The role of legal counsel for organizations and boards varies wildly depending on the situation, but in all instances provides a valuable resource for companies at every stage of evolution.
In the episode, Eric Dale – who has served as a legal advisor in many capacities for a wide range of companies – discussed the important, often critical. Role that a company’s legal advisor can plan.
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The General Counsel role, whether it’s as inside or outside counsel, can add a tremendous amount of value as a company is making the transition from founder-owned and operated to founder significantly owned and operated, but having third-party capital and new partners in the business.
Nielsen is New York Stock Exchange company and while I was there while it operated in about 106 countries, had approximately 47,000 employees and its peak enterprise value was approximately $28 billion. My role included making sure that items that fell into my purview – legal, risk, compliance etc. to the extent they were worthy of getting on the board agenda, got on the board agenda.
I don’t want your listeners to think that when a company is smaller, there is materially less formality. I would rather leave them with the idea that as companies get bigger, both the materiality of the issues, the magnitude of the issues, and often, although not always, the complexity of the issues are such that it just requires an additional layer of activity and oversight.
Board minutes like contracts will largely be reviewed with the benefit of hindsight, so no one is looking at them unless and until there’s a problem. And once there’s a problem, if they’re inconsistent or if they provide fodder for misinterpretation or multiple interpretations, you run litigation risk.
As companies scale, generally the role of the board becomes more formal. I think that’s actually a good word and a good concept to use. There is certainly regular communication with the board or individual board members between board meetings in all companies with which I’ve been involved.
But when you’re dealing with a large multinational company, there are just a significant number of, not only issues, but things to consider whether it’s the global nature of the business, NASDAQ or New York Exchange rules, and a variety of other issues that can have a major impact.
For instance, one of the issues we were always focused on was antitrust. Nielsen was a very big player in the markets that it served. It was also a very transactionally oriented business, regularly buying and selling companies, and in doing that analysis there’s always an antitrust or a competition analysis that had to be undertaken. The board cared deeply about that, and some of those issues, if not existential, could certainly be very material to the ongoing business and operations. The formality in terms of making sure every “t” was crossed and “i” was dotted was critical to make sure that the board got the best advice that it could in order to make the decisions that it ultimately needed to be made.
My own view, and again, listeners need to think about this through the lens through which I’m speaking – I don’t see a lot of downside to it having an attorney in the room who can call balls and strikes or make sure things stay within the appropriate lanes, and who can put minutes together that will reflect what minutes ought to reflect.
Bankwell Financial Group
When I got involved, it was a private $250 million bank, kind of a community bank. We’ve grown since I’ve served on the Board to about 10 or 11 times, or just under $3 billion now.
The banking business is a highly regulated, highly complex business. The fundamental business of taking in money at X and loaning money out at X plus it is not that complicated, but the machinations that go into that are very complicated.
For our bank there are two regulatory bodies. One is NASDAQ but in addition regulated businesses like banks are audited by their regulators very frequently, usually annually, sometimes every other year. There’s always an audit of some sort going on in addition to the traditional financial audits, and there are things that regulators want to see and expect to see on which we are focused.
It’s important to recognize that a public company will have at least three committees: governance, compensation, and audit, all of which require appropriate expertise. For example, Audit requires a financial expert, so you want to make sure you have at least one financial expert. That’s a defined term within the SEC, but it’s basically someone who has been a financial executive, like a CFO, or has overseen financial executives like a CEO or someone who comes out of the financial industry, such as an auditor or someone with that type of background.
Separate Risk Committee
As we think about taking on more risk in particular at our bank, that usually is a full-board conversation, not just a committee conversation.
Risk is a very broad topic in every business and certainly in banks, and so we think about that in the context of where technology would then sit. There are a number of factors to consider in determining whether there should be a separate board risk committee.
