Skip to content

Why would company execs want the GC to report to the CFO?

September 19, 2017

An article in Inside Counsel poses the question “Why would company executives want the General Counsel to report to the CFO”? It highlights the following as potential reasons:

• The CEO travels extensively or has too many reports. Hence, the CEO wouldn’t be a good manager and there would be a lack of connection—which would be a detriment to the GC and the legal function.

• The CEO has an extremely difficult personality so the GC needs a buffer, which is best served by the CFO.

• The CFO is a more active manager and would be more effective in maintaining a stronger relationship with the GC. There is a dotted line to the CEO.

• The CFO wants the added report for his own professional development.

• The structure of the company has many other core functions reporting to the CFO.

• Because the CFO and GC work so closely together, that reporting structure is a more logical one.

• The CEO doesn’t like lawyers and wants to engage with the legal function “only as necessary.”

• The nature of the company’s legal matters does not merit a CEO report at this time.

As with any organizational debate, these points are all interesting. But it seems to me they miss a fundamental issue – and that is, the scale to which a business’s financial performance links to the General Counsel and the legal staff.

Should the Legal function grasp financial opportunity?

In IACCM’s recent ‘Purpose of a Contract’ survey, respondents were asked whether a contract should be ‘an instrument for generating financial benefit’. They ranked this purpose in tenth place – out of eleven. Arguably, this should be first on the list. Businesses enter into contracts to secure economic gains or to protect economic assets. Similarly, they care about things like regulatory compliance not for their own sake, but to avoid the financial consequences of non-compliance. Hence there is potentially a powerful argument for the GC to report to the CFO, if only to increase legal department appreciation of the key impact their role has on corporate financial performance.

My counter-argument to this position is that the GC – and legal department – is needed as a moral compass. In my experience, companies with an over-powerful finance function are the most likely to lack balanced commercial judgment.  Their focus on profitability and growth can lead to decisions that damage business reputation. A strong legal function, properly integrated into the business and with significant authority, should operate as a counter-balance. But to do that, they certainly must appreciate the extent to which their work has an economic and financial impact – so we need lawyers who are truly commercially aware.

 

 

 

 

 

2 Comments
  1. RE: Your counter argument comment

    I have never ever heard of a lawyer having a “moral compass” nor have I ever heard this phrase used by anyone to describe a lawyer…more like magnetic interference.

    I have decades of experience working with inhouse and outside legal folks and the words “moral compass” would never be the words I would use to describe these folks.

    In this fast changing business world, lawyers are fighting tooth and nail to prove that they are still relevant. This includes inhouse lawyers.

    It is my opinion that legal folks may often be the problem in many corporations as they often put up unnecessary road blocks and cause unnecessary delays and fear in order to prove their relevance. They are also very risk adverse and are trained to do one thing … to win at any cost.

    Commercial issues are in my opinion best handled by the business folks and lawyers should be viewed as a sounding board ( maybe ) to just give the business folks their legal opinion for consideration, if asked.

    At the end of the day, a corporation is best served if the business folks take care of all business matters and the lawyers take care of all legal matters.

    End

  2. Roy, i know you are not alone in the views you express and there are indeed many questions about the future role of lawyers – as indeed there are about almost every job role.

    But the dilemma in what you say is contained in the final sentence of your comment. That is, “business folks take care of all business matters and the lawyers take care of all legal matters”. When it comes to trading relationships, where exactly is the divide? And what knowledge is needed to truly ‘take care’? For example, with the unending growth of regulation, there are many nuances regarding where we do business, how we do business and with whom. A business matter or ultimately a legal matter?

    Where you are right is that everything is ultimately a business judgment – including whether or not to comply with the law. So the final decision and accountability does ultimately reside with ‘the business folks’.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: