Does Your CLO Have a Seat at the Board Table?

By Amy Chai, Associate General Counsel and Director of Advocacy Initiatives, Association of Corporate Counsel; Sheila Bangalore, Venture Partner, SpringTide Ventures, and Board Member, Games Global; Deborah Majoras, Board Director, Valero Energy, and Board Director, American Express.

The days when general counsels or chief legal officers (CLOs) were in the backroom, solely reviewing contracts or serving as a technical advisor on a limited number of discrete legal issues are faint memories. With the increase of corporate regulatory obligations, heightened enterprise risks and potential director liability, CLOs have become essential in determining and executing business strategy, decision-making and internal collaboration among business units.

Although many companies combine the role of the CLO with the role of Corporate Secretary, there are important distinctions between the expectations of each in the boardroom. Due to their legal training and emphasis on managing risk, CLOs are experienced and comfortable in dealing with complex issues. Additionally, they are uniquely positioned to help navigate enterprise responses to ever changing and expanding regulatory environments while assisting the board in ensuring that the organization satisfies its varied responsibilities. Meanwhile, Corporate Secretaries retain ownership over a varied range of board-related matters, from record-keeping to regulatory compliance.

CLOs can be key partners in establishing a corporate culture that celebrates diversity and transparency. Their deep involvement with compliance and ethics enables CLOs to drive change in the workplace through diversity, equity, and inclusion (DEI) and environmental, social and governance (ESG) initiatives at the board level and throughout the organization. The CLO can also be instrumental in addressing disruptive technologies and maintaining the organization’s focus on ethics and accountability.  

The Evolving Role of the CLO

For more than 20 years, the Association of Corporate Counsel (ACC) has monitored the CLO position by conducting an annual global survey of the heads of legal departments. The survey provides insights on the role of the CLO and legal departments and how they add value to the organization. The report outlines key findings and delves into the data supporting each conclusion. 

The most recent ACC CLO Survey was released in February of 2023 and highlights the breadth of issues the CLO oversees. In addition to legal, at least 20% of CLOs also oversee one or more of the following functions: compliance, privacy, ethics, risk, government affairs, ESG and cybersecurity response. There has been a 4% increase in the number of CLOs that now oversee privacy, risk and cybersecurity response since last year. Many also oversee human resources, public affairs and real estate/corporate facilities. Some CLOs also oversee one or more of the following functions: compliance, privacy, ethics, risk, government affairs, sustainability and cybersecurity response. CLOs are adept at developing risk mitigation strategies, which can underpin key financial goals and corporate strategies. Having someone highly skilled in solving problems with great judgement can be a tremendous asset to the boardroom.

The expansion of corporate regulatory obligations, such as the U.S. Federal Sentencing Guidelines, Chapter 8 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, along with anti-money laundering and corruption initiatives globally, have raised the stakes for corporate compliance with legal and ethical obligations. Additionally, organizations face a myriad of industry-specific laws and regulations. As these have become more complex, organizations need legal advisors that can understand both the regulatory landscape and the business perspective. The CLO is perfectly situated to be that legal advisor, and it can be reassuring for fellow board members to have a colleague in the boardroom who is familiar with these issues and contributes to diversity of thought.

As John Zecca, Executive Vice President, Chief Legal, Risk & Regulatory Officer at Nasdaq points out, “A CLO must be fluent in both law and business, so they are in a unique position to build trust with various stakeholders including both management and the board of directors. Now seen much more as a strategic asset, the CLO really helps build strategy and culture to drive long-term success beyond compliance.”

Lawyers are trained to consider all sides of an issue, while checking personal perspectives and sentiment at the door. This objectivity makes them critical partners in navigating difficult issues while keeping a focus on the Company’s interests versus anyone’s personal interests.

The Hallmarks of a Successful CLO-Board Relationship

To ensure that the organization can fully benefit from its CLO, boards should first examine the organization’s management reporting structure: Does the CLO report directly to the CEO? Does the CLO have direct access to the board? 

In most companies globally, CLOs report directly to the CEO. The most recent ACC CLO Survey reported that 77% of respondents report directly to the CEO. In the United States, this number is even higher – 81% of CLOs in the U.S. report to the CEO. When it comes to the CLO’s relationship with the board of directors, 51% of CLOs have a reporting line to the board. More than half of responding CLOs serve as the corporate secretary and 82% of CLOs report that they “almost always” attend board meetings – the highest percentage in the history of the ACC CLO Survey. 44% “almost always” attend executive sessions of the board or its committees, and 22% “often” have calls or meetings with individual board members. Not all C-level executives regularly liaise with the board or have experience in presenting to directors, furthering how the CLO can be a terrific asset to the boardroom – particularly a CLO who also serves as the Corporate Secretary.

Board members should evaluate the management structure in their own organizations to see how they compare to these results. It is important that the CLO report to the CEO and have direct access to the board. This structure ensures legal advisors maintain the independence necessary to make touch calls without fear of reprisal from discontented business partners. Boards expect CLOs to work in strong partnership with the CEO and other company leaders, building compliance in and surfacing and mitigating risks in a way that is balanced and appropriate to the circumstances. Additionally, this is a clear expectation of regulators and other enforcement bodies.

If the CLO is not reporting to the CEO, the Board should seek to understand the rationale and determine if this is inhibiting information flow. If the board is not routinely hearing from the CLO, the Board may be missing out on key information and advice. Given increasing regulatory scrutiny, boards continue to look at ways to address expanded risk oversight through the creation of new committees and/or subcommittees to address specific concerns. Employee Health & Safety, Risk & Compliance, Sustainability and other topics are becoming increasingly commonplace in the modern boardroom, especially in highly regulated industries like healthcare, banking, gaming and mining. CLOs have an important voice in supporting risk mitigation strategies as the role of the board continues to evolve.

In 2016, Wells Fargo, one of the largest banks in the United States, faced a major scandal involving fraudulent practices related to their retail banking operations. In this case, the bank had a decentralized organizational structure that hindered the General Counsel’s influence and ability to effectively address legal and compliance issues. To meet aggressive sales targets and performance metrics, Wells Fargo employees opened millions of unauthorized customer accounts. The reporting structure meant legal and compliance issues were not adequately communicated to the legal department and were deprioritized relative to financial considerations. As a result, the GC’s ability to raise red flags about the unethical practices was limited. As these unethical practices came to light, the company faced investigations, legal actions, regulatory fines and a significant loss of public trust.  

This illustrates how a reporting structure can compromise the independence and effectiveness of the legal function within an organization. It highlights the importance of having a strong and independent legal department that can raise concerns and provide effective oversight to prevent reputation-damaging issues.

CLOs should not be called on after business decisions have been made. Instead, these key leaders are involved at the beginning of the decision-making process so that the organization can benefit from their expertise and legal advice. There is now an expectation among board directors that CLOs bring sufficient objective and independent thinking to that strategic seat in the C-suite and, by extension, to the board. As Veta T. Richardson, ACC President & CEO, has noted in previous remarks, CLOs have in many ways become the “guardian of the conscience of the company,” through their focus on legal and ethical compliance. Boards of all organizations are well-served when the CLO has a seat at the table and the ability to engage directly with the board.

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The views and opinions expressed herein are the views and opinions of the authors and do not necessarily reflect those of Nasdaq, Inc.