Clearly Dodd-Frank Act Sec. 952(b) does not require a Compensation Committee to retain separate legal counsel. Yesterday's blog began with a discussion of whether a Compensation Committee should retain separate, independent legal counsel as a best practice, and concluded: Generally, no. Yesterday's blog also promised to discuss some special circumstances where using independent legal counsel could be a best practice. 

For most Compensation Committees, it may be enough to know that regular outside executive compensation counsel is available to it. (They may not recognize this fact, or have taken advantage of it previously.) However, inside counsel, the Compensation Committee members, and regular outside counsel need to be alert to certain exceptions and certain circumstances where the Compensation Committee should seriously consider retaining separate, individual, legal counsel.

For example, the Compensation Committee of a company in a highly regulated industry, such as financial services, may feel the need to get ahead of the curve on best practices in corporate governance and retain separate, independent legal counsel. Given the recent developments in compensation clawbacks and focus on incentive compensation, retaining independent, expert legal counsel for the Committee could provide better protection to the institution, the Committee, and the executives (See: the 2010 Interagency Guidance on Incentive Compensation and Risk).

Other situations where separate, independent legal counsel for the Committee could provide better protection to the Company, the Committee, and the executives include:

  • The hiring or promotion of a senior executive, where in-house and regular counsel may be conflicted or reticent to provide zealous representation of the company's interests.
  • The negotiation or implementation of new or revised incentive award, employment, or change in control agreements, where senior management has had a particularly long and close relationship with current counsel.
  • Where the Audit Committee has notified the Compensation Committee of an issue that it sees as problematic.
  • Where there is not in-house counsel with executive compensation and SEC reporting experience or the regular, outside corporate counsel does not have the expertise.
  • Where special expertise or absolute independence is required or useful in providing additional protection to the institution, the Committee, and the executives.

The bottom line is that, at a minimum, in-house counsel – or someone else – should explain to the Compensation Committee that it has the right and ability to retain its own counsel (do not assume that they know this, even if it is the Committee's Charter).

Note: Our thinking on this issue could change as the SEC, institutional investors, and the media weigh in with their opinions on the issue of independent legal counsel.

On September 21, 1981, Sandra Day O'Connor, appointed by Ronald Reagan, was unanimously approved by the U.S. Senate as the first female Supreme Court justice. To me, the most amazing (and alarming) fact about her story is that after graduating near the top of her class (William Rehnquist was the valedictorian) at the Stanford Law School and serving as presiding editor in chief of the Stanford Law Review, in 1952, no law firm in California was willing to hire her as a lawyer (although one firm did offer her a position as a legal secretary). It was a different world then – and not in a good way.