The case for a 'legal director': current and growing governance obligations compel boards to recruit a director with corporate legal experience as a necessary skill set on the board.

• Author: Schmidt, Gary P.
• Position: COVER STORY

SINCE 2002 THERE HAS BEEN a tsunami of legislative, case law, and quasi-legal guidelines that impose strict corporate governance requirements on public boards. These standards have been specified with more particularity than at any prior time. A simple recitation of these new expansive requirements adds up to at least 80 new robust obligations that were created just by Sarbanes-Oxley, amended NYSE listing requirements, and revised regulatory environments.

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In addition, the Dodd-Frank legislation has over 400 new regulations that corporations must comply with. As of July 2012, less than 36 percent of these regulations have been written. Many of the regulations that have been finalized have a corporate governance impact. For instance, one of the regulations was written by the Federal Reserve and included a "new Standard of Corporate Governance" for public boards.

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The expectation is that corporate governance standards will continue to proliferate and grow. These new requirements are, of course, combined with traditional obligations, which include the laws and regulatory environment of a company's state of incorporation, its own articles of incorporation and bylaws, and various internal plan documents and committee charters.

All this has created a high stakes legal landscape that has diverted valuable time and attention from a board's primary responsibilities of strategy and management oversight. The unintended consequence of these added governance obligations is to reduce the value that independent board members contribute to a company's performance.

An innovative response

The explosion of these legal obligations has complicated the structure and operation of public boards. Boards have responded by creating new committees (e.g., a corporate governance, regulatory, or risk committee), burdening existing committees, or burdening the whole board with time-consuming and detailed new processes.

While these responses fulfill a board's requirements, they add complexity and time-consuming tasks to the normal operation of boards. Board agendas and time devoted to legal mandates detract from a board's ability to focus on the most important responsibilities of management oversight, corporate strategy, succession planning, executive compensation, and acquisitions.

Creating new committees and shuffling committee responsibilities do not go far enough. Boards should consider adding an independent director with...