Legal Governance Entails More Than Ticking Boxes

allisonhushek
Feb 13, 2023
3 min read

What is the “G” in ESG?

Legal Governance Entails More Than Ticking Boxes

By Allison Hushek on February 13, 2023

Let’s start with what we know… ESG is an acronym for Environmental, Social and Governance. A company’s ESG principles are non-financial factors analyzed by investors to determine a company’s material risks and growth opportunities. ESG is here to stay. Asset managers globally are expected to increase their ESG-related assets under management (AuM) to US$33.9 trillion by 2026, up 84% from US$18.4 trillion in 2021, according to a recent PwC report (October 2022).

Governance is a broad term referring to a company’s leadership, executive pay, audits, internal controls and shareholder rights. A CFO and CLO | GC divide these duties in-house. The CFOs role in Governance is to ensure the use of accurate and transparent accounting methods; and the CLOs | GCs role in Governance is to avoid conflicts of interest and illegal conduct, ensure accountability to shareholders, and engage in the pursuit of a diverse Board and leadership team.

What most don’t know is that for Governance to have real substance – stuff that investors are interested in, it has to be more than ticking those topline boxes. It means more than keeping Board minutes or posting compliance policies and codes of business conduct & ethics. To avoid a house of cards, investors are looking for in-depth strategies adopted by in-house legal teams across the organization.

Real Governance entails more: a comprehensive organization of all systems and documents. Day-to-day internal controls set up by the legal staff are crucial to Governance success. Let’s cover the four big categories that all CEOs, CLOs and GCs should know. First, ensuring the intellectual property (IP) chains of title are in order is the top priority for every company. This includes recording the sequence of historical transfers of title with the appropriate government repository for patents, trademarks, copyrights and domain names. It also includes engaging in ongoing infringement enforcement efforts and routine marketing controls for the protection of the IP.

Second, securing written contracts with proper IP clauses for all employees, vendors and customers is critical. Having a centralized system for those contracts, including identifying who is authorized to execute contracts and who is responsible for how those contracts are managed after they are signed, is significant - even if the business is so large that it spans across multiple countries. Uniforming written contracts for core business units is key for efficient audits. Charting live, material contracts is the precursor to a smooth due diligence.

Third, implementing policies that mitigate litigation by employees | customers | vendors is vital to successful Governance. This entails more than merely issuing handbooks and securing insurance policies; it means deploying meaningful training, not only about important issues like anti-harassment, but also hosting seminars with various departments about legal issues pertaining to their worlds, implementing document retention policies (DRPs) that actually work, tracking contract rights that are well-communicated to staff and ensuring IT is utilizing cybersecurity software.

Finally, obtaining and maintaining necessary regulatory licenses is essential. It’s astonishing the number of M&As, rounds of financing and IPOs that are halted after many months of diligence because the proper regulatory licenses were not obtained or kept up after they were initially obtained. Part of this responsibility includes implementing industry-relevant legislative tracking methods to ensure that federal or state bills being drafted will not interfere with any revenue-generating business endeavors in progress.

Qualified CLOs | GCs of both private and public companies will make time to handle the daily business matters and implementation of comprehensive Governance systems and documents with the help of their in-house legal staff and outside law firms. Having authentic Governance policies in place will lead to increased valuations and shortened transaction timelines.

Playbook Law provides in-house legal consulting services from the outside in the gaming, technology, entertainment + sports industries.