The aftermath of the Hayne Royal Commission has cemented an idea among general counsel that they must take leadership of, or at least be active in, corporate governance.
For its “Restoring Corporate Trust” report, KPMG conducted in-depth interviews with more than 25 GCs from Australia’s biggest and most influential companies and not-for-profit organisations and found “overwhelming support” for in-house legal leaders taking on crucial roles in corporate governance.
The Big Four accountancy firm said that the sentiment can be directly connected to the revelations from the Hayne Royal Commission, which has pushed boards to increase focus on trust, integrity, and reinforcing strong corporate governance.
A majority of GCs interviewed felt that they needed a seat at the executive table, directly reporting to the chief executive, to provide the strategic, commercial advice and the stewardship asked of them, said Dean Mitchell, KPMG forensic partner.
“The general counsel is all about governance but you’re not always given the oversight across the whole business to know what’s going on. If you want good corporate governance, you need your GC at the table when the important decisions are being made,” the GC of an ASX 100 company told KPMG.
However, a significant minority felt strongly that the foremost role of GCs is to provide independent legal advice and that broadening the scope of the role could compromise legal professional privilege.
Nonetheless, many said that companies are now ensuring their GCs have a seat at the executive table because of the increasing complexity in regulation and greater focus on how organisations respond to regulators.
Key governance areas for GCs
The study also found that GCs believe they should play crucial roles in five governance-related areas.
- Corporate strategy and risk management: GCs should lead in setting risk tolerances, which is a major component of the corporate strategy process, the study said.
- Compliance: This goes beyond developing a “code of conduct” or conflict-of-interest policy, GCs said. The compliance function is often part of the legal department, or at least reports through the GC.
- Succession planning: GCs could also help ensure that the board considers all appropriate criteria when searching for a chief executive or other senior executive. GCs said that these criteria is not limited to technical excellence, but also includes integrity and risk management capabilities
- Executive compensation: Counsel can play a critical role in educating board members on executive compensation, given an increasing focus of shareholder proposals and public scrutiny.
- Crisis management: The communications environment requires being on top of a crisis as early as possible. Counsel can help preparing their organisations and preventing crises by identifying vulnerabilities. Counsel should also know when to take the lead role or bring in outside experts during a crisis, respondents said.