Prior to and during law school, I never gave much thought to corporate governance. Even through my early years of practice in a law firm, my experience with corporate governance related to those supporting board meetings of the organizations we worked for or periodic filings with securities commissions. With a few more years under my belt and a larger proportion of my career as in-house counsel, I now understand that what constitutes corporate governance is far broader and more complex than I had imagined, and ensuring our companies properly exercise their corporate governance obligations is a key part of the practice for many of us.
While a company's board of directors is the primary force influencing corporate governance, in-house counsel have a key role in ensuring the board can perform its functions appropriately. Bad corporate governance has a negative effect not just on the organization (bad publicity, a poor bottom line) but also on counsel: anything from being seen as derelict in discharging your duties to considered complicit in criminal activity and being actively charged is possible.
I recall a news article about a U.S. Securities and Exchange Commission (SEC) case against an in-house counsel who allegedly failed to provide important information to the audit committee, board of directors and external auditors that could have prevented a fraudulent filing. He was reported to have indicated in his defense that his practice was “a mile wide and an inch deep,” so he had not appreciated the relative importance of the facts that had led to the case. As I recall, the SEC gave short shrift to that line of defense.
However, the life of in-house counsel is indeed typically wide ranging and hard enough, even before adding on the key role of ensuring your entity dispatches its corporate governance obligations as required. With several matters on the go, it can be difficult to provide the right level of focus on the key role of gatekeeper to ensure the company carries out its corporate governance obligations.
That being said, as in-house counsel, we are particularly suited to be the gatekeepers in the discharge of corporate governance obligations. We are (or should be) part of the inner circle of management, with access to the organization’s strategies and plans for implementing them. We are also subject to rules of professional conduct that require us to exercise our mandate with integrity and a clear eye for the bright line between healthy risk-taking and behaviour subject to sanction. We are better placed than external counsel to appreciate the consequences of any decisions the company takes.
Yet, we also have peculiar challenges to helping the organization navigate its corporate governance requirements. For one, as an employee and business partner whose remuneration (even employment) is tied to a large degree on the success of that one entity, we have to support decisions that may have an element of business risk but could improve the company’s bottom line. We play a vital role in helping managers and the board assess risks and weigh them against opportunities.
It can be difficult. Some situations that start out as business decisions (how to characterize a certain spend or loss) or even technical ones (whether a problem can be engineered away) can eventually snowball beyond where they started and implicate potential breaches of the company’s own bylaws and policies or, worse, bring the spectre of external sanctions or criminality.
To help our companies discharge their corporate governance obligations effectively, we need a thorough understanding of the business of our entity (including both the commercial bases and the technical underpinnings of our products or services) and the industry or industries it participates in, and apply our legal expertise based on these to ensure we are on the right side of corporate governance obligations. While being overly risk averse could be seen as obstructionist, not addressing a clear issue head on and deferring to others could have an extremely deleterious effect on our organizations and ourselves.
Even if your practice is mile wide, when it comes to corporate governance, your depth of understanding of the key governance requirements that impinge on your entity, together with an equally in-depth knowledge of your business, will be key to helping your organization successfully meet its obligations.
Theodore Dela Avle is Senior Legal Counsel at Bruce Power, where he strives to be a mile deep in corporate governance matters at all times. Reach him at dela.avle@brucepower.com.