Recently, I am having more and more discussions with governance and auditing professionals about the role of the corporate attorney in governance. As they have unfolded, I have begun to notice several recurring questions in these conversations that seem to weigh heavily on people’s minds. Most specifically, is legal compliance and governance the same thing? And, how do we position the role of the attorney to best support governance and the important relationship between boards and executives?
Legislation like Sarbanes-Oxley and Dodd-Frank has further pushed governance into the realm of legal compliance. Unfortunately, I do not think that the legislation has or is fully accomplishing what governance was really established to accomplish. So, what is the role of governance and the proper role of attorneys in supporting governance.
Let’s start by remembering that board governance is required whenever an organization is managing someone else’s money. Investors, donors, and taxpayers are the most common titles for those who entrust their money to another organization. In every case, the government has required that their activities are governed by a board of independent, non-executive directors. It then seems obvious that their primary intended role is to protect the interests of those whose money they are managing. Many now would expand that purpose to also protect the interests of all the organization’s stakeholders.
Aligned Influence® also observes that each of these organizations should have three sets of policies. The first are those that establish. They are commonly called bylaws, commissions, charters, etc. This first set tend to be the documents that attorneys assist the organization in creating. The second set of policies are governing policies. They are always created or adopted by the board and used by the board to document their direction and protective boundaries as well as their own commitment to enable to work of the organization. The last set of policies are operational policies. These are created and used by the executive and their administrative team to guide the work of all employees and volunteers and to guide clients as they utilize the services of the organization.
In short, the role of the attorney is to assist the board and the executive in their respective roles. Sounds simple right. How then does it sometimes get confusing?
If you ask an attorney to define the role of a board, they will most likely quote the “duties,” namely duty of care, obedience, and loyalty. While accurate, these very high-level statements of duty provide little if any concrete guidance to boards and executives about how they function individually or together. Boards and executives need a framework that concretely defines and aligns their roles, policy sets, and purpose. Then their attorney, functioning as a corporate governance attorney, can help them implement those things within the boundaries of the laws in which they live.
Attorneys sometimes get so involved in protecting the organization that the board’s primary role of protecting investors, donors, and taxpayers can become confused and secondary. In truth, that is why Sarbanes-Oxley and Dodd-Frank exist today. In these legislations, the government has taken on the role of protecting investors because boards and their attorneys were not adequately doing so. Boards need to understand the primary reason that they are required to exist and the importance to the direction, protection, and enablement that they provide. Then the attorney can help them understand the legal requirements and implication in those functions.
Corporate governance attorneys rightly see the importance of the documents which establish the organization such as bylaws or charters. The confusion occurs when ensuring compliance with the establishing documents becomes the sole focus. I have found many times that the second set of policies, governing policies, do not even exist and the corporate attorney is advising the board that they are properly performing their role just by being compliant with the policy that established them. Boards and executives need to understand the three primary policy sets that need to exist in their organization and which of those are their primary responsibility. Then the attorney can ensure where their voice is primarily needed and where they need to stand ready to assist in all other areas.
While legal compliance is a very important part of a board’s governing role, the confusion comes when simply being legally compliant does not fully protect the interests of investors, donors, and taxpayers in areas like management of assets and risk to those assets. We often find that attorneys are burdened with the expectation of being governance experts. I think everyone would be more successful if the attorney was allowed to be experts in the law as they were trained.
Aligned Influence Consulting is prepared to provide your organization with expertise in governance to help you take the next steps in maturing the relationships of the key influencers in your organization. Contact us today.
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