For example, is technology a proactive thing or is it a risk thing, other than cybersecurity and privacy, etc.? We have established a separate a Technology Committee but have left non-technology risk within the domain of the Audit CommitteePerhaps as our bank and other institutions scale, then it could make sense at some point in time to break risk out. Right now, we’ve examined that, we’ve considered it, and we’ve concluded that risk sitting within audit works for us, and we feel like we’re managing it effectively.
Joe: [00:00:00] Hello and welcome to On Boards, a deep dive at what drives business success.
I’m Joe Ayoub and I’m here with my co-host Raza Shaikh. On Boards is about boards of directors and advisors and all aspects of governance. Twice a month, this is the place to learn about one of the most critically important aspects of any company or organization: its board of directors or advisors, as well as the important issues that are facing boards, company leadership and stakeholders.
Raza: Joe and I speak with a wide range of guests and talk about what makes a board successful or unsuccessful, what it means to be an effective board member, the challenges boards are facing and how they’re addressing those challenges, and, how to make your board one of the most valuable assets of your organization.
Joe: Our guest today is Eric Dale. Eric is Vice-chair of the Board of Directors of Bankwell Financial Group, [00:01:00] a publicly-traded company. He served as global Chief Legal Officer and Chief Risk Officer for the Nielsen Company, a publicly-traded company, which is an international leader in audience measurement, data and analytics, helping to shape the future of the media.
Raza: He’s also a former partner of Balance Point Capital Partners, a private equity firm, and served as General Counsel and SVP of Corporate Development for e-Media a PE-backed e-commerce streaming company.
Joe: And he was a longtime partner at the law firm of Robinson & Cole, where he chaired the Business Transaction Practice during which, for a few years, he was my law partner. Welcome, Eric, thanks so much for joining us today at On Boards.
Eric: Thank you very much. Great to be here.
Joe: In addition to being my former partner, and one that I actually liked, you’ve served as general counsel and [00:02:00] outside general counsel to a wide variety of companies.
Let’s dive in by talking a little bit about the roles in which you’ve served and what responsibilities you had, and then we’ll talk more generally about the role of legal counsel with respect to a company’s board of directors.
Let’s start with e-Media, which I realized was a while back, but you were general counsel of a VC-backed tech company in the early 2000’s. What was that like? What was your role with them?
Eric: Yeah, I’m happy to talk about that, and again, thanks for having me and Raza, I wish you luck as a partner of Joe’s here and I know what it’s like.
Raza: Yeah, he is also a partner that I actually like.
Joe: Well, we’re not editing that out. I’m telling you right now
Eric: I was at e-Media in the late 90’s and early 2000’s, kind of the tail end of the dotcom bubble. I joined the company as its first and only general [00:03:00] counsel, and I was responsible for corporate development, which, in that context was primarily acquisitions and capital raising and ultimately disposition of the business.
While I was there, I built a small legal department. I think we had four people in total, including myself, and we raised $27 million in our first round, which back then was a lot, it may not seem like a lot in today’s dollars, but back then that was a significant round with blue chip investors led by Summit Partners and with Goldman Sachs and Vulcan Ventures and EMC and Microsoft in that regard in addition to the kind of day-to-day responsibilities, certainly there was extensive board involvement. In fact, we went from being a founder-owned company to a venture-backed company at that point, which is when we essentially put together a real board for the first time, and so kind of helping the team understand that transition and getting into a company that had real third-party capital and real governance and reporting obligations were part of the role.
Joe: I assume you [00:04:00] attended all the board meetings. Is that right?
Eric: I did. I attended all the board meetings. That’s correct.
Joe: When you attended the meetings, talk a little bit about in a company like this, what were the types of things that you might be responsible for addressing?
Eric: It was a pretty broad variety, from the most basic, meaning, how do you put together a board agenda? The founder and CEO also chaired the board back then and really had a board or a couple of partners and they worked in the business so they were engaging on a daily basis.
This was the transition to having that, but also having folks who came in and out of the business on a monthly or quarterly or periodic basis, and so it was everything from putting materials together, thinking about what the agenda should look, communicating with investors between board meetings to understand what was on their mind to make sure that that filtered into the agenda, coming up with the right construct of forms and models, so that financial package and the operating package had a look and feel that was [00:05:00] understandable, that was consistent with the materials that we showed to the investors as we were out raising capital making sure they were getting what they needed.
