Carol Hansell, one of Canada's more prominent corporate governance advisers, is leaving her long-time Bay Street law firm to found a new legal boutique specializing in boardroom issues.
The move comes amid a trend for other board advisers – including auditors and executive compensation consultants – to be independent of management and free of any possible conflicts of interest. Ms. Hansell says the logical next step is to have independent law firms whose lawyers can act for boards specifically and not for the company or its management.
"This may be the first, but it's certainly not going to be the only one," Ms. Hansell says. "I think once we get going, people are going to say, 'That does make sense.'"
Ms. Hansell's new firm will build on her 25 years of securities work – the past 20 years at Davies Ward Phillips & Vineberg – to specialize in advising boards on scandals, investigations, major deals and other governance concerns. While she has already been doing similar work at Davies, Ms. Hansell says it will be easier to take on new jobs at an independent firm.
Large corporate law firms like Davies often have numerous ties to companies from different parts of their sprawling practices and cannot accept new work that conflicts with existing clients' interests. She says the firm's wide web of clients has sometimes made it difficult for her to accept offers of board work. To make it worse, big laws firms are even concerned about potential future conflicts if a lawyer takes a small job for a company that could conflict with the firm's future business development aspirations.
"You have all sorts of resources and richness and diversity in a large firm, but it is constraining in a lot of ways," she says.
Stephen Davis, associate director of Harvard law school's Program on Corporate Governance, says he hasn't seen a significant trend in the U.S. of senior securities lawyers leaving big firms to specialize in advising boards, but said Canada's smaller number of major law firms could create more "accelerated" pressure for change.
"It's ultimately very difficult to manage a law firm with lots of potential conflicts. It makes sense to have a dedicated firm that just does this governance work," Mr. Davis said.
The University of Delaware's Weinberg Centre for Corporate Governance has recommended boards seek more independent third-party legal advice, similar to the trend toward using independent compensation advisers, says director Charles Elson.
"If you use the company's law firm, the advice hopefully is not compromised, but there is always a view that it might be," he says. "Whether it's realized or not is really kind of immaterial, as long as the concern is there. You shouldn't question the advice you're getting."
In addition to legal work, Ms. Hansell has served as a director on numerous boards, including the Bank of Canada and Royal Group Technologies Ltd. She has also written extensively on governance issues, including the best-selling governance book What Directors Need to Know: Corporate Governance in 2003.
Over the year, Ms. Hansell says she has increasingly come to believe that boards do not want theoretical governance advice, but almost always seek advice in the context of difficult business issues. It means they need more than a narrow interpretation of the law.
"Anybody can walk into a boardroom and offer [legal] subject matter expert advice, but that's not governance advice. That's the distinction we're going to try to draw," she says. "You can't get at governance as an isolated discipline. … Governance has to be in a context."
Mr. Davis from Harvard says Ms. Hansell's new venture is timely given the pressure boards are facing from shareholders to provide strong oversight for investors.
"I think we're at a moment when governance is bursting out of the boxes it has been placed in for years. It's not any longer solely a compliance exercise, and it's not just a legal obligation. … Boards really need to get a broader view when they're dealing with corporate governance."
Ms. Hansell plans to launch her firm with a small team of other lawyers, but she has hired no one yet, not wanting to begin the process before she officially resigned at Davies.
It means she is, so far, the only lawyer in her new cavernous 8,000-square-foot office in Toronto's Brookfield Place complex. But she says the room will not remain empty for long if she finds the demand she anticipates.
"I would expect this office is going to be filled up in 18 months," she says.