Executive Lawyers: Gatekeepers or Strategic Officers?
Lawyers now serve as executives in 44% of corporations. Although endowed with gatekeeping responsibilities, executive lawyers face increasing pressure to use time on strategic efforts. In a lawyer fixed effects model, we quantify that lawyers are half as important as CEOs in explaining variances in compliance, monitoring, and business development. In a difference-in-differences model, we find that hiring lawyers into executive positions associates with 50% reduction in compliance breaches and 32% reduction in monitoring breaches. We then ask whether firms’ optimal contracting of lawyers into strategic activities implies less lawyer gatekeeping effort. Using a design comparing executive lawyers hired from law firms to lawyers poached from corporations, we find that lawyers hired with high compensation delta (indicative of the importance of strategic goals in compensation contracts) do less monitoring, preventing 25% fewer breaches than are typically mitigated by having an executive gatekeeper. Reassuringly, lawyers do not compromise compliance.
We thank Andres Almazan, Shashwat Alok, Jennifer Arlen, Paul Calluzzo, Qiang Cheng, Carola Frydman, Todd Gormley, E. Han Kim, Byungjin Kwak, Ross Levine, Kai Li, Nan Li, Yinghua Li, Ulrike Malmendier, Steve Salterio, Scott Schaefer, and seminar participants at Auburn University, Harvard University, Queen’s University, Simon Fraser University, Stanford/Berkeley joint seminar, Tsinghua University (PBC School), University of Alberta, University of Amsterdam, University of Minnesota, Yale University, Econometric Society Meetings at the AEA Meetings, Canadian Law and Economics Association annual meetings, Conference on Empirical Legal Studies (CELS), NBER Law and Economics meetings, Northern Finance Association annual meetings (NFA), Singapore Management University Accounting Symposium, Washington University Corporate Finance Conference, Financial Intermediation Research Society (FIRS) Conference, Western Finance Association (WFA) Conference, China International Conference in Finance (CICF) as well as our team of dedicated research assistants, including Any Ung, Lindsay Carter, Elise Craig, Jun Lee, Erin Shin, Ahrun Thiyagarajah, and Peter Willett. We thank Blair Morrison, Chief Compliance Officer and Deputy General Counsel of BMO Financial Group for useful conversations. Wang and Wu thank Queen’s School of Business Research Program for their generous funding support The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Adair Morse & Wei Wang & Serena Wu, 2016. "Executive Lawyers: Gatekeepers or Strategic Officers?," The Journal of Law and Economics, vol 59(4), pages 847-888.