Joe: Yeah, you know, it’s funny because you would think that a newly-formed company like that might not necessarily have as much for a general counsel to do, but in fact, there’s probably in some ways more to do because they’re just starting. As you pointed out, the CEO or chairman of the board had never really done this job before, so some of that responsibility fell on you Were they open to hearing from you and to following your advice?
Eric: Very open. Remember back in the dotcom days, founders and CEOs tended to have less experience than one might typically think of CEOs. They were younger folks. I had a handful of years of age and experience and certainly corporate governance experience on the founders. They had experiences that I didn’t have certainly, but in this regard, I was really able to bring some expertise and some perspective that they just hadn’t had an opportunity [00:06:00] to develop in their career. The general counsel role, whether it’s inside or outside, they can have tremendous amount of value as a company is making that transition from founder-owned and operated to founder significantly owned and operated, but having third-party capital and new partners in the business.
Joe: Good. Let’s jump to the other end of the spectrum, which is your role as general counsel at Nielsen Company. Tell us a little bit about Nielsen in terms of its scope and then some of what you were responsible for there.
Eric: Sure. You referenced it as the other end of the spectrum, so on one hand, you have a dotcom startup, which had, let’s say, low eight figures of revenue although much higher enterprise value at least at certain moments in time.
Nielsen on the other hand, is more or less a household name. It’s kind of an iconic company. While I was there, it had two primary businesses within the Nielsen umbrella, one related to media and people are generally familiar with ratings, and the other related to consumer products where Nielsen essentially [00:07:00] invented the concept of market share and is engaged by clients around the world to go out and understand how they’re doing on an absolute and on a relative basis.
Nielsen operated as a New York Stock Exchange company. While I was there, it operated in about 106 countries and had approximately 47,000 employees, a very mature company, had been private equity-backed most recently before it went public, and so it had that experience in the relatively recent past, and during my tenure there, it had peaked its enterprise value for approximately $28 billion.
During my time there, it was only a few years ago, but the company has gone through massive transition. Since then, it has spun off into a separate private equity-backed company, the CPG business, the consumer products business that I referenced and the media business, the final chapter hasn’t yet been written on it, but it looks like that’s going to go private, at least it’s in the process of negotiating, potentially they’ll go private transaction. All of which is the public domain, of course. Now, it’s now two separate companies, one, the CPG, and [00:08:00] one, the media business.
From a governance perspective and a board perspective, I attended all the board meetings during my tenure there. I’m not a member of the board, of course, but I was part of a handful of senior management that attended board meetings, the CFO, the CEO, myself, and then other operators would come in and out depending on the agenda, and also helping set the agenda was part of my responsibility, although I’d say the CEO and CFO took much more active role in that in Nielsen as the chairman of the board, who is an outsider who is sophisticated person from a board governance point of view.
My role included making sure that items that fell into my purview, legal, risk, compliance et cetera, to the extent they were worthy of getting on the board agenda, got on the board agenda. The general counsel of the company also generally represents the company, which usually includes the board. There can be [00:09:00] instances where the board requires its own counsel and its own advice, then the board will usually seek independent counsel in those contexts. But at a board meeting, the general counsel’s role includes advising the board. There are many instances where there is advice given there on fiduciary duty issues, which is always a big issue for boards of any size as well as other issues for sure.
Joe: One of the things we talked about when we spoke last week was preparation for the board and running the board was done with a lot more, I think the term you used, formality than with other companies that you’d worked with. Let’s talk a little bit about what that means and why that is.
Eric: Yeah. I think as companies scale, generally the role of the board becomes, I’d say, more formal. I think that’s actually a good word and a good concept to use. There is certainly regular communication with the board or individual board members between board meetings in all companies that I’ve been involved with. I think that’s part of a board’s role [00:10:00] and certainly committee chairs’ roles on boards.
