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Great advice from The Lawyer Whisperer

September 13, 2017
Question

Why would company executives want their General Counsel to report to the CFO?

answer
Julie Q. Brush

The GC reporting structure is one of the most talked about topics among in-house lawyers today. And there is no shortage of opinions on the matter. Much of the talk involves the appropriateness of the GC-CFO reporting structure as opposed to the different reasons company executives may choose this reporting structure in the first place. And while the pendulum has swung back further towards the GC-CEO report, there are company executives who still desire their CFOs to manage their legal leaders.

The default opinion for many lawyers when they encounter a scenario where the GC reports to CFO is that the executives don’t value the legal function. While this is undoubtedly true in some cases, it is not true in all of them. There are other reasons that drive the decision including:

  • The CEO travels extensively and isn’t in the office much. Hence, s/he wouldn’t be a good manager and there would be a lack of connection – which would be a detriment to the GC and the legal function.
  • The CEO has an extremely difficult personality so the GC needs a buffer, which is best served by the CFO.
  • The CEO already has too many direct reports and doesn’t want another at this point in time.
  • The CFO is a more active manager and would be more effective in maintaining a stronger relationship with the GC. There is a dotted line to the CEO.
  • The CFO wants the added report for his/her own professional development.
  • The structure of the company has many other core functions reporting to the CFO.
  • Because the CFO and GC work so closely together, that reporting structure is a more logical one.
  • The CEO doesn’t like lawyers and wants to engage with the legal function “only as necessary”.
  • The nature of the company’s legal matters does not merit a CEO report at this time (primarily related to private companies)

Whether you agree with these reasons or not, the important point to take away from this is that there can be various reasons that drive executives to choose this reporting structure other than thinking that the legal department is chopped liver.

So why does understanding this matter anyway?

As you consider future GC opportunities, and if you’re not a reporting structure hard-liner, you’ll be able to better assess whether the GC-CFO report can change once you join the company. Or, whether you’ll be able to persuade the execs in the interviewing process that a CEO reporting structure is a better way to go. Or finally, you may find the reporting structure more acceptable when weighed against all the virtues of the opportunity (because of your greater understanding as to the reasons behind it). So understanding can give you more clarity as you assess the viability of future GC opportunities.

For you hard-liners out there, the company’s reasons behind GC-CFO reporting structure won’t matter one iota. Any role where the GC reports to the CFO is a non-starter. Period. End of story. Regardless of whichever end of the spectrum you sit, knowing what makes executives tick when it comes to this issue is important and valuable knowledge to have as a legal professional. Because what you may initially perceive as chopped liver could actually end up being pâté.

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