Executive Lawyers: Gatekeepers or Strategic Officers?
48 Pages Posted: 22 Jul 2014 Last revised: 1 Sep 2016
Date Written: August 15, 2016
Lawyers now serve as executives in 44% of corporations. Although endowed with gatekeeping responsibilities, executive lawyers face increasing pressure to use time on strategic efforts. In a lawyer fixed effects model, we quantify that lawyers are half as important as CEOs in explaining variances in compliance, monitoring, and business development. In a difference-in-differences model, we find that hiring lawyers into executive positions associates with 50% reduction in compliance breaches and 32% reduction in monitoring breaches. We then ask whether firms’ optimal contracting of lawyers into strategic activities implies less lawyer gatekeeping effort. Using a design comparing executive lawyers hired from law firms to lawyers poached from corporations, we find that lawyers hired with high compensation delta (indicative of the importance of strategic goals in compensation contracts) do less monitoring, preventing 25% fewer breaches than are typically mitigated by having an executive gatekeeper. Reassuringly, lawyers do not compromise compliance.
Keywords: General Counsel, gatekeepers, lawyers, internal governance, equity incentives, fraud, litigation, insider trading, backdating
JEL Classification: G32, G34, J33, K22, M52
Suggested Citation: Suggested Citation