But when you’re dealing with – while I was there, Nielsen was an SP-500 company – a large multinational company, there are just a significant number of, not only issues, but things to consider whether it’s the global nature of the business, whether they’re NASDAQ or New York Exchange rules, other companies may have NASDAQ rules as well as all the kind of key business issues for Nielsen.
For instance, one of the issues we were always focused on was antitrust. Neilsen was a very big player in the markets that it served. It was also very transactionally-oriented business, regularly buying and selling companies, and in doing that analysis, there’s always an antitrust or a competition analysis that had to be undertaken and the board cared deeply about that, and some of those, if not existential, could certainly be very material to the ongoing business and operations, and so the formality of it in terms of making sure every “t” was crossed and “i” was dotted [00:11:00] was critical to make sure that the board got the best advice that it could in order to make the decisions that it ultimately needed to make.
And often, these are judgment calls. It goes back to the business judgment rule. These are judgment calls that the boards need to make and boards are well served, of course, to be able to make those judgment calls with the best information available. That’s not to say that those rules don’t apply in smaller companies, but smaller companies generally have less of a breadth of issues that they need to contend with, and so kind of what I would say the formality is still often there, and I’m sure we’ll talk about it at some point during this call, but for instance, I’m on the board of Bankwell as you noted, I’d say our agendas and our board materials, they are very robust, and I know that management takes a lot of time putting those together with the input of the board.
I don’t want your listeners to think that as a company is smaller, there is materially less formality. I would rather kind of leave them with the idea that as companies get bigger, [00:12:00] both the materiality of the issues, the magnitude of the issues, and often, although not always, the complexity of the issues are such that it just requires an additional layer of activity and oversight.
Joe: Well, it’s also true that the possibility of litigation is higher in a public company so that probably drives some of this as well. Am I right about that?
Eric: Yeah. If you think about where litigation comes from, I think the kind of litigation you’re referring to is shareholder litigation, and when you’re thinking about shareholder litigation in a public company, you don’t really know who your shareholders are. You may know one, two, or half dozen of the big institutions’ stakes in most companies, but you’ve got a lot of retail shareholders or small institutional shareholders that you have very little interaction with. Whereas in a private company, you know who your shareholders are. And frankly, most of them, at least if they have a significant stake in the business, will have representation on the board. While there’s a risk of shareholder litigation in private companies, it’s a much, much lower [00:13:00] risk, whereas in the public company environment, given the nature of these shareholder bases, certainly the risk of litigation is greater.
Joe: The last thing I want to touch upon is the role that you’ve played as outside general counsel when you were in private practice. That was a significant part of your practice, I think, for a long time. How many company board meetings did you attend? When did you attend them? What was your role like for those clients when you served as outside general counsel?
Eric: Typically when I would serve as outside general counsel, there’d be two contexts. One would be the company is usually a growing company. It might be in kind of a couple hundred million dollar revenue type business. They don’t have inside counsel and so they really relied on, I’ll say, me in this context or the firm that I was connected with to be their general counsel.
The other is they may have inside counsel, but they’re not corporate governance types or corporate transactional types. Maybe they’re commercial lawyers because there’s a lot of [00:14:00] contract work that the company has, or maybe the company’s very IP oriented so they have patent lawyers but they’re specialists in an area that’s not necessarily applicable to corporate governance.
Contextually that’s when I would typically get involved in the role that you’re describing as outside general counsel. Some of them were proactive in asking me to attend their board meetings. In other instances, I kind of would suggest to clients, particularly based on what might be going on in their business at any moment in time, that it would be in their interest to have me attend, and often when I started to, they just asked me to continue to come to attend their board meetings.
That’s the context in which it would typically occur. My own view, and again, listeners need to think about this through the lens through which I’m speaking, but I don’t see a lot of downside to it having someone in the room who can call balls and strikes or make sure kind of things stay within the appropriate lanes, and frankly who can put minutes together that will reflect what minutes ought to reflect. It may not reflect what minutes [00:15:00] ought not reflect, I think, is valuable to companies and boards.
