Q. Before leaving, our Chief Legal Officer reported directly to our CEO. Rather than keep counsel in upper management, may we eliminate the position and have our next lawyer report to a manager who works beneath our COO?

A. You may. But the demotion may degrade the importance of legal compliance within your corporate culture and cost you much more in the long run.

With few exceptions, an organization with sufficient size to employ in-house counsel would be wise to place its General Counsel in the “C-Suite” for a few key reasons:

Avoiding Conflicts of Interest
As General Counsel, the attorney is supposed to represent the interests of the organization as a whole. These duties often extend to the detection of corporate malfeasance, fraud and other misconduct. But if you remove this lawyer’s autonomy and force him to report to others than the CEO and Board of Directors, this attorney may find himself in the untenable position of reporting to the very individuals he should be reporting on.

Maintaining Attorney-Client Privilege
In corporate settings, the question of which employee communications are subject to the privilege is more intricate than in the individual context. Unlike one-on-one communications in which an attorney advises the client on legal rights and obligations, not all communications will be privileged just because they involve an employee with a license to practice law.

In most companies, in-house counsel wear several hats. Beyond purely legal functions, lawyers are valued business advisors and will often engage in strategic discussions which do not pertain to legal representation and, hence, are not privileged. The lawyer’s precise role is more ambiguous if that individual serves only one part of an organization, reporting to more senior management but lacking direct access to ultimate decision makers.

Although federal courts have broadened the scope of the privilege, many states will only protect an attorney’s communications with those who control the actions which an organization may take in response to the legal advice received. Even jurisdictions which have abandoned this “control group test” continue to favor higher-level communications and tend to restrict communications to those with a true “need to know” this information. When counsel must communicate with a chain of superior employees before action may be taken, confidentiality may be compromised and the privilege jeopardized.

Prioritizing Legal Compliance
As one corporate counsel put it, “companies that have a CFO, COO, CMO or CTO … should have a CLO,” or “Chief Legal Officer” who reports directly to the CEO and Board of Directors. Those who demote their General Counsel from the “C-Suite” may send a message which devalues the importance of legal advice in critical decisions. Lacking an equal voice, in-house counsel’s advice may not command the respect needed to counter higher-ranking officers who fail to appreciate the risks of certain initiatives. While subordinate counsel may reside within other divisions to concentrate on more specific issues, a failure to place General Counsel toward the top of the corporate chart may be the most risky move of all.