Bloomberg Law
May 11, 2023, 3:07 PM

ANALYSIS: Lawyers View Boards as Equipped for Governance

Kate Azevedo
Kate Azevedo
Legal Analyst

Companies have weathered several storms of market disruption affecting their corporate governance in Q1 2023. Additionally, the US Securities and Exchange Commission (SEC) has proposed several rulemakings that are slated to become finalized in 2023 and would impact public companies. As a result, corporate executives may have sought legal advice on various corporate governance topics quite often this year.

Bloomberg Law’s most recent State of Practice Survey delves into this and other corporate governance issues that are currently on lawyers’ minds.

Here’s what I found after analyzing the survey responses.

Lawyers Not Challenged by Most Governance Topics

Of the 802 respondents to the survey, nearly one-third reported at least occasionally working on corporate governance matters. This selection of respondents included practitioners in the areas of corporate, compliance, ESG, and securities. We asked these attorneys to select which corporate governance topics they had advised their clients on in the last year.

The prevailing choice was board of directors (70%), followed by organizational documents (65%) and compliance (54%).

A follow-up question for these survey respondents asked which one previously selected topic was the most challenging. Overall, no one topic dominated as a top challenge, but compliance (20%), shareholder issues (19%), and cybersecurity (13%) were the most often selected.

Several of the advice topics—ESG, executive compensation, and human capital management—overlap with topics in the SEC’s proposed and recently finalized rulemakings. Up to one-third of this group of survey respondents said they advised on these topics in the past year; however, most didn’t view them as the most challenging, as less than 10% indicated each as their top challenge. As the SEC rules are finalized and take full effect in the upcoming years, lawyers may advise clients more frequently on these three topics.

A similar result occurred with cybersecurity: 25% of the respondents reported advising on cybersecurity—another area of proposed SEC rulemaking—but only 13% of those who answered the follow-up question selected it as the most challenging corporate governance topic.

Legal Advice to Boards Impacted by Market Events

It’s worthwhile to view the above results in the context of how public companies were impacted by recent market disruptions in the past year.

When asked about which market disruptions affected their advisement on board of directors matters over the course of the last year, the responses varied but favored economic factors and government regulation.

The top three results were: rising federal interest rates (40%), heightened government regulation (38%), and high inflation rate (36%). Rounding out the bottom of the list were: mass layoffs (10%) and cryptocurrency market instability (5%).

Expertise Needed, but Boards are Fairly Prepared

Corporate boards may be required or highly encouraged to seek expertise in certain areas of corporate governance. Expertise has also been highlighted in proposed regulations, namely the SEC rulemaking on climate-related disclosures and cybersecurity.

When asked about which areas of expertise are necessary for at least one board member of a company to have experience the top three areas selected were: business strategy (62%), finance (61%), and risk management (49%).

Interestingly, the lawyers surveyed didn’t view the types of expertise toted in the SEC’s proposed and recently finalized rulemakings as necessary for boards of directors. Cybersecurity (17%), executive compensation (13%), ESG (5%), and labor relations (4%) came in near the bottom of the list of topics. Cryptocurrency (1%) and sales (2%) were largely ignored as areas of necessary expertise.

The survey also delved into the board’s preparation of various corporate governance topics. Overall, the survey respondents believed that the board members they advised were at least somewhat or fully prepared to address the following corporate governance topics.

With the exception of interlocking directorates, more than 50% of the lawyers who responded to this question viewed their boards under advisement to be at least somewhat prepared in all the corporate governance topics.

Specifically, the audits, executive compensation, and fiduciary duties were viewed as topics for which boards were at least somewhat prepared by more than 80% of the survey respondents. The responses of the lawyers who considered the board to be somewhat unprepared or unprepared in eight of the 11 topics were 35% or lower.

Lawyers appear to have a positive view on the current state of corporate governance, based on our survey results. But we shall see what the remaining three fiscal quarters of 2023 have in store.

Bloomberg Law subscribers can find related content on our Surveys, Reports & Data Analysis page. Bloomberg Law subscribers can find a variety of Practical Guidance documents, workflow tools, and reference materials for corporate counsel on our Corporate Governance practice page.

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