Often issues would come up, not always, but often issues would come up that aren’t necessarily on the agenda. Conversations are free forming. That could have a legal implication in having someone in there who’s able to either address it on the spot or be able to get back to them quickly, I think it adds value to companies, to the boards as they make decisions.
Raza: Eric, you’re vice-chair of the Board of Directors of Bankwell Financial Group. Tell us a little bit about the bank.
Eric: I’m happy to. I’m glad you raised it. I’ve been working for the bank and on the board for over a decade, upwards of 14 years at this point. When I got involved, it was a private $250 million bank, kind of a community bank. We’ve grown over the period I just described to about 10 or 11 times, or just under $3 billion now.
We’ve gone public, we’ve done a couple of acquisitions. It’s been a really interesting run from a lot of perspectives. The banking business is a highly [00:16:00] regulated, highly complex business that the fundamental business of taking in money at X and loaning money out at X plus it is not that complicated, but the machinations that go into that are very complicated. It’s been a great learning experience for me and hopefully an opportunity to contribute to the bank given my background.
Raza: That brings the question for highly regulated companies such as a bank. What are the differences in a board’s focus or the boards being operating as a bank board? What are some of the key differences that you’ve seen?
Eric: I think with any regulated business, there’s another set, there’s another constituency that the company needs to consider. Typically, the company considers your standard constituencies of your shareholders and your employees and the community you serve, your customers. Now you have the regulatory overlay here.
Really there are two regulatory bodies. One is the NASDAQ and then you have regulated businesses like banks are audited by their regulators very frequently, [00:17:00] usually annually, sometimes every other year, but there’s always an audit of some sort going on besides the traditional financial audits, and there are things that regulators want to see and expect to see that we are focused on not to the exclusion of the core business, which is management’s primary responsibility.
But regulators have expectations about kind of how a bank operates and what it shows to their board and what the board considers and much of which has to be reflected in minutes, and regulators will come and review the minutes. In addition to our regular board, what I’ll call our regular non-bank board, discussions were regularly considering items that we know are important for the bank to consider, but also important for the regulators to make sure that we’ve considered.
Frankly, those usually dovetail, there are often items that board would be addressing anyway and so part of that is making sure we’re addressing those items, but [00:18:00] another part is making sure we’re reflecting those in our minutes so that the regulators can see that we are, again, our fiduciary responsibilities.
Now, you took the bank public about eight years ago, you alluded in one way that became another subset of the constituents that you need to pay attention to as a board. What about the board composition before going public or after? Like what were the attributes that you wanted the board to have maybe right before going public or after going public in terms of the board’s composition?
That’s a great question and one that since I’ve been on the board, we continue to give a lot of thought to. We had the good fortune of having, I’ll say present company excluded, a very strong board, really, really smart, motivated, experienced people who had had and have a kind of interesting and diverse set of professional backgrounds, and that’s always been important to us. Bank boards have the standard committees of governance and governance laws and audit and compensation. We also have a series of [00:19:00] other. committees which include technology and ALCO, assets and liabilities. We have a loan committee. We have a CRA committee, which is a committee that’s unique to banks, and others.
In each case, we want to make sure that we’ve got people who have the right expertise in those areas, and frankly, the right amount of time to devote to the bank, which is important. Bank boards are very active. It’s not simply a quarterly meeting so we’ve always thought about those things.
We’ve also thought, since inception, certainly more and more in recent years, about diversity on the board, not just diversity of experience, which is something we’ve always considered, but also other forms of diversity, whether it’s racial diversity, ethnic diversity, gender diversity, etc. That’s something that the governance committee, which I’ve used to chair and I’m still a member of along with the chairman and, and the CEO, have spent a lot of time thinking about how to expand with some success, but we’re hoping our future success is even better than our past success.
