Getting into a hot seat

Corporate boardrooms haven’t always been the friendliest places for lawyers. Directorships often go to CEOs and other people with business-heavy backgrounds, not ones with J.D.s. Thanks to a changing perspective on the work that general counsels do for other companies, though, these prime positions may soon become more comfortable for attorneys to seek out.  - Lisa Predko
Corporate boardrooms haven’t always been the friendliest places for lawyers. Directorships often go to CEOs and other people with business-heavy backgrounds, not ones with J.D.s. Thanks to a changing perspective on the work that general counsels do for other companies, though, these prime positions may soon become more comfortable for attorneys to seek out.  —Photo by Lisa Predko
March 2015

As chief executive officer of Greenberg Traurig from 1997 to 2010, Cesar Alvarez oversaw the firm’s growth from 325 lawyers to 1,850 and the opening of 28 offices — some in places as far away as Amsterdam.

Awards have named him among the most powerful attorneys in the nation along with being among the most influential Latinos in business. The Miami-based Alvarez helped usher in the Big Law era.

But he holds another distinction that is even more exclusive. As an independent director at Sears Holding Corp., he is the only practicing lawyer to serve on the board of directors for one of Chicago’s 10 largest publicly traded companies, by 2013 revenue.

The count: 116 directors. One lawyer.

The general counsels at those 10 companies — including Boeing, Archer Daniels Midland and Walgreen Co. — don’t fare much better. One, McDonald’s Corp.’s Gloria Santona, serves on a public company board of directors.

The highest rung of the Chicago corporate ladder doesn’t necessarily stand out for its lack of lawyers. Among the nearly 3,900 independent directors of publicly traded Fortune 500 companies, just 5 percent are or have been a general counsel, according to a report by recruiting firm Heidrick & Struggles. And last year, the S&P 500 added 371 new independent directors. Only nine were lawyers, according to search firm Spencer Stuart.

That’s not because chief legal officers are uninterested in directorships.

“If you talk to most GCs, they would say, ‘I want to be on a public company board,’” said one general counsel of a large publicly traded company in Chicago who has long sought a public company director position.

“But it’s a challenge for lawyers to get on boards. They’re not looking for lawyers.”

Obtaining a seat on a board is attractive for reasons both financial and professional. The median compensation of Fortune 500 directors in 2013 was $240,000, according to an analysis by consulting firm Towers Watson. And for general counsels proud of their strategic decision-making chops, a directorship is a chance to display those skills. It is an exclamation mark on a successful corporate career.

But general counsels rarely become directors. And lawyers and legal recruiters said that’s because of history and perception.

Historically, boards of directors have been dominated by CEOs, who then select new board members. In their eyes, general counsels can face a perception problem: They haven’t been viewed as business leaders who possess the strategic thinking that boards value. Countless general counsels fret over being labeled “the department of ‘no.’”

“In my experience, nobody has said, ‘We want a general counsel,’” said Lee Hanson, who conducts searches for boards of directors and general counsels as a vice chairman at Heidrick & Struggles. “Nobody has said we are specifically going out and looking for a general counsel.”

Even so, there are examples of general counsels in Chicago who have broken into the boardroom. Generally, they’ve done so by becoming highly respected leaders of their organizations, displaying business-focused thinking (or even running a business segment) and, most of all, through networking with board members and CEOs. If you want to be a director, they say, let other directors know.

That road map has worked for a select group of in-house attorneys. But some believe that a broad change of perception about the general counsel role might lead to more J.D.-inclusive boardrooms in the future.

In short, these general counsels argue, they are no longer running the department of no. They add value as the CEO’s confidant. They’re business leaders and strategic thinkers. Those qualities, among others, will suit them well as directors.

Ultimately, those holding the keys to the boardroom — still largely a group of CEOs and chief financial officers — will be the judge of that.

An exclusive table

From 2009 to 2013, there were an average of 5,254 board seats in the Fortune 500. On average, only 6 percent turn over each year, according to Heidrick & Struggles — which amounts to 326 openings per year.

DiLucchio
“There are definitely general counsel out there who have a great business head, good perspective and could bring real value to a business and strategy discussion for an organization.”

Dan DiLucchio,
principal at Altman Weil.

And that’s just the start of the figures that add up to such long odds for general counsels.

Of the 326 appointments per year, a full two-thirds — 215 — had previous experience on a board. And the CEO-and-CFO-suite continued to overwhelm those selections: 66 percent of the placements were current or former CEOs and CFOs. At Chicago’s top 10 companies, that number is at least 70 percent.

The boardroom’s lack of lawyers is nothing new.

In an attempt to increase the influence of attorneys on boards, the American Bar Association in 2007 spearheaded the creation of DirectWomen, a networking organization that identifies, develops and supports female lawyers looking for director positions. Women are also vastly underrepresented on boards, comprising just 19 percent of Standard & Poor’s 500 directors, according to Catalyst Inc., which advocates women on boards and is associated with DirectWomen.

