As such, a GC is required to act (in Canada) in the best interests of the stakeholders, which means its shareholders, employees, and the community in which the corporation operates.
Typically, the general counsel reports directly to the chief executive officer, who normally has the ability to discipline and fire the general counsel. My sense is that the relationship between the CEO and the rest of the management team with the GC is relatively well understood.
Perhaps less well understood are the various relationships between the GC and board members. Regulatory and shareholder pressures have increasingly driven companies in Canada to establish independent chairpersons, or appoint presiding/lead independent directors. Independent chairpersons and presiding/lead directors work closely with the GC including on key initiatives such as strategic reviews, acquisitions, divestitures, material litigation, and regulatory compliance concerns, particularly where there is a possibility that the corporation may risk going offside.
It is also the case in Canada that the role of CEO and chairperson has been split so as to underscore the separation of day-to-day management of the corporation and general oversight.
This separation helps accommodate the role of the GC, which includes the right and obligation to bring controversial issues to the chairperson or individual directors without the prior consent of the CEO.
Given all of the potential conflicts that may arise in acquitting its responsibilities, the degree to which boards rely on GCs to provide guidance and support, and the keen insight the GC typically acquires regarding the skills and knowledge required by directors to carry out their duties, it is surprising to me that the GC is usually not involved in interviewing and recommending individual board members.
The nominating committee or other board members at large usually select board members. The GC typically works with the nominating committee, the CEO, and a recruitment firm to help define the list of attributes the directors are required to meet. Once new directors are appointed or elected, the GC is primarily responsible for training the newly elected directors regarding their fiduciary and other obligations.
I find the GC’s exclusion from the interview and recommendation process doesn’t make a lot of sense. Perhaps it is because I do not see negatives in having the GC assist in interviewing and suggesting candidates to the nominating committee or other directors. I fail to see any concern with regard to lack of partiality or any conflict of interest on the part of the GC were he or she to interview and recommend candidates. On the contrary, the GC is very well positioned for the reasons mentioned above to evaluate whether a particular candidate matches the agreed recruitment criteria and has the leadership skills, integrity, and judgment required to satisfactorily perform.
Indeed, I’ve seen a number of hirings where the working relationship between the GC and particular board members was strained out of the starting blocks and may have been avoided had the GC been involved at the interviewing stage.
It seems to me to be inconsistent that the recruitment of the GC has increasingly become a shared responsibility of the CEO and the board. It seems to me that such is the case because the role of the GC has considerably grown in scope, depth, and complexity on both the business as well as the regulatory side, and that boards are now more exposed than they ever have been in the past.
Boards are no longer satisfied to have the CEO hand pick the GC on whom the board relies so much. Boards are making it a prerogative that they be satisfied that the GC not only look good on paper but that he or she also have the requisite functional expertise, business acumen, and integrity and trustworthiness.
It seems to me that logically this would work both ways: GCs should play an important role in not only helping to define the hiring criteria and providing ongoing legal support and knowledge transfer, but they should also have a say at the interviewing and recommendation stage.