Canadian Lawyer InHouse

Feb/Mar 2010

Legal news and trends for Canadian in-house counsel and c-suite executives

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MANAGEMENT By Daryl-Lynn Carlson Mitigating Risk management is always a primary concern for in-house lawyers, and in a time of stretched resources and greater scrutiny from regulators, limit- ing exposure to liability can be difficult. One way to reduce liability and expo- sure to risk is through the creation of a board-performance monitoring system to make sure best practices are being followed. The topic was canvassed as part of a recent conference in Toronto on Managing the Liability Risk of In-house Counsel hosted by Bennett Jones LLP. Lynn Korbak, general counsel for Morneau Sobeco Income Fund, explained her company's board-performance mon- itoring system. Implementing a board performance monitoring system didn't naturally fall under her role as general counsel, yet she was able to facilitate a process designed to enable the com- pany's eight-member board of directors to optimize its expertise and offset its liability risk through the approach she designed. For colleagues who may be involved in developing a monitoring system for their board, she says they first need to select what she refers to as a "sponsor": 30 • FEBRUARY 2010 risks New rules, tighter budgets can mean greater exposure to liability. an individual such as the board's chair or lead director, who will be closely involved in developing the system. The next step is for corporate counsel to get the board to identify the moni- toring system's objectives. "You have to ask them what they want to get out of this," she says of a monitoring sys- tem, designed to enable board members to provide feedback and comments on company issues in a candid, but confi- dential, way. In-house lawyers must also be able to recognize the "culture" of the board, whether it's "formal" or "casual," and also whether there are any new members who don't know each other. She helped institute a questionnaire for Morneau Sobeco Income Fund board members including questions on their percep- tion of governance and corporate issues within the company. The questionnaire is ultimately followed up by a one-on- one interview with the lead trustee, at his or her office, so any questions or concerns over responses to the question- naire can be obtained in confidence. Following the questionnaire and interviews, Korbak emphasizes the need INHOUSE for the board — largely at the behest of corporate counsel — to fol- low up on the findings and initiate means to resolve any problems raised. "You have to be consistent in creating your assessments and track the results if you want to be able to see success over a longer period of time." Implementing an assessment moni- toring process is particularly advanta- geous for boards that may be relatively dysfunctional. "You may want to see if the assessment can address the board composition and ask if the quality matrix is being met," Korbak says. In the event of a problem, outside counsel should be brought in. "If you feel like there are some systematic issues or a cancer running through your board, you may need to do an externally resourced assessment with an expert who can ask a lot of probing questions in a confidential manner and come up with solutions. If the board is functioning effectively, you really don't need to hire an expert and can stick to [an] internal approach," Korbak says. Corporate counsel should seek

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