The art of transforming lawyers into directors on receptive boards: Opinion
Source: Business Times
Article Date: 11 Oct 2024
They can bring more than just their legal expertise, including business insights and management leadership, says the author.
In August, US rental car giant Hertz announced that it is adding two lawyers as board members – a current and a former general counsel of corporations.
This is the latest in an increasing trend where lawyers are welcomed by commercial boards.
For years, companies have resisted (even frowned upon) the appointment of lawyers to boards, with some corporate leaders believing that because their businesses already have an internal chief legal officer or general counsel, appointing a lawyer from the outside would be superfluous. This was the mindset regardless of whether the lawyer hailed from legal practice or was a general counsel in another corporation.
The prevalence of this thinking has been shifting, as senior executives and board chairs (particularly in the West) increasingly view general counsels as trusted advisers with the ability to contribute big-picture insights on a wide range of issues, legal and non-legal: from artificial intelligence technology adoption with its accompanying risks, to macro-economic issues and geopolitical challenges in a multipolar world.
Laura Schumacher, a director on the boards of General Dynamics and CrowdStrike, who is a former chief legal officer of US pharmaceutical company AbbVie, makes an astute observation that legal training teaches one “how to think about both sides of things, how to anticipate issues, how to see around the corner, and all of those skills are very, very important to be a valuable board member”.
Diversity and reinvention
In recent times, a host of disruptive forces have necessitated a change in the way lawyers practise: from having to compete with new legal service providers who are non-lawyers, to being commercially minded and not just legalistic, as well as embracing technology in the delivery of legal services.
But lawyers are not the only ones adapting to change. Many other professionals like accountants have also ventured into new and adjacent areas of opportunities such as strategy, sustainability and business consultancy services. In so doing, they have made the transition to the boards of listed companies a relatively easy one.
Likewise, leading figures from politics and academia have also made this transition from their professional capacities to governing on boards.
For lawyers, however, admission to boardrooms still seems to be less of a norm, and, where they are welcomed, it is often limited to a legal advisory role.
Given that boards these days embrace diversity, the question is why there are not many more lawyer-directors on boards.
If one were to look at the FTSE 100 companies, only a handful have lawyers serving as non-executive directors.
Few, if any, studies have been made to understand the reason for this, but, anecdotally, there appears to be a negative mindset among public companies in the United Kingdom regarding lawyers serving as directors.
The stereotypical lens through which lawyers are viewed there seems to see them as skilled legal experts, but not necessarily able to bring business insights or offer commercial views. Lawyers are often perceived (unjustifiably) as merely presenting different sides of an argument and leaving the relevant decisions to be ultimately made by someone else – as if they offer no recommendation whatsoever. This is patently inaccurate.
In Germany and the United States, there is a very different picture – where more than half of DAX 30 firms and Fortune 100 companies have lawyers on their boards.
Part of the explanation for this difference may be cultural.
In the case of German companies, they tend to appoint advocates as directors to facilitate easy access to a lawyer on the board for legal advice.
In the US, the fact that many attend law school and progress to pursue a business or in-house legal career (which exposes them to business matters) results in lawyers being more commercially minded, and, consequently, more welcomed on US boards.
From an intellectual capability perspective, lawyers have the capacity to be focused, concise and articulate. Those who excel at their craft have the gift of dealing adriotly with complexity, as well as large amounts of facts and data. More importantly, they can make sense of it all – the proverbial ability to “separate the wheat from the chaff”.
As for business acumen, lawyers who lead legal practices, manage law firms or head legal departments, certainly have the capability to bring a business perspective and commercial astuteness to boards that welcome them. Particularly, corporate lawyers who work for larger corporations have the added exposure and experience of working closely with businesses to understand financial considerations, strategic issues and commercial trade-offs.
Persuasive perspective
One can probably make the case that lawyers are well-suited for boards given their ability to help make well-informed decisions, as well as exercise judgment on regulatory, commercial and societal matters that confront today’s boards. This is a value not to be discounted.
Furthermore, the training that lawyers receive develops in them the requisite boldness and sensitivity to challenge a company’s management on business issues that are raised to the board – not dissimilar to their ability to question the relevance of established paradigms and precedents in a courtroom. If done with charm and wit, this quality can bring a persuasive (and powerful) perspective to boards.
Often, distractors criticise lawyers as “looking backwards”, for their heavy reliance on precedents.
However, one must recognise that the commercially minded (and successful) lawyer can, in fact, contribute perspectives on strategy, current and future opportunities, as well as opine on emerging threats to businesses.
A study by business and law professors in Cornell University reported the benefits of having lawyer-directors: Beyond bringing value to the monitoring of a company’s governance at the board level, legally trained directors help manage litigation and regulation, as well as structure compensation to align the interests of the chief executive officer and the shareholders. The study notes an average 9.5 per cent increase in firm value, and an almost doubling in the percentage of public companies with lawyer-directors between 2000 and 2009 – but, one must be cognisant that this benefit is being observed in a US business culture that is highly litigious. Nonetheless, it is a data point that cannot be totally disregarded.
Acceptance and willingness
In extolling the value of having lawyers on boards, one needs to recognise that it takes two hands to clap: While corporate lawyers have an inherent value, there is a need for chairpersons and boards generally to develop a greater acceptance of lawyers among their ranks.
Often, boards look at lawyers as a “service on demand” – to be sought only when there is a legal issue. An argument can be made that just as accountants and finance talents are readily inducted into boards for their financial insights, legally trained directors can bring governance, compliance and regulatory perspectives to a company’s board, and counsel on how these impact its business.
Perhaps one explanation why there are not as many lawyers on boards stems from many of them flashing their legal expert status, as a form of “entry ticket” to boards. Labels can sometimes be unhelpful.
The key to unlocking entry to boards probably lies in the hands of lawyers and general counsels. Those who aspire to be on boards should seek to downplay their legal credentials, helping boards and chairpersons to look beyond their legal label. In some respects, one probably needs to stop wearing the legal badge altogether. The emphasis should instead be on one’s skills and experience in business, management and leadership – all of which they would have, as accomplished legal counsels.
To put it bluntly, being a good lawyer is not sufficient for one to be on a board. One needs to go beyond that. In this regard, the transition to boards may be easier for general counsels, as they would have been literally “on board” in their role – having a ringside seat observing how business and strategic decisions are analysed, debated and made. Their commercial exposure helps provide insights into how boards think, as well as the issues and concerns they resonate with.
The fact that companies such as Google, PayPal and Twilio have current or former general counsels on their boards validates this point. They are now joined by Hertz.
Suffice to say, the future belongs to lawyers who purposefully transform from being just legal advisers to individuals who can also provide business insights, strategic counsel and management leadership.
When lawyers succeed in this endeavour, they will be an asset welcome on any board.
The writer is the group general counsel and chief sustainability officer of Jardine Cycle & Carriage, a member of the Jardine Matheson Group. He sits on several boards including the Singapore International Chamber of Commerce and the charity Jardines Mindset, which focuses on mental health.
Source: Business Times © SPH Media Limited. Permission required for reproduction.
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