An examination of legal risk when the Corporate Secretary is the Chief Legal Officer

Corporate secretaries (“CSs”) that also serve as Chief Legal Officers (“CLOs”) are legal experts but face conflicting incentives. As CSs, they advise and report to the board about management’s actions while also serving a managerial role as CLOs. Accordingly, we examine the relation between firms with a CS that also serves as the CLO (“CLO duality”) and future legal issues. In various tests and settings, we find that CLO duality is associated with fewer incidents of shareholder litigation and lower regulatory penalties. These results are concentrated among firms with a high proportion of independent directors, suggesting a complementarity between CLO duality and board independence. We also find that firms with a combined CS and CFO issue fewer restatements. The results are broadly consistent with the CS serving a governance role within modern corporations.