‘Revolution’ allows in-house lawyers to be partners and guardians, ex-GE general counsel says

November 21, 2016

Ben W. Heineman Jr. delivers the Distinguished Lecture in Law (courtesy of Widener University School of Law.

Ben W. Heineman Jr. delivers the Distinguished Lecture in Law (courtesy of Widener University School of Law.

A corporate “revolution” is making in-house counsel independent from CEOs and directors so they can be both a partner to management and a guardian for shareholders, General Electric Co.’s former general counsel told a gathering of lawyers and judges in Delaware on Nov. 18.

Ben W. Heineman Jr., the guest speaker at the 32nd Annual Francis G. Pileggi Distinguished Lecture in Law, held at the Hotel du Pont Wilmington on Nov. 18, said he has seen corporate counsel begin to transform from reviewers into shapers of company policy.

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The lecture series on cutting-edge legal topics is presented by the Widener University Delaware Law School and related entities as a way to keep the Delaware bench and bar up to speed on emerging corporate law issues.

Francis G.X. Pileggi, now the managing member of Wilmington law firm Eckert Seamans Cherin & Mellott, began the lecture series in 1985, and it has continued through the support of his father, the late Francis G. Pileggi, for whom the conference is named.

Heineman, now a senior fellow at Harvard Law School’s Center on the Legal Profession and its Program on Corporate Governance, said he was in the right place at the right time to see the revolution begin when he headed GE’s 1,300-lawyer team under then-CEO Jack Welch just as the status of chief counsel was rising to equal that of the chief financial officer.

Welch was GE’s highly successful CEO and board chairman from 1981 to 2001.

Heineman said he saw the role of general counsel transform from that of a quarterback handing off legal projects to various specialist outside laws firms to the role of coordinator of in-house, high-performance specialty teams. General counsel have frequently become the officers who make the calls in the increasingly important compliance area, he said.

He said Welch gave him the responsibility to hire people who would oversee compliance of a wide spectrum of global regulations, but more importantly, the compliance buck stopped at his office, a few steps away from the CEO’s.

The “revolution” in the role of the general counsel has been successful, Heineman said, because companies have recognized that the proactive involvement of the top attorney produces better long-term results and helps avoid problems.

“There was zero tolerance for any lapses in integrity (at GE), so it was one strike and you’re out — even if you had been doing great things there for 30 years,” Heineman told the lecture attendees.

But a general counsel’s power depends on his relationship with the CEO, Heineman cautioned, and not all top executives recognize that a strong, empowered, proactive general counsel is all-important in maintaining the integrity of the company and its employees.

Most CEOs have their own agendas and motivations, and directors often follow the chief’s lead, leaving the corporate counsel as the lone advocate of alternate considerations, “such as not charging straight up the hill into the guns,” Heineman advised.

He said the new ideal general counsel is a “lawyer statesman” who has the courage, tact, diplomacy, wisdom and people skills to tell the CEO what he may not want to hear.

The general counsel must be able to correctly define a problem, Heineman said, “because otherwise, you’ll never get the right answer.”

Heineman said the general counsel must display integrity even when other officers and directors give in to what seems to be the most fiscally feasible option. That behavior is responsible for what Heineman calls the “Hall of Corporate Shame,” which includes Enron Corp., WorldCom Inc. and Siemens Corp.

Those companies ran into trouble for various reasons, but a common factor was a lack of integrity in their corporate culture that allowed greed or laxity to grow, he said.

Heineman advocated that CEOs give in-house counsel the latitude to fuse the roles of management partner and shareholder guardian and become a designer of policy and decisions rather than passive reviewer of them.

Heineman advised prospective general counsel to not only be ready to sound the alarm, but also “be prepared to quit to preserve your integrity.”

Of course CEOs don’t always listen to general counsel recommendations and sometimes allow misconduct to fester until it becomes painful to the company, he said.

In response to an audience question, Heineman said the recent bogus-account debacle at Wells Fargo is an example of a company that has become “too big to discipline.”

“They aren’t crooks but they had no idea how to fix the large problems they encountered,” he said.

That is why the new generation of corporate counsel is proactively involved in designing, implementing and monitoring policy, rather than reacting to problems, Heineman said.