Law Firms Having a lawyer on the board Sep 08

Monday, 01 September 2008


    Too many lawyers on a board can spoil the broth, but legal skills are still a great plus for aspiring directors.

    Having a lawyer on the board

    There’s no doubt a legal background can be incredibly useful for aspiring directors, but it can have its drawbacks too. As Corrs partner Andrew Lumsden notes: “The legal and forensic skills obtained in working in an active practice are useful to directors, probably none more so than a highly developed sense of smell which enables lawyers to identify those issues which might potentially prove problematic for the organisation. It brings to mind a description I once heard that likens the perfect director to Tyrannosaurus Rex because the dinosaur can smell rotting meat from 15 kilometres away.

    “But, of course, your greatest asset can also be your greatest weakest and it is possible to over-emphasise theoretical risks in the boardroom and not to focus on the important role that the board plays in setting the tone and context for an organisation and in helping management to identify and manage risk as opposed to trying to avoid it completely. It may seem counter intuitive, but the challenge for lawyers in the boardroom is to be good directors, not good lawyers.”

    Similarly, Philip Stern, a partner at Addisons Commercial Lawyers, observes: “I consider a legal background useful for aspiring directors because it ought to teach awareness of responsibilities, thought processes of accountability and risk management. To my mind, there are two main negatives I have seen among lawyers who transition from law practice to boardroom. They may be so concerned about legal issues that entrepreneurialism is diminished and after a period, the law has evolved beyond when they stepped off and they have not appreciated that time does not stand still.

    “A person with legal training will provide one set of skills and experience that may be appropriate to have on a particular board, but it will always be necessary to consider whether an individual, whether a lawyer or otherwise, is an appropriate member for a particular board having regard to the need to achieve the optimum board.”

    Likewise, Lavan Legal’s deputy managing partner Dean Hely says: “A legal background can be useful for directors, but it is not essential and only forms one piece of the corporate puzzle. Boards need diversity and having a director with a legal background will assist the board in understanding its corporate responsibilities and will help to alert the board to issues that may require legal consideration when they arise.

    “Typically, those legal practitioners who successfully transition to the boardroom are those who understand that the board needs to weigh up all the information before it, identify and consider the risks and then make a commercial business decision. This successful transition involves lawyers who can not only identify risks and problems but can provide solutions and then make decisions. For some lawyers, it comes naturally as they are commercially minded. For others, it is more difficult and it can be a negative influence on a board when they do not move from adviser and problem finder to problem solver.

    Freehills partner Quentin Digby adds: “In practice, many directors and particularly former CEOs are dubious about the value brought to the table by lawyers. There can be a concern about an inability to see the wood for the trees and an overly pessimistic and critical – as opposed to constructively challenging and solution focused – mindset being introduced to deliberations.

    “However, provided the lawyer can bring to the table the qualities of a high work ethic, the capacity to analyse and quickly understand complex issues and the ability to work well in a team environment (suppressing the desire to speak up with a view on everything as opposed to shutting up and listening more often than not), then I believe they can add real value to a board, particularly where the regulatory environment is a key strategic issue for the business.”

    A common perception might be that lawyers are too focused on detail and micro-management to be successful company directors. However, Allens Arthur Robinson’s Melbourne-based corporate partner Cameron Price says: “While directors need to keep their eye on the company’s broader strategy and goals, board deliberations and decision making processes often require an understanding of complex fact scenarios and professional advice, corporate governance frameworks, clear thinking in difficult circumstances, and the assessment and management of risk. Lawyers are well trained for these roles.”

    Chairman of Mallesons Stephen Jaques’ board, Frank Zipfinger, says the challenge for lawyers transitioning out of legal practice and into a boardroom is to demonstrate that they have financial and industry skills to accompany their legal expertise. “We would argue that the P&L accountabilities in a large law firm and the cross-sectoral experience gained by working with major listed clients give lawyers these skills. The challenge for any aspirant to a board is to sell the value of this experience to the board.”

    Clayton Utz senior corporate partner John Elliott stresses that a solid transition requires a careful balancing act between legal and business issues. “Any transaction or proposed corporate action will give rise to a host of legal issues. Some of those will be simple yes or no matters. But others will be more complex and will require directors to make a business decision about the level of risk that they are comfortable with,” he says.

    “Lawyers in private practice encounter this type of issue all the time. The best lawyers are those who understand how business works and can bring a legal perspective to that understanding. That’s why outstanding business lawyers can make the transition to the boardroom relatively easily.”

    Maddocks partner Peter Shaw believes it’s useful for some board members to come from a practicing legal background, but not all. “Being a lawyer I am a little hesitant about the value of legal skills that perhaps have never been dusted off and practiced. I think a big issue for lawyers transitioning to the boardroom is to not be so focused on the black letter of the law in a way that slows or derails the process of the board making timely decisions.”

    Blake Dawson partner Elspeth Arnold adds: “My observation is that lawyers transition well and fit in quickly on boards where there is a wide skill set. Once lawyers join a board, they don’t typically try to apply the law in a strict sense when they go about board business. They stop practicing law in the role and rely on the experts around them. But like those from a number of other professions, lawyer directors have an instinctive feeling for risk.

    “These days, lawyers are very specialised, so when they join a board, they often face a lot of issues that are outside their particular skills set in any event. They have the skills to recognise when there is a legal issue which might need to be addressed, but they don’t have the requisite skills to answer the many questions which arise. For example, if they are dealing with environmental issues, they would get advice from appropriate environment experts. They are not jacks of all trades.”

    The pros and cons

    Having a diversified board is essential and lawyers can certainly add to this diversity. But as with other professions, there are pros and cons to having a lawyer on your board.

    The many strengths a lawyer can offer include:

    • An instinctive feel for risk and strong risk management skills.
    • An understanding of complex fact scenarios and clear thinking in difficult circumstances.
    • A solid awareness of responsibilities and accountability.

    But some lawyers can display the following weaknesses:

    • A tendency to be too cautious and to over-emphasise theoretical risks.
    • A lack of commercial or business sense.
    • A strong focus on the black letter of the law which can slow decision making and inhibit entrepreneurial thinking.

    At the end of the day, however, what counts is whether an individual is an appropriate member for your particular board and meets your board’s unique needs.

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