It’s the ‘Golden Age’ for Lawyers Seeking Corporate Board Seats

Public companies are increasingly looking for lawyers to become corporate directors, bringing legal expertise to the boardroom and prestige to attorneys who can navigate potential conflicts.

The “golden age” for lawyers seeking board seats is largely a product of the “rise of regulatory forces,” said Paul Williams, a former chief legal officer at Cardinal Health Inc. Risk analysis and communications skills can be useful in that regard, said Williams, a director at two public companies and a partner emeritus at legal recruiting firm Major, Lindsey & Africa.

Lawyers have long served on the boards of privately held companies and nonprofits. US public companies are coming to see the value of having more legal know-how in the boardroom as the web of compliance and regulatory requirements grows, said Susan Hackett, a former top lawyer for the Association of Corporate Counsel.

Jeh Johnson, the former Homeland Security Department chief, is a prominent example. He serves as director at three companies—United States Steel Corp., MetLife Inc., and Lockheed Martin Corp.—while also working as a partner at Paul, Weiss, Rifkind, Wharton & Garrison. Robert Kimmitt, another former government official, serves on the board of Facebook parent Meta Platforms Inc. while working as senior international counsel for Wilmer Cutler Pickering Hale and Dorr.

Market-changing events like the pandemic and new challenges arising from artificial intelligence, cybersecurity, and geopolitical concerns make lawyers attractive candidates, said Matthew Fawcett, a former top lawyer and strategy executive at NetApp Inc. He also cited the debate over environmental, social, and governance.

Roughly 1,500 board seats become available each year, many of them with annual cash-and-stock compensation packages averaging $300,000, said Wendeen Eolis, a veteran legal recruiter.

Law firms have become more open to the potential business opportunity that comes with putting their lawyers on corporate boards, and less worried about conflicts that could impact current business.

“You’re going to be in the presence of a significantly credentialed, capable, and highly respected group of fellow board members, many of whom are CEOs of other companies,” Eolis said.

Changing Times

The conventional wisdom had been that a lawyer-director might have a too narrow or risk-oriented focus, said Fawcett, who during his career often heard that having a lawyer as a director would be a “waste of a board seat.”

Eolis, who launched perhaps the first lawyer vetting outfit in 1967, now dedicates a large portion of her work at Eolis International Group to what she calls “career transition planning” from law to business.

“I’ve seen an exponential expansion in the consideration of lawyers for board seats,” Eolis said. She cited client pushback to the rising rates being charged by outside counsel as a catalyst for grooming legal board talent.

Companies, said Eolis, “started to see lawyers as a real asset” to their boards.

Williams, who during his time at MLA sometimes assisted in board placements, said the “vast majority” of lawyer-directors are former general counsel. It’s still relatively uncommon for those actively working in private practice to secure seats on corporate boards, he said.

Many companies with lawyers as directors do not have a relationship with those lawyers’ firms.

Karl Racine, a former attorney general for the District of Columbia, is on the board of DXC Technology Co. Racine, a partner a Hogan Lovells, said the firm “does not provide legal services” to DXC.

That’s not always the case.

Meta, buyout giant Blackstone Inc., and Warren Buffett’s Berkshire Hathaway Inc. have lawyers sitting on their boards, each while paying millions of dollars in fees per year to their firms for legal work, according to securities filings. Many other companies with lawyer-directors do not have to disclose what they paid firms with lawyers on their boards due to the smaller amounts of payments involved.

Expanding the pool of director candidates to include lawyers has also helped companies address calls for more boardroom diversity, be it through age, ethnicity, gender, or professional perspective, noted Eolis, Hackett, and Williams.

Addressing Conflicts

Williams and Eolis said the conventionally understood threshold for maximum number of directorships a lawyer can hold is likely three for public companies.

While many firms appear to have loosened their restrictions, Williams said lawyers still “have to be very cautious on the conflicts side.”

Out of 25 largest law firms in the US, based on gross revenue, only one returned a request to disclose its policy about its lawyers serving on corporate boards.

McDermott Will & Emery “encourages board participation and maintains a policy requiring consultation and approval from the general counsel to protect against potential conflicts of interest,” a spokeswoman said.

Increased exposure fueled by merger mania in Big Law and an uptick in lateral hiring has compelled firms to address and resolve all kinds of conflicts, including those that arise from board service, Eolis and Hackett said.

Brianna Castro, a senior director of US research at proxy advisory firm Glass, Lewis & Co., said there is a “wide variety” of disclosures that companies make when it comes to related-party transactions involving law firms. Securities laws and company bylaws provide varying levels of guidance to disclosing legal fees. Glass Lewis encourages companies to be as transparent as possible.

“We prefer that companies provide the exact amount of the transaction in question, rather than a percentage, more than or less than statements, or stating that it is ‘immaterial’ so that shareholders can make an informed determination,” Castro said.

Defining ‘Independent’

US public company boards are comprised of independent and non-independent directors, most of whom stand for election each year, Williams said. The New York Stock Exchange and Nasdaq require that companies listed on those exchanges have a majority of independent directors.

The Council of Institutional Investors, a nonprofit association of US pension funds, recommends at least two-thirds of a board be independent directors, or those generally defined as not having a material relationship with the company.

Directors who work at professional services firms are not independent if their employers are doing $10,000 or more worth of work for the company, according to US director voting guidelines by proxy advisory firm Institutional Shareholder Services Inc. The “de minimis” standard applies even in situations in which the director is not involved in any of that work.

“It’s very hard to do any business with a law firm for less than $10,000—that’s like five hours of a partner’s time,” said Marc Goldstein, head of US research at ISS, half-jokingly. “If a firm is doing business for the company, we would consider that director non-independent.”

Some companies require that lawyer-directors wall off or recuse themselves from legal matters involving their firm to ensure independence. But partners are compensated from the shared revenue of the firm where they work, said Goldstein. They could also supervise or oversee other lawyers that could be doing work for a company on whose board they serve, he said.

ISS recommends that companies avoid choosing directors from firms that are also their outside counsel. Providing legal services requires “close collaboration with senior management,” Goldstein said.

Lawyers who retire from a firm can be considered for a board seat with a firm client, Goldstein said. This workaround allows some former Big Law partners to take on board roles and retain of counsel, senior counsel, or other roles with their firm that doesn’t include a share of the firm’s revenue and does not receive any form of compensation from the firm in excess of $10,000 a year.

Goldstein acknowledged that companies can benefit from having directors with legal chops. “You don’t want all lawyers on your board, but one or two can be quite helpful,” he said.