Workers with two bosses often face conflicts, but they can also have unique insights, especially when their bosses’ interests align or one boss wants information about the other. This is the situation for chief legal officers (CLOs) at many publicly traded U.S. companies, who often also serve as corporate secretaries (CS). While this dual role can lead to conflicts of interest, it offers significant advantages, making it a common practice.
Take Nancy Heinen, Apple’s former CLO and CS, who allegedly used her dual roles to hide illegal stock option backdating, resulting in nearly $40 million in dubious gains. This highlights the risks of combining the roles.
The benefits of CLO duality
However, a recent study from George Mason University points out the benefits. The study views CLO duality as a trade-off between being “informed and independent” and looks at real-world outcomes.
Researchers compared firms with combined CLO/CS roles to those with separate roles, examining securities lawsuits, regulatory actions, and penalties. Their findings were surprising: firms with CLO duality faced fewer lawsuits and regulatory violations, and when they were fined, the fines were lower ($1.7 million on average compared to $5 million). This suggests that the informational benefits of duality often outweigh the ethical risks.
Breaking down the data revealed why some firms prefer CLO duality. Companies with more independent directors were more likely to combine the roles, perhaps because independent boards can better oversee management. In these cases, the legal expertise of a CLO is more valuable than a separate CS.
The flip side
On the other hand, companies where the CEO is also the board chair tended to separate the roles, showing that existing ties between the board and management influence this decision. Larger, older companies and those with high stock-market returns also preferred separation, likely due to their complexity.
Industries with higher litigation risks, like technology and retail, leaned towards separating the roles, highlighting the impact of industry-specific risks.
Many in the corporate governance community are now advocating for the CS to be a standalone position to reduce ties between management and the board. However, there is no one-size-fits-all solution. When done right, duality can offer significant, though not immediately obvious, benefits.
