Reporting line General Counsel – CEO, CFO, COO

Why should the GC report to the CEO, the CFO or COO? A lot has been said about this topic and since some of you are interested in what is said, so we gathered some information online.

‘General counsel candidates must also do their own detailed diligence on the CEO and the board. The position of general counsel has changed dramatically over the past 20 years, but one caution remains the same. The greatest risk of being the top lawyer in a corporation is still primary dependence on one person, the CEO. A CEO who does not seek the ultimate goal of high performance with high integrity, and who does not clearly understand the dual role, is a clear-and-present danger for the general counsel. Independence. The critical relationship of trust and respect between the CEO and the general counsel may never “take” or may become frayed. On difficult issues, the general counsel may be excluded or ignored. And, acting with courage and independence can, to be sure, risk one’s job, reputation (being fired), and financial interests (deferred compensation, stock options, restricted stock units) that have not unconditionally vested.’ – source ACC

‘Corporate clients have opted for a variety of different reporting lines for the role of General Counsel (GC). According to a recent ACC Chief Legal Officer (CLO) Survey, with more than 1,300 chief legal officers participating globally, the majority (about 80%) state that their reporting line is directly to the CEO of the organization. Many General Counsel, particularly those of larger public companies, indicate that they are reluctant or unwilling to consider accepting a GC/CLO position with a reporting line other than to the CEO. This rationale is to ensure that the company views the role as a senior executive position with adequate resources, independence, and importance within the organization, and as a critical stakeholder in decision-making at the company. As a reference to this point, please consult the data on this at the ACC CLO Survey for 2014-2017.’

‘According to the 2020 ACC Chief Legal Officers Survey, in the world’s leading companies, 80 percent of survey respondents report directly to the CEO. In ACC’s analysis of organizational structure in Fortune 500 companies (ACC Age of the CLO Annual Data Project 2018), 93 percent of Fortune 500 CLOs have a direct reporting line to the CEO. Additionally, approximately 93 percent of GCs are now members of the executive management team — an almost 10 percent increase from 10 years ago. No wonder there is an increasingly high rate of GCs taking over the CEO role.’ (headhunter)

‘For you hard-liners out there, the company’s reasons behind GC-CFO reporting structure won’t matter one iota. Any role where the GC reports to the CFO is a non-starter. Period. End of story. Regardless of whichever end of the spectrum you sit, knowing what makes executives tick when it comes to this issue is important and valuable knowledge to have as a legal professional. Because what you may initially perceive as chopped liver could actually end up being pâté.’

Board members rely on trust in the GC as an individual as well as in the partnership between the GC and the CEO. This trust must extend not only to the GC’s character and expertise, but to how they manage processes and relationships within the organization. The GC must work to establish trust with the board, allowing them to concentrate on other matters, confident in the knowledge that the GC is working hard to protect the interests of the organization.

‘Having a direct line to the CEO is a key mark of influence. This provides a springboard for general counsel to get involved in corporate strategy at an executive level, before ascending to a board-facing role. The Association of Corporate Counsel’s global Chief Legal Officers 2017 Survey found that 72 per cent report to the CEO, 18 per cent to the board, 13 per cent to the chief financial officer (CFO) and 7 per cent to the chief operating officer among others (assuming that some have dual direct reporting lines). In the Chief Legal Officers 2019 Survey, 76 per cent of those who reported to the CEO said the executive team often sought their input on business decisions, compared with only 48 per cent of those who reported elsewhere.

However, reporting to the CEO is not essential if general counsel develop strong relationships with other senior executives and regularly attend board meetings. “Looking at our people, I don’t think our CEO needs another direct report. Let’s work within the structure and make it work well,” one general counsel said. Another emphasised that power can exist across the organisation, such that the ‘innovation table’ may be more important than the board or executive table. He recalled how the first general counsel he served under refused to talk to anyone below her in the hierarchy. “That provided a fantastic opportunity for me. She was off talking to the chair of the board. I was talking to the business, where all the decisions were made. When you talk about getting a seat at the table, the question is which table?”

