Director's guide to board, committee, and personal counsel: as boards become more proactive, their use of outside legal advisers--a 'legal second opinion'--is on the rise.

• Author: Shaw, David
• Position: REPORT ON BOARD USE OF CORPORATE AND PERSONAL COUNSEL

THERE'S NO QUESTION that public company board service has become increasingly time-consuming--and risky--for directors. But has it become risky enough to require outside counsel, for the board as a whole, board committees, or even for individual directors?

According to several board members we spoke with, the answer is a tentative "yes." In the current environment of regulation, compliance, and personal liability, some directors, committees, and boards are turning to outside counsel for their edification and for their protection.

But attorneys who routinely advise corporations and boards have differing opinions on whether this practice is increasing--and whether or not it's valuable.

"I have seen some companies where committees--audit, compensation, nominating, and corporate governance--retain their own counsel on a standing basis, as opposed to in a crisis situation," says John R. Utzschneider, partner, Bingham McCutcheon LLP. "But my sense is that this isn't as prevalent as people thought it would be a year ago. A lot of committees looked at outside counsel and decided they were comfortable with their general counsel or the company's corporate counsel. But that's not everyone."

John H. Stout, officer and shareholder, Fredrikson & Byron P.A., sees an increase in the retention of board-specific or director-specific counsel: "In the last year, there have probably been 10 instances where I have represented a director, officer, or committee/board member. Just two to three years ago, that would have only happened in a special situation--litigation, clear conflict of interest, or certain M & A transactions, such as a management-led buyout."

Second opinion

"Not many boards have a regularly employed or standing counsel to the board," Stout observes. "But I think boards are employing outside legal advisers more often, as are groups of independent directors, individual directors, and even individual officers for special situations. This is, in my view, a reflection of the fact that boards are becoming more proactive, seeking second opinions. But it's not expected that every committee or board should have its own counsel. This is a situational or transactional thing."

Stout compares the use of outside legal advisers to a medical second opinion. "If you're diagnosed with cancer, you get a second and maybe a third opinion. You want to be sure of the diagnosis, and what your options are."

James M. Ash, partner, corporate department, Blackwell Sanders Peper Martin LLP, adds: "Ever since Sarbanes, we've heard a lot of talk about boards hiring outside counsel, but so far boards have resisted it. Anecdotally, directors tell me that they feel that in-house counsel is very much aware of the need to provide the board with real legal advice. General counsel are well-respected and do their jobs really well. And the days of outside counsel being seen as the CEO's lawyer are over."

"If your...