An important new article in the Harvard Business Review speaks to the critical importance that should be attributed to the General Counsel/Chief Financial Officer relationship. The article’s emphasis on a necessary “alliance” between these two key officers should be closely considered by the executive committee (if not the entire board) and by the CEO.
The article, written by the estimable Ben W. Heineman, Jr., is premised on two key developments: first, the increasingly consequential integration of the finance and legal functions of a corporation; and second, the dramatic evolution of the expertise, quality breadth, power and compensation of the GC. According to Mr. Heineman, “the optimal CFO-GC alliance is now more like a peer relationship, jointly coordinating and overseeing fundamental corporate issues of performance, compliance, ethics, risk and governance, and organization.” In addition, Mr. Heineman attributes to both officers the attribute as corporate “statespersons”, as it relates to the preservation of organizational ethics and reputation. Acting simultaneously as partners to senior corporate leadership and as guardians of the corporation, the expectation is that they will work collaboratively to preserve a “pervasive culture of integrity.” This recommended partnership is expected to contribute significantly to effective corporate action.
[Particularly interesting may be Mr. Heineman’s recommendation that the GC and CFO share responsibility for designing compliance systems and processes that ensure adherence to formal legal and financial rules.] Working in conjunction with compliance and risk departments, he projects the GC and CFO as working together effectively to develop robust internal procedures of process mapping, risk assessment and risk mitigation relating to rules that apply to all corporate functions.
This unique and important perspective is consistent with the emerging “best practice” that positions the general counsel as not only a legal technician, but also as a valued business partner of management and counselor on organizational ethics. It is similarly consistent with corporate responsibility principles that advocate for a GC-to-CEO (or COO) reporting relationship as opposed to a GC-to-CFO reporting relationship. Importantly, it also acknowledges the obstacles that sometimes arise between the finance and legal functions. Its call for a “strong, respectful, mutually supportive partnership” between the GC and the CFO should be closely considered by corporate governance and the CEO.