Joe: If you were advising a board that was going to take its company [00:20:00] public, what things would you be specifically advising them to make sure they had on the board by way of skills or expertise or whatever other attributes you think would be important other than just the normal, of course, you want strong board members with a diverse perspective, but other than that, what specific things might be helpful?
Eric: Well, you’d need to recognize that a public company will have at least three committees and those three committees are going to be governance, compensation, and audit. Audit requires a financial expert, so you want to make sure you have at least one financial expert and that’s a defined term within the SEC, but it’s basically someone who has been a financial executive, like a CFO, or has overseen financial executives like a CEO or someone who comes out of the financial industry, such as an auditor or someone with that type of background.
There’s a specific definition, as I said, in the SEC, so you’re going to want a financial expert given that there’s a committee with someone who has got some compensation experience, designing plans, understanding what those plans look like I think adds value. [00:21:00]
Now, that’s a little less specific than the financial expert. There’s no stated defined requirement of that type of person, and a lot of executives have been around compensation plans, so I think that’s slightly easier to find, but someone who understands that will be important.
Then on the governance side, same thing. You don’t need to be a governance expert, but someone who’s had some governance expertise and experience. That could be someone again who’s been a CEO, of course, or frankly lawyers do fit that box pretty well, although some boards think that that can be a hired skill as opposed to one that needs to be on the board. I’d say those are a few of the key things that a company ought to think about.
Now with that said, and again, diversity is a big issue these days. These days, I think people putting the board together should absolutely be considering diversity of the contributional kind, not just experience, but gender, ethnic, LGBTQ, et cetera, racial. I think having that on your board is, and it’s going to continue to be [00:22:00] important.
I think CEOs benefit from having CEOs on boards. People will joke that the CEO job is a lonely job or it’s lonely at the top, however you want to think about it, so having other folks who have had similar lonesome experiences, I think can be helpful to CEOs.
And then lastly, there may be more if I thought about this longer, but some industry expertise is helpful. While it’s helpful to get some experience outside of the industry, having one or two people on the board or some number of people who understand your industry, I think, is useful.
I said that was lastly, but I’ll throw one more out there. It’s very difficult these days to find a company in any industry that’s not also a technology company. Technology is involved with every business. Banking is no exception, so having someone who understands technology and kind of how businesses use technology, how they can benefit from technology, how to assess vendors, how to understand what integrations look like and the implications of things that can go wrong when you switch vendors and things like that, I think are very important .
Raza: Eric, coming onto [00:23:00] the bank’s board, is there an onboarding process because it sounds like there’s more formality, more things to think about and more things to consider. Do new bank board members go through an onboarding process?
Eric: I think our onboarding process has continued to be enhanced over the years and I expect it will, and I’ve seen that in other companies, in other banks and non-banks. Yeah, there is an onboarding process, so we have a documentary element to it where they’ll see our policies and practices and manuals and things like that. There is a meeting with board members. Typically, the chairman, usually myself and the chair of the governance committee, will talk about the culture of the bank, the business of the bank, where it’s been, where it’s going, our vision, et cetera.
Others may be involved in that conversation as well, and then there’ll be a series of meetings with the executive team, different team leaders who will describe what their roles are in the bank, essentially what they do and how it works.
At a high level I’d say those are the three prongs of the [00:24:00] onboarding, and then some directors are a little more proactive or have more questions and will get those answered, and then once one starts attending board meetings, reads the materials, sees the agendas, hears the discussion I think that frankly, like in some other parts in life, there’s nothing like actually rolling up your sleeves and just getting in there.
Raza: Another aspect to cover about, you mentioned a bunch of the committees that are in addition or extra in bank boards. How do you view a separate risk committee for a bank’s board? Or is that the norm or is it part of the audit? How have you guys seen it?
Eric: Yeah, it’s a great question, and it’s one that we’ve debated. At this point there is a chief risk officer on the operating side of the bank certainly, which is a standalone function. Risk currently reports to audit, so audit kind of has a traditional financial audit branch and then the risk branch.
