When government regulators in late July filed securities fraud charges against a former manager of Coinbase, the cryptocurrency exchange’s chief legal officer went on offense.
Paul Grewal, the Coinbase CLO, accused the Securities and Exchange Commission of overstepping in its zeal to police the cryptocurrency industry. Instead of crafting clear rules, “the SEC is relying on these types of one-off enforcement actions to try to bring all digital assets into its jurisdiction, even those assets that are not securities,” Grewal wrote in a blog post.
Coinbase’s counterattack in crypto’s battle to keep official watchdogs leashed might once have been led by a CEO or trumpeted by a corporate communications director. Instead, the point person was a JD-wielding combatant who holds increasingly significant responsibility in American business.
The out-loud public move also illustrated the new ascendancy of a corporate official who once tended to stay in a narrow lane, running the legal department.
Grewal, like other chief legal officers, is an entrepreneurial big-picture policy strategist who is uniquely positioned to carry the corporate flag as legal affairs become more prominent in C-suite operations. The CLO’s subordinate, the general counsel, plays a more hands-on role overseeing a crew of tacticians.
Speaking out
CLOs can be outspoken in different ways.
Eric Grossman, Morgan Stanley’s chief legal officer, last year dissed remote work and bemoaned “the lack of urgency to return lawyers to the office” in a memo to the heavyweight firms he hires, such as Shearman & Sterling; Greenberg Traurig; Morgan, Lewis & Bockius; Davis Polk & Wardwell; and Paul, Weiss, Rifkind, Wharton & Garrison.
Those firms risk their relationship with Morgan Stanley, Grossman suggested. Morgan Stanley declined comment.
CLOs are central to corporate management responses in an age where environmental, social and governance (ESG) issues roil boardrooms even as mounting regulatory concerns simmer.
An authority on corporate legal issues argues that both problems have shoved CLOs to the front lines.
“Certainly ESG has been a main driver, but I think massive compliance failures like GM ignition switches, VW diesel engine emissions fraud, Foreign Corrupt Practices Acts violations and the Wells Fargo customer account fraud were also key,” said Constance Bagley, the founder and general counsel of Bagley Strategic Advisors and a former business law professor at Yale and Harvard.
“Waiting until there is a violation is too late to bring in counsel. The CLO needs a seat at table from the outset.”
Change agents
Bagley cited legal leaders like Mark Roellig, the former GC of diversity and inclusion champion Mass Mutual Financial Group, as major change agents.
Bagley and Roellig collaborated with a third author on an influential 2016 article titled “Who Let the Lawyers Out?: Reconstructing the Role of the Chief Legal Officer and the Corporate Client in a Globalizing World.”
More recently, Bagley examined the chief legal officer’s role in the ESG movement in another paper.
These papers highlight the need for CLOs to be nimble, knowledgeable and attuned to macro trends.
Hot-button issues
E. Norman Veasey, a former chief justice of the Delaware Supreme Court and a co-author of the 2012 book “Indispensable Counsel: The Chief Legal Officer in the New Reality,” thinks the job has only gotten tougher.
“The prominence and criticality of the CLO has grown exponentially in the ten years since,” he said in an email. “She must constantly be aware that many business decisions or marketing strategies could have a political undertow that could result in unexpected consequences.”
Examples include Hobby Lobby Stores’ objection to Obamacare’s contraception mandate, which led to a 2014 Supreme Court expansion of religious-liberty rights. And Disney Co.’s opposition to Florida’s “Don’t Say Gay” law this year resulted in the governor’s revocation of the company’s special tax status.
Meanwhile, Coinbase brought on board several lawyers after Grewal’s hiring and ahead of its IPO last year. They could potentially play a role in the company taking its fight to the SEC.
Grewal, a former deputy general counsel and vice president at Facebook, was unavailable for comment for this story.
Regulatory compliance duties
CLOs became newly prominent after corporate scandals such as Enron, WorldCom and the subprime mortgage crisis led to the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall street Reform and Consumer Protection Act of 2010.
Those reforms compelled companies to get serious about regulatory compliance by imposing new duties on in-house counsel to report violations of the law, according to Shawn Cole, the president and founding partner of an executive search and consulting firm, Cowen Partners.
“The position has evolved and become more mainstream,” said Cole in an email, pointing out that CLOs’ prevalence in corporate America tends to ebb and flow with the economy. Currently, “the greatest economic expansion of all time with a looming recession and out-of-control inflation” has put enormous pressure on the chief legal officer.
Operating on the dark side of regulatory compliance can court corporate disaster. One business ethicist, reflecting on how Lehman Brothers’ legal department helped enable the excesses that led to the giant investment bank’s 2008 collapse, pointed to the negative consequences when the chief legal officer becomes the “Chief Loophole Officer.”
But are CLOs worth salaries that average more than half a million dollars a year?
Research from University of Connecticut business law professor Robert Bird shows that litigation costs Fortune 500 companies one-third of their after-tax profits and that well-paid CLOs increase by almost four percent the financial performance of companies that become targets of securities class actions.
Providing business guidance
Yet wisdom is even more valued. “The most important skill a CLO brings to the table is sound business judgment,” Kodwo Ghartey-Tagoe, the executive vice president, chief legal officer and corporate secretary at Duke Energy, told Reuters recently. “Legal expertise can be bought.”
Cole said he is frequently asked to replace an outgoing general counsel with a chief legal officer because companies “don’t want a corporate cop.”
Instead, “They demand dynamic, business-savvy counsel with extensive industry experience and business acumen and expect a high return on investment. The benefit is that a CLO inherently understands the core fundamentals of the business, risks as well as revenue drivers, and has a positive impact on a company as a whole—empowering company leaders to execute.”
Bird struck a similar note, saying the CLO “has become an increasingly important member of the C-suite.”
“The best chief legal officers no longer just serve as a legal advisor, but also actively participate in the strategic goals in the organization,” he said. “Effective CLOs influence policy that disseminates throughout the organization. Businesses are more regulated than ever, and an effective CLO is essential for a firm’s short-term and long-term business strategy.”