“We decided to take on quite the challenge,” Bobbi Liebenberg, chair of DirectWomen, said in a deadpan tone. “It wasn’t enough to just be women.”

But they have also had some success.

Since its inaugural 21-member 2007 class (for which more than 200 women applied), 130 lawyers have attended the DirectWomen Institute, a weekend retreat that features networking and skills building. Through five years of institutes, the program had a 21 percent success rate of alumni landing large corporate board positions.

Among those success stories are Mary Ann Hynes, a former general counsel of Ingredion and now a director at GHD Pty Ltd., an engineering, architecture and environmental consulting firm, and Kathleen Wilson-Thompson, chief human resources officer at Walgreen Co. and a director at Vulcan Materials Co.

The list of Chicago-area alumni still looking for large company board positions includes GATX Corp.’s Deborah Golden (who sits on the board of her company’s subsidiary), Carrie Hightman of NiSource Inc. and Rebecca Wing, the longtime general counsel and interim CEO for defunct Peregrine Financial Group Inc. Maria Green, general counsel of Illinois Tool Works Inc., will attend the institute in May.

“We’ve gone from 16.9 percent to a little over 19 percent,” Liebenberg said, remarking on the percent of women directors at S&P 500 companies. “While it represents some progress, we believe it’s far too slow.”

Know your business

The most common advice recruiters and GC-directors give to those looking for a directorship is to network with current directors and CEOs. General counsels should discuss their desires with their CEO and, if it’s at the appropriate time, with their company’s directors, too.

After all, general counsels who serve as corporate secretaries should know those people.

“My advice to that person is: Look for other women general counsel directors who have a similar profile to her and find out as much as she can about how they got their board position,” said Brande Stellings, vice president of corporate board services at Catalyst and a former in-house lawyer at NBC Universal.

Because it is easier to get a second or third board position than your first, time constraints may force lawyers who already serve on boards to turn down other opportunities. For the lawyer looking for an initial board position, that can be a great referral source.

“Who you know is a big part of the quest to get on a board,” Stellings said.

Stories of how current and former general counsels at Chicago-area companies found their director positions show that lawyers are rarely recruited because they are lawyers.

And CEOs or board members who have a strong relationship with their own general counsel are more likely to nominate GCs for board positions than CEOs who don’t. Most importantly, however, it’s what the lawyer shows the board. They’re interested in business prowess and experience.

Laura Schumacher is a poignant example in that regard.

Schumacher joined the litigation department of pharmaceutical giant Abbott Laboratories in 1990. After a series of promotions, she was named secretary in 2003 and general counsel in 2005. In 2007, she was named an executive vice president.

Showing a skill set that goes beyond legal responsibilities, Schumacher played a key role in Abbott’s 2013 spinoff of AbbVie Inc., where she now serves as executive vice president of business development and external affairs, general counsel and corporate secretary. The company did not respond to a request for comment.

In addition to her legal role, Schumacher’s goals at AbbVie, according to a regulatory filing, include enhancing its proprietary pharmaceutical pipeline, executing strategic development initiatives for biologics and supporting research and development. Her compensation is also tied to the company’s financial performance and a sales goal — both of which she exceeded last year.

Her role in the spinoff provided at least two benefits: A $1.1 million bonus “paid in recognition of performance related to the business separation,” according to a regulatory filing. And it impressed General Dynamics Corp., which cited her spinoff work in a release announcing her appointment as a director in February last year.

Schumacher was identified as a candidate by an independent director at General Dynamics, according to a regulatory filing, and then nominated for the board by James Crown, president of Henry Crown and Co. and chairman of General Dynamics’ nominating and corporate governance committee.

In a filing, the company credits her for having a “deep knowledge of the types of legal and regulatory risks facing public companies.” It says she has a “keen awareness of strategic considerations and challenges associated with a complex, highly regulated industry.” And it again cites her role in the AbbVie spinoff as providing the board “an important understanding of and insight into corporate governance matters and complex corporate transactions.”

Find a GC-friendly CEO

Sara Hayes became a director at Apogee Enterprises Inc., a publicly traded manufacturer of specialty glass, in 2005. It wasn’t because she is a lawyer.

“I don’t think (that) was the driver, but it was seen as a positive,” Hayes said.

Williams“Unequivocally, I think the perceptions of GCs are changing. I meet with CEOs all the time, and they always say they want a business partner. And if they didn’t consider the role to be important, they wouldn’t be saying that. And I think that’s carrying over to the board context as well.”

Paul S. Williams,
partner at Major Lindsey & Africa.

She had spent 10 years at Hyatt Hotel Corp., eventually becoming general counsel and a member of the management committee at a company owned by Chicago’s Pritzker family. (James H. Wooten Jr., a former general counsel at Illinois Tool Works, is a member of the Hyatt board.)

Hayes had experience as a commercial real estate lawyer that was seen as accretive to Apogee’s board, considering it provides glass to large commercial developments such as Trump Tower. She was found through a Northwestern University Rolodex of women candidates for boards. And she found a lawyer-friendly CEO at Apogee receptive to her nomination.