Source: Gartner (AUGuST 2020) “Unfortunately, just 8% of GC perform a truly executive role with most (59%) performing tactical legal work and offering legal guidance rather than involving themselves in top-level strategy. GC often default to focusing primarily on the strictly legal aspects of the guidance they provide, failing to meaningfully incorporate extra-legal business considerations such as the impact of the law on strategic initiatives or the bottom line. Most CEOs, executive teams, and boards will consider and use their GC as their chief lawyer unless explicitly “trained” to use them differently. “As a starting point, GC should think about the role they occupy and have a direct conversation with the CEO about long-term corporate needs,” said Mr. Martin. “GC should rework their future commitments, so that they are keenly focused on the highest priority corporate goals and strategy.”

Dentons – January 29, 2020 ‘This insight will provide an outline of the role of General Counsel (GC), and describe the ways in which a GC can add value to their corporation from the perspective of the board of directors and senior management. GCs can use this information to help them communicate to their boards and senior management regarding their role in developing and implementing operational, managerial, and financial strategies to facilitate good corporate governance.’

December 17, 2019 – ‘While there is still debate about whether GCs should take on an expanded role in their organisation, KPMG’s report found that most GCs believe it is appropriate that they do so. An expanded role means a GC is more likely to report to the CEO, directly or via a dotted line, given them access to the executive. This, in turn, gives them a broader understanding of what is happening in the business, making it easier for them to do their job more effectively.’

April 2020 ‘The majority of General Counsels and Chief Legal Officers of larger organizations are reluctant or even unwilling to report to a person other than the CEO. They want to ensure that the role of a General Counsel is perceived to be an important executive role giving them sufficient independence from other business functions. Another reason why most GC’s report wanting to report to a CEO is to ensure they have a seat around the table for important business decisions. If they report into a CFO or another person, then the GC may not get consulted on a strategic or important decision of the company or be considered as an important stakeholder. It appears that a General Counsel can better execute his or her duties while reporting to the CEO of the organization.’ 2020

The CLO is a multidimensional role that not only manages legal tact, but also aligns legal and business strategies, suggests innovative business solutions, mitigates risk, and ensures legal efficiency. Ultimately, a CLO stands apart from the GC role in that a CLO is often considered a strategic business partner. 2011

‘As Ben Heineman, former General Counsel of GE and currently distinguished senior fellow at Harvard Law School’s Program on the Legal Profession, says, “The General Counsel should ask not just whether something is legal, but whether it is right.” The GC should therefore stimulate and assist the board in leveraging its authority to set the tone for the legal and compliance culture of the whole company. At the same time, it is the GC’s duty to take an active role in counseling the board on how legal and regulatory environments can be used to a company’s strategic advantage. This constructive engagement today is fundamentally influencing the role of the GC with the board – a factor that boards, in many instances, may not even be aware of yet.’ ‘The reporting structure below the General Counsel can take a number of forms.’ report  BarkerGilmore (recruiter) 2016 The GC – and legal department – is needed as a moral compass. Companies with an over-powerful finance function are the most likely to lack balanced commercial judgment.  Their focus on profitability and growth can lead to decisions that damage business reputation. A strong legal function, properly integrated into the business and with significant authority, should operate as a counter-balance. But to do that, they certainly must appreciate the extent to which their work has an economic and financial impact – so we need lawyers who are truly commercially aware.

ACC Docket What happens if the GC is not empowered (please google) “While the above is in encouraging, ACC research indicates that too many GCs do not report to the CEO. Too many, in fact, report to CFOs, which we believe to be a worst-in-class governance practice. The implications are clear, perhaps clearer today for Danske than ever before: GCs must be properly positioned on the executive team in order to effectively serve their organization. While we may debate different governance models, most GCs agree that at the very least, a direct reporting line to the CEO — and exposure at the board level — elevates their credibility and stature within the organization, empowering general counsel to impact company culture, while demonstrating the company’s commitment to ethics and compliance.”

‘The General Counsel should report to one of the highest-ranked company executives, typically the CEO. He or – 10 – she should have ready access, as well, to any other executives or directors responsible for compliance, governance or ethics issues, and to any company ombudsman.’

Google ‘General counsel reporting structure’ and check out the images – there are quite some examples of reporting lines including Legal at larger companies.