Does a general counsel make all that much difference?

The title of an article in the Atlantic, Vol. 303, June 2009 at 54, provocatively asks, “Do CEO’s matter?” A groundbreaking study published 47 years ago found that “Industry effects,” such as the amount of available capital and the industry’s stability accounted for almost 30 percent of the variance between companies in profits. “Company effects,” such as the firm’s history in the industry, explained about 23 percent. “CEO effects” explained a measly 14.5 percent. Many scholars since then have “likewise concluded that external forces influence corporate performance far more than CEOs do,” often less than the original study. Do general counsel make all that much difference?

Some of the modest CEO effect has to do with the number of employees of a company, and the difficulty of inspiring people beyond a relatively small team. Compared to a CEO, general counsel mostly lead small teams. The article cites findings that “performance problems increase exponentially as team size [ideally, about six people] increases.”

Other researchers have found that CEO leadership matters relatively less in constrained industries, such as electrical utility industries, than in hotly competitive, fast-changing industries. A similar conclusion probably applies to general counsel: legal/business calls and tougher and more frequent in roiling industries so the top lawyer has more opportunity to make a difference.

I am quite sure that if similar studies were carried out on general counsel, their effect on the company’s fortunes would almost always be negligible, but the effect on the law department would be major (See my post of June 5, 2006 about general counsel and their influence on share price.).

The article closes with a discouraging caveat. A large “CEO effect” need not imply a positive impact. We read all about heroic corporate heads, but more than a few dunderheads have led their company down the slippery slope. Likewise, I think general counsel make all the difference in the world to the legal department, but the difference can be heaven or hell.

We welcome comments

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>