“He was very amenable to (a lawyer’s skill set) being a nice addition to the boardroom,” Hayes said. “If there’s someone in the room who really relies on their GC as their right hand in their business — and I think a good GC becomes that to their CEO and board … that’s what frankly opens the door to someone thinking the GC is a person adding value.

“And in my experience, GCs are recruited for boards or thought about for boards because they’ve proven themselves in those situations to be that kind of strategic adviser who is useful as decisions are being made and can make decisions themselves.”

The recruitment process Hayes went through has some parallels with that of James Jenkins.

He became general counsel of Dow Corning Corp. in 1982 and then served as senior vice president and general counsel at machine-maker Deere & Co. from 2000 until his retirement at the end of 2012.

In 2005, he was approached by Stanley Askren, CEO of HNI Corp., a publicly traded manufacturer of office furniture, who was looking for a director on his company’s board.

Askren wanted board members whose skill sets mimicked those of his direct reports, Jenkins said. As he does now, Askren had a strong relationship with the company’s then-general counsel, Jenkins said. The value he placed on lawyers was part of what made Jenkins an attractive candidate.

To be sure, though, Jenkins also brought a wealth of corporate experience, having served under seven different CEOs and spent more than 20 years as a boardroom secretary at that point.

“This made me much more effective, I believe, in carrying out my responsibilities at Deere because I had an even better idea for the contemporary issues directors face,” Jenkins said. “It was a win-win. I always had some curiosity about it and wanted to do it. I felt I could add value. And also, it helped me be more effective in my role.”

Lead the department of ‘I can help’

“Unequivocally, I think the perceptions of GCs are changing,” said Paul S. Williams, a partner at legal search firm Major Lindsey & Africa, a former general counsel of Fortune 25 Cardinal Health, and a member of three boards of directors. At one time, he served on four.

“I meet with CEOs all the time, and they always say they want a business partner. And if they didn’t consider the role to be important, they wouldn’t be saying that. And I think that’s carrying over to the board context as well.”

Williams points to examples like Merck & Co. Inc., which promoted Kenneth Frazier from general counsel to CEO.

The idea that lawyers are narrow-minded, argumentative or too terribly risk averse is becoming a thing of the past, Williams said. Rather, lawyers have a skill set that is well-suited for boardrooms, including strong interpersonal skills, persuasiveness and the ability to reach consensus.

“We have the ability to at least think about the other side’s view and try to find middle ground, and that’s what happens in the board context,” Williams said.

“Different (board members) have different perspectives, and you have to find a way of bringing people together and making a decision. Because it’s part of what we all have done as GCs, I think that it is in some ways maybe easier for us in the context of a board than it might be for people who have been in other roles.”

Dan DiLucchio, an Altman Weil principal who has consulted for legal departments for more than 30 years, said general counsels have increasingly added to their responsibilities outside of the legal department. He pointed to United Continental Holding Inc.’s recent decision to make general counsel Brett Hart responsible for customer service.

In an Altman Weil survey last year of 186 in-house attorneys, they reported spending 17 percent of their time on corporate management responsibilities outside of the legal department. While they still spent much more time practicing law and managing their own department, DiLucchio said, that number once was much closer to zero.

“There are definitely general counsel out there who have a great business head, good perspective and could bring real value to a business and strategy discussion for an organization,” DiLucchio said.

“When you’re a lawyer, you have a specific perspective on things. But like many people, lawyers can expand and grow. And when you’re in a position of general counsel, boy, there’s an opportunity to do that for sure.”

Change will be ... slow

Still, a reality of the boardroom is that demographic shifts occur in slow motion.

General counsels like the aforementioned Hightman can attest to that.

Hightman is executive vice president and chief legal officer of NiSource Inc., a Fortune 500 energy delivery company in Merrillville, Ind.. She also serves on the board of Fifth Third Bank Chicago, a subsidiary of the national Fifth Third Bancorp.

An alumna of DirectWomen’s institute, she has spoken with a number of recruiters about joining a public company board. She said she has yet to find the right fit. If it is non-lawyer experience boards are looking for, they will find it in Hightman.

She was president of AT&T Illinois from 2001 to 2006.

She left AT&T Illinois for NiSource in 2007 and, around the same time, was appointed chair of the Illinois Board of Higher Education, a statutory body that budgets for operations and grants and for capital improvements for higher education institutions and agencies. She then was appointed chair of the State Universities Retirement System of Illinois, which manages $14 billion in investments.

Hightman said those experiences show she has financial acumen, leadership skills and the ability to navigate complex regulatory regimes in quickly changing industries.

“The higher education industry is very similar to the telecom industry and now the gas industry as well, in the sense that all of them have been significantly changed by technological disruption,” Hightman said. “In gas, it’s fracking. In telecom, it’s the Internet. In higher ed, there are a combination of things.”

In boardrooms, the disruption might just be the CEOs’ relationship with the general counsel. That’s still a work in progress.