An Analysis of Internal Governance and the Role of the General Counsel in Reducing Corporate Crime

Abstract

This chapter reviews the empirical literature on the factors related to the likelihood and detection of corporate wrongdoing, which increasingly focuses on internal governance, and examines calls to split the traditional tasks of the General Counsel (GC) between the GC and a Chief Compliance Officer (CCO) who reports directly to the Board. The reason for this is to have more independence and expertise in compliance matters than the GC’s office traditionally provides. This chapter argues that although independence is often valuable in reducing wrongdoing, in this context, it is likely to come with additional costs that may make gathering information on wrongdoing more difficult. In particular, some employees may be more reluctant to provide information as easily to a CCO than to the GC and this might sometimes result in increased wrongdoing and weaker operating performance. These deleterious effects, however, might be somewhat ameliorated by institutional and governance design adjustments. This chapter examines what factors may drive likely outcomes and finds that further empirical inquiry would be valuable and suggests some ways in which future research might engage in this inquiry.

Keywords: Corporate Governance, Corporate Fraud, Independence, General Counsel, Compliance, Information Gathering, Institutional Design

JEL Classification: G30, G34, K20, K22, K42