Working Paper: NBER ID: w22597
Authors: Adair Morse; Wei Wang; Serena Wu
Abstract: 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.
Keywords: Executive Lawyers; Corporate Governance; Compliance Monitoring; Business Development; Equity Incentives
JEL Codes: G32; G34; J33; K22; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High compensation deltas of lawyers (J31) | reduction in monitoring breaches (G38) |
| Higher equity incentives (M52) | increase in likelihood of securities fraud (G24) |
| Hiring executive lawyers (M12) | reduction in compliance breaches (G38) |
| Hiring executive lawyers (M12) | reduction in monitoring breaches (G38) |