Executive Lawyers: Gatekeepers or Strategic Officers?

Lawyers now serve as executives in 44 percent of corporations. Although endowed with gatekeeping responsibilities, executive lawyers face increasing pressure to spend time on strategic efforts. In a fixed-effects model, we quantify that lawyers are half as important as chief executive officers in explaining variances in compliance, monitoring, and business development. In a difference-in-differences model, we find that hiring lawyers as executives is associated with a 50 percent reduction in compliance breaches and a 32 percent reduction in monitoring breaches. We ask if optimal contracting of lawyers into strategic activities implies less gatekeeping effort. 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, which prevents 25 percent fewer breaches than are typically mitigated by having an executive gatekeeper. Reassuringly, lawyers do not compromise compliance.