A new working paper by a trio of finance and law academics argues that the benefits of appointing a company’s lawyer to its board of directors far outweigh the costs, not only because the lawyer-directors lower certain enterprise risks, but also because they boost the overall value of a company by nearly 10%. “Our results tell us that, on average, a lawyer-director increases firm value by 9.5 percent, an increase that rises to 10.2 percent when the lawyer-director is also a corporate officer,” say the authors of Lawyers and Fools: Lawyer-Directors in Public Corporations. By managing litigation, regulation, and management compensation, the on-board lawyers take firm risk-taking down to more efficient levels. Perhaps this explains why, over the period the paper studied (2000 to 2009), the percentage of public companies with attorneys on board nearly doubled.
The authors’ findings “fly in the face” of conventional corporate wisdom that only “foolish” boards would accept their attorneys as members, for fear of any conflict of interest or loss of independence. In fact, their results suggest that, overall, an “ideal” board should reflect external circumstances particular to each firm and fill any substantive gaps in management. “Our intuition is that a lawyer-director brings a special perspective based on her training and experience with the law and legal issues and an appreciation of doing things ‘by the book’ that likely comes with it.” The result is greater firm value, based not on a director’s independence, but on his or her specific skillset and experience.