By Sara Hays, Managing Director
Lawyers have not been the traditional choice to serve on boards of directors. Instead of selecting someone with general counsel or other legal experience, the financial acumen and strategic management experience more typical of CEOs have been the default preference for corporate governance. But an emerging school of thought is beginning to change that.
This new thinking places greater value on the lawyer-director, in large part due to the increasingly risky environment facing virtually every enterprise. This is why my colleagues at Allegis Partners, a global executive search firm with a board search practice, recently assembled a panel of former general counsel turned public company directors to discuss some relevant questions. To wit: Given the critical relationship between governance and the global risk environment, what value can GCs offer as members of boards of directors? And how do GCs get appointed?
My fellow panelists who gathered in Chicago included Kim Rucker, former general counsel and corporate secretary for Kraft Foods Group and current director at Lennox International, who served as the panel moderator. Others were Mary Ann Hynes, a senior counsel at Dentons, a GC veteran of five international corporations and a board member of several corporations and non-profit organizations; Rick Palmore, also a senior counsel at Dentons and a board member for Goodyear Tire & Rubber Co., the Chicago Board Options Exchange and Express Scripts; and Paul Williams, a partner at Major Lindsey & Africa (a sister company to Allegis Partners), and currently a director of Essendant, Bob Evans Restaurants and Compass Minerals. My own experience, in addition to being a managing director with Allegis Partners, includes directorships with Apogee Enterprises Inc. and ECI Group.
Each panelist brought a critical, dual perspective that focuses on the ways that businesses need to consider legal risk, and the ways that lawyers need to think like business people.
What Lawyers Bring to the Table
A premise for our discussion was that in this increasingly global and regulated business environment, as well as one characterized by new legal risks and opportunities, the time has come for boards to broaden and diversify. Corporate boards should not have to be facing a crisis in order to have the opportunity to consult with lawyers. In addition to having access to outside counsel, directors might benefit from having an attorney among them from the beginning—one who could contribute instant insights when strategic decisions are made and attendant risks are being assessed or when a company is faced with potential liability in an increasingly regulated environment.
But we also know that attorneys can—and must—bring other skills to the boardroom if they are to succeed in that role. A large part of the panel dialogue focused on how attorneys should also be business strategists. Just as important, they need to consider how they can best position themselves to be perceived as business thinkers, influencers, managers and leaders.Currently, the lawyer-director is comparatively rare, despite the fact that attorneys who are good at building consensus might be exactly what some boards need. Clearly, the lawyers on boards should not supplant the company's GC or outside counsel. Board-aspirant attorneys are well-advised to rethink their own value proposition and presentation to expand beyond legal acumen and executive success to the types of business skills and attributes valued in the boardroom.
There is encouraging data to support them. A recent study ("Lawyers and Fools: Lawyer-Directors in Public Corporations," featured in Cornell Law Faculty Publications, (Jan. 1, 2014) analyzed data from the BoardEx database of the 1,500 U.S. public corporations in the S&P Composite 1500 Index (excluding financial institutions). It found that those companies with lawyer-directors enjoyed a tangible benefit—actually increasing the firm's value, the authors said. This factor was more frequently seen in companies "subject to greater litigation and regulation, as well as firms with significant intangible assets, such as patents."
Our panel took a broad look at this general idea. Paul Williams noted that attorneys bring certain skills to the table: rigorous thinking, analysis, logic and an ability to balance people and issues. And these skills seem to be gaining greater currency on corporate boards. The Cornell study found that companies are adding more lawyer-directors: Between 2000 and 2009, the percentage of large companies with one or more attorneys at the table rose from 25 percent to 44 percent.
Within this subset are intriguing correlations. The authors found that, on average, companies having a lawyer on the board minimized risk-taking and increased firm value compared to those without a lawyer-director. These results should encourage companies to seek lawyers to join their boards. If there's a reason for GCs to feel optimistic about vying for a board seat, that puts it in a nutshell.
Adopting an Active Approach
Next the panel dove into how a GC can win a board seat. Without being overly prescriptive, there are several ways to develop, present and even think of oneself that make an appointment more likely.
To begin with, the board appointee should be able to balance business and legal risks in the context of strategy discussions. This could derive from experiences in such things as strategic planning and initiatives, oversight of nonlegal operations and project management for strategic transactions. Along with my own MBA degree, for example, I learned a great deal from my commercial real estate background and service on boards either in that industry or in markets affected by real estate cycles. Given the spate of data breaches, an understanding of cybersecurity and digital crime issues—including those involving criminal action and customer litigation—is an increasingly valued trait among directors.
Rick Palmore explained that the most attractive candidates demonstrate a mindset for business, yet many lawyers focus their careers exclusively on the law—to their detriment. Paul Williams referenced a matrix of skills and characteristics that some board searches use. The GC will be a more compelling candidate, he noted, if his or her qualifications are broad and deep. Concurrently, the lawyer's personal style has to align with the company's culture and strategic direction. Rapport with other board members matters. You will be discussing tough issues. Will you enjoy being with those people?
The best board candidates need to demonstrate leadership. Simply doing a good job is an important but overly passive approach for an attorney looking for a seat in the boardroom. Board secretary positions are good preparation. They provide exposure to the issues and help position the individual as a corporate governance expert with boardroom savvy. Being known as a leader in an industry or on a specific topic also helps build credibility and visibility.
Palmore reminded the audience that they should not consider themselves to be "just a lawyer." Williams added that he never felt the need to be defensive about being an attorney, as long as he could adequately demonstrate other business experience. He emphasized that a board résumé looks different from one that a GC candidate would use. The board candidate's CV should list the skills and experiences that would qualify him or her not just for a board seat but also for specific board committees, such as audit, compensation and governance.
Lawyer-directors with corporate and securities law backgrounds are well suited for the financial services industry, including mutual funds, where risk committees are often mandated and there are a myriad of increasingly complex regulations with which to comply. But an attorney hoping to get on a board should keep in mind that board positions open infrequently. Some boards have term and age limits, and some none at all. It pays for the would-be director to do some homework, announce an interest to colleagues and network wherever possible. You want appropriate consideration when rare openings occur.
Mary Ann Hynes advised prospective candidates to consider a company's reputation and risk appetite, as you could damage your own reputation with a decision to serve on the wrong board. Credible director candidates will want to do their own due diligence on a company's ethics, the integrity of the leadership team and the code of conduct. They will want to get a sense of its compliance culture and review its indemnification provisions and D&O insurance.
But most important, attorneys who want to think of themselves as viable board members need to develop the breadth of experiences and relationships to serve that function well, and then actively and strategically pursue industries and companies that offer them the best fit.
This article originally appeared on Corporate Counsel, June 16, 2016.
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Sara Hays is a Managing Director with Allegis Partners and a co-leader of its North American Board & Corporate Governance Practice, based in the Chicago office. She has several decades of experience in business leadership roles working with C-suite and senior-level executives in the commercial real estate, finance and hospitality industries as well as more than 20 years of board service spanning public, private and non-profit organizations in a variety of leadership, advisory and committee roles.He can be reached at (312) 896-8553 and at email@example.com.