Organizations with combined chief legal officer (CLO) and corporate secretary roles experienced fewer regulatory violations, paid lower penalties when violations occurred, and were less likely to face shareholder litigation and legal risks, a recent study found.
The study sought to address the debate in the realm of corporate governance about whether companies should keep these roles distinct to avoid potential conflicts of interest, said an article written by Syrena Shirley, assistant professor at Columbia University, and published by the ACC Docket.
The study provided empirical evidence supporting that combining the CLO and corporate secretary roles resulted in positive impacts to a company's legal outcomes.
According to the study, companies with dual CLO and corporate secretary roles – alongside a high proportion of independent directors on their boards – were less likely to face regulatory violations and shareholder litigation.
When violations did occur, these companies tended to pay lower penalties, research found. These results suggested that board independence played a role in mitigating the potential risks associated with merging the two roles.
The findings emphasized that having an informed corporate secretary, whose duties would generally include gathering and sharing important information with the board, could assist in mitigating firm risk.
“An enduring challenge in corporate governance is ensuring that the board is properly informed to oversee and evaluate the management team when the same managers are responsible for sharing relevant, timely, and unbiased information with the board,” said Shirley in the article.
However, the study noted a potential drawback – the dual role could incentivize the CLO to present management's legal activities in a more favourable light, which could hinder the development of effective legal strategies.
Despite this concern, the empirical evidence suggested that the benefits of combining the roles outweighed the risks, particularly when the board maintained a high level of independence.
Background and data
The Sarbanes-Oxley Act of 2002 transformed corporate governance in the U.S., including by making corporate reporting and compliance requirements more complex, with the end goal being enhanced accountability and corporate transparency. This regulatory shift heightened the responsibilities of both the corporate secretary and the CLO.
Apart from Shirley, Professors Jagadison K. Aier of George Mason University’s Costello College of Business and Justin Hopkins of the University of Virginia’s Darden Graduate School of Business, conducted the study. The Association of Corporate Counsel (ACC) recognized their scholarly efforts with its Carl Liggio Memorial Paper Competition award for 2024.
The researchers analyzed data from 1,500 U.S. public companies. They focused on the period from 2003-19 and identified instances where CLOs also served as corporate secretaries in these companies.
The researchers’ analysis revealed that 80 percent of the firms covered by the study had a combined CLO-corporate secretary role. This practice was particularly prevalent in industries such as public administration and wholesale trade.
The researchers saw a decrease in the number of companies combining these roles as the companies aged, with 84 percent of the youngest companies, namely those 0–9 years old, combining the roles. Meanwhile, only 67 percent of the oldest companies, or those 60–69 years old, did the same.
The research also looked into companies that either separated or combined the CLO and corporate secretary roles during the study period. Out of the sample, 105 companies merged the roles and 57 separated them.
The study noted that companies in high litigation risk industries, smaller firms, and those with a higher degree of board independence were more likely to combine the roles. The findings suggested that board independence complemented the dual CLO-corporate secretary role.
“Research on executive management reporting structure, especially when it comes to the CLO, is scant,” said Shirley in the ACC Docket article. “Our paper provides important insights into the role, but there is much that can and should be studied on the CLO role and its impact on company legal and ethical outcomes.”