Lawyers sitting on a board of directors

Report on session at 6th IBA Global Entrepreneurship Conference, 16 – 17 May 2022, presented by the IBA Closely Held and Growing Business Enterprise Committee

Sandeep Mehta 

J Sagar Associates, India
sandeep.mehta@jsalaw.com

Session Co-Chairs

Carlo Pavesio Pavesio e Associati with Negri-Clementi, Turin; Website Officer, IBA Professional Ethics Committee

Hugo Reumkens Van Doorne, Amsterdam

Speakers

Horacio Bernardes Neto Motta Fernandes Advogados, São Paulo; IBA Immediate Past President

Jeanine Helthuis Supervisory Director, De Volksbank, Amsterdam

Wieteke van de Kamp General Counsel, Avedon Capital, Amsterdam

Session Report

During this session, a selection of international speakers discussed the roles and duties of a lawyer sitting in the boardroom.

In many jurisdictions, lawyers sit on boards of directors as non-executive directors, independent directors or as representatives of majority shareholders or minority shareholders. A lawyer sitting on the board of directors of a company has to be considered in the context of a company having a single board of directors or a company having a two-tier system, namely an executive board and a non-executive supervisory board. Generally, a supervisory board is a connection to the executive board of the company. The supervisory board looks after the interests of all stakeholders and not only shareholders of the company. The supervisory board should be well informed and has knowledge about the company.

It is also advisable to have a lawyer on the board of directors of the company to judge the performance of the company, independently on his own for which the experience of lawyer is relevant.

The speakers discussed what duty of care, diligence and specific competence is required of a lawyer in a boardroom. The presence of the lawyer on the board of directors of the company is required to supervise the functioning of the management of the company from a legal perspective. The lawyer brings a different perspective, expertise and professionalism. Generally, the executive board of the company consults the directors on the supervisory board of the company. General counsel expects the lawyer to be a strategic partner and not only an ultimate legal expert.

The board of directors has a duty to nominate management officers, but a supervisory board does not have such a duty. The board of directors determines the objective of the company. The board of directors has the responsibility and liability for environmental laws and tax laws. In certain jurisdictions, a general counsel may have to be a member of the bar jurisdiction and therefore a professional lawyer is appointed as a board member by the company. Therefore, the selection of directors has to be done properly, especially a lawyer director. It is imperative for every company to know the issues to be faced.

The panel shared their experience on whether a dual set of (conflicting) obligations apply to a lawyer. The company should hire an independent law firm than that of the lawyer director on the supervisory board to avoid a conflict of interest. The law firm of such lawyer director cannot act due to ethical questions and/or conflict of interest. If the director has been involved with too many companies, he could be conflicted. General counsel can avoid conflict by consulting the supervisory board and advising the management board. The company has to obtain resolution of its committee approving related party transactions; resolution of the board of directors approving and disclosure in its financial statement on an arm’s-length test for the engaging law firm of a director.

The distinguished speakers debated on how to limit the liability of the lawyer director.

The liability of board members can be limited by procuring an insurance policy, however, such insurance does not cover fines, penalties, fraud or the gross negligence of the director. An indemnity can be given by a company to its director if such director is sued by an outside party. Generally, reimbursement will be made only out of insurance proceeds. No indemnity by the company would be available for a breach of duty by a director. An indemnity to a director can be provided by a shareholder and not the company.

The diversity rules are compulsory to be complied with by the listed companies and are generally followed by unlisted companies, including the appointment of female directors.

The distinguished speakers unanimously concluded that the lawyer director plays a very important role in the environmental, social and governance (ESG) matters of the company.