Risk is a very broad topic in every business and certainly in banks, and so we think about that in the context of where would [00:25:00] technology then sit. Is technology a proactive thing or is risk thing, other than cybersecurity and privacy, et cetera? Perhaps as our bank and other institutions scale, then it could make sense at some point in time to break risk out. Right now, we’ve examined that, we’ve considered it, and we’ve concluded that risk sitting within audit works for us, and we feel like we’re managing it effectively.
Raza: At the least, I think the way you described it, that the audit has the traditional function of looking backwards of what happened, what has happened, and risk has this notion of looking forward of what might happen and also in the positive context, what are the risks worth taking and is the organization taking enough risk for the shareholders to reap some benefits, or at least maybe there’s this mental separation of those two functions within the audit committee.
Eric: I think that’s a fair summary, and I also think that as we think about taking on more risk in [00:26:00] particular at our bank, that often is a full-board conversation, not just a risk committee conversation.
Joe: Eric, when you served as chief risk officer for Nielsen, what were the responsibilities that that role entailed that were different from serving as their general counsel?
Eric: I characterize it as a member of a whole bunch of teams. We had a privacy team and that was at a time while I was there, the GDPR was starting to bubble up. It was implemented during my tenure there, but it was becoming an issue beforehand and Nielsen was a big data company and so it had potential privacy issues that needed to be addressed. We looked at major transition in our technology services provider and we understood there are a whole bunch of implications to that, some of which was on the risk side, and those are just a couple of examples.
As chief risk officer, I remember my team, usually depending on the issue, would be part of a team of people who were looking at the issue, and so my job was, A, to make sure people knew I was [00:27:00] there in that role because the risk team was not a big team, it was not a bank, knew I was there, knew that this function needed to be plugged in to your kind of risk-type items.
It wasn’t difficult because my role in the company, I had a real finger on the pulse of what was going on, but still teams needed to know that risk needed to get plugged in the things that they were considering, and then participating in those initiatives from a risk perspective, thinking about things that could go wrong, how to mitigate it.
Joe: Eric, one of the things you mentioned earlier was that the general counsel represents the company, but as you also mentioned, there are times when the company, the board and management, may not actually be aligned. In what kinds of situations does that arise and what are the appropriate ways to address it?
Eric: It could arise in a number of instances. Examples could include, in a private company context and potentially public company context where there are private investors, kind of analysis of some of those documents, some of the [00:28:00] investment documents and understanding the rights of the different players, and you can have instances where certain investors may have rights to appoint people to the board, and there could be a dispute as to terms and conditions around those documents, not just the appointment but other rights, so you could see a conflict between the company, the board and certain individual board members in that context.
There have been instances, Nielsen is an example of this, where there were activists and an activist might raise certain issues around how the board is behaving or how certain board members are not behaving and fulfilling their responsibilities, and while that could create alignment or not necessarily cause misalignment between the company and the board, it could be a situation where the board might want to have its own counsel separate from the general counsel.
By the way, even in that context, typically those engagements are by the board as contrasted to by the company, but I’ve also seen companies where you just want an [00:29:00] outside counsel, not necessarily your in-house legal team to be advising so it could still be company counsel, but the company would engage a separate outside counsel to advise on a particular issue.
That may be, as I said, engaged by the company, not necessarily by the board. There are sensitivities along the lines of these types of conflicts or arrangements that may or may not suggest that there’s a conflict, you need a separate counsel or there’s not a conflict, but you may just want an independent counsel..
Joe: You have been involved or attended many board meetings. Have there been instances during that time when you thought there was a need or you raised the need for potentially getting counsel for one of the other constituencies and you are either ignored or maybe pressured to not voice that opinion because someone didn’t want another attorney in the room?
Eric: Yes and no.
Meaning, yes, there have been instances where I’ve identified actual or potential [00:30:00] conflicts and no once identified I’ve never been in a situation where that’s met resistance. I’ve had the good fortune, even in smaller businesses, to deal with sophisticated parties and they certainly don’t want to cross the line and more often than not, they don’t even want to get too close to it.
