Independent or Informed? How Combining the Roles of Corporate Secretary and Chief Legal Officer Impacts Legal Risk

Authors: Jagadison K Aier, Justin Hopkins, Syrena Shirley

Abstract

Corporate secretaries (“CS”) that also serve as Chief Legal Officers (“CLOs”) are well informed about firms’ legal risks, but their independence may be impaired as they are ultimately responsible for mitigating these risks. Accordingly, we examine the relation between firms with a CS that also serves as the CLO (“CLO duality”) and future legal issues. In various tests and settings, we find that CLO duality is associated with fewer incidents of shareholder litigation, regulatory violations, and regulatory penalties. These results are concentrated among firms with a high proportion of independent directors, suggesting a complementarity between CLO duality and board independence. We also find that firms with a combined CFO and CS issue fewer restatements. Results are broadly consistent with CS who are executive officers serving as an important information channel to the board, but only when the board is independent, and are inconsistent with recent calls to eliminate CLO duality.