of CGIUKI commented on this issue in a press release this autumn, in which she said: ‘The general counsel already has a role as the chief lawyer in a company. Like any other member of the management team, they should be instructed to attend board meetings when the board require specific advice on areas within the legal remit, but they have neither role in, nor responsibility for, corporate governance. That responsibility rests with the board, which will look for support to their specialist professional adviser on governance matters, the company secretary or governance professional.’
Zoe Bucknell, CEO and Co-founder of Kuberno