They recognize that the risks associated with that are greater than the costs of maybe a little bit of time and maybe a little bit of money in bringing into separate counsel, but if there’s a record and it doesn’t have to be in minutes, although it could be, and it probably would be in the context you’re describing that something was raised and was rejected. But even if it was just a discussion item, no one wants there to be a record of going against advice of counsel, particularly when it’s in a material matter and these types of issues tend to be material.
Joe: Yeah, that makes perfect sense, so that leads me to my question about board minutes. When we talked earlier, you said basically you subscribed to the [00:31:00] philosophy that “less is more” when it comes to the minutes of board meetings. Talk a little bit about why that is and what it means and how it may be different for public companies, private companies, and in your case, the bank board, highly regulated companies.
Eric: Yeah. I do believe that less is more, I think minutes need to reflect what was discussed and that there was a discussion, assuming those are true statements. But I don’t think they need to be scripts or transcripts. I don’t think they need to be Raza said this and Joe said that and Eric replied this, and I’ve seen minutes drafted that way.
That is a dangerous recipe for lots of reasons. It makes a reader wonder, “Well, what were the other board members doing? What did so and so mean by this comment?” I’ve also seen instances where minutes are fairly innocuous and then there’s a topic that’s complicated and that really gets a lot of board attention and all of a sudden there’s a mini transcript of that discussion.[00:32:00]
I think that’s very dangerous to a board because people kind of wonder why you’re spending so much time there or why time wasn’t spent in other topics, so I think you want consistency in board minutes. You want to be able to communicate what was discussed and if there was a resolution, what that resolution was and then move on.
I think the other item I’d note here is that board minutes like contracts will largely be reviewed with the benefit of hindsight, so no one is looking at them unless and until there’s a problem. And once there’s a problem, if they’re inconsistent or if they provide fodder for misinterpretation or multiple interpretations, you run litigation risk.
As an advisor to companies, I’d like them to be able to avoid or minimize litigation, which is another reason to keep minutes as short and simple as possible. Again, they need to be reflective of what occurred, but not necessarily more.
The second part of your question as it relates to regulated businesses, further at the earlier part of our discussion, there were things that boards need to [00:33:00] do in regulated businesses that they may not need to do, topics that they need to address more specifically to satisfy the regulators, and so you want to make sure that your minutes reflect the fulsome discussion that actually occurred in those areas, and there I’ve seen minutes that are more robust and comprehensive.
Although there are lines, even in the regulated industry segments, that I think you don’t really want to cross and so you never want to get into that transcript mode and you never want to have outlying sections of your minutes because it happens to relate to a regulated item, take up two pages and then have four other agenda items take up one page and in the aggregate, it doesn’t feel right. There’s some experience and expertise and some judgment that needs to go into putting minutes together.
Joe: Yeah. Thanks. I said to Raza before the show it seems like it could be a boring topic, but it is so important to have good board minutes, not just for the avoidance of litigation or [00:34:00] liability, but just to keep track of what you’re doing and what you’re not doing, and I don’t really think a board can function as effective as it should without good minutes.
Raza: Joe, as I mentioned to you and Eric, when we invest in a company we often recommend as a best practice, the less is more philosophy for minutes, but we also give them a tip saying, “Hey have your law firm or somebody from your law firm do it.” Often they are very happy to do it just so that they’re in the boardroom as well and be able to look for anything that they can help with for these upstarts and startups.
Joe: It’s not the right place to try to save a few dollars.
Eric, it’s been great speaking with you today. Thanks for joining us on On Boards and thank you all for listening to On Boards with our guest, Eric Dale.
Raza: Please visit our website at OnBoardsPodcast.com. That’s OnBoardsPodcast.com. We’d love to hear your comments, suggestions, and feedback.[00:35:00]
Joe: Please stay safe, take care of yourselves, your families, and your communities as best you can. We hope you’ll tune in for the next episode of On Boards. Thank you.