Firms run by CEOs with legal expertise were associated with much less corporate litigation

We're always looking out for any research that will help us help our clients, so we were interested to read a study in the Harvard Business Review last week: Do lawyers make better CEOs than MBAs? They looked at around 3500 CEOs from publicly traded firms in the S&P 1500 to compare the behaviour of those with law degrees with those who earned a bachelor’s degree, MBA, or other degree.

What did they find?

Firms run by CEOs with legal expertise were associated with much less corporate litigation. Compared with the average company, lawyer-run firms experienced 16% to 74% less litigation. They were also associated with better management of litigation (they spent less on litigation, settled less often and lost less often when cases went to court).

If lawyer CEOs are getting great results, why is this group less than one-tenth of the CEO pool?

The CEOs with legal training were associated with higher firm value, in a subset of firms, specifically, in high-growth firms and firms with large amounts of litigation. Outside of this setting, the study found CEOs with legal training would need to embrace more risk to deliver greater firm value.

The study draws the conclusion that ideally, of course, "a CEO would be the best of both worlds: able to reduce litigation through prudent decision making while also knowing when to take risks to enhance value for the firm".

Want to foster the best of both worlds?

GCs and Heads of Legal often ask us to support the leadership development of their teams (and themselves). When they're looking to position their in-house lawyers as strategic, value adding business partners, how their team perceive, react to and manage risk, as well as how they make decisions is key to being seen as a trusted commercial adviser. One of the tools we use to help them understand and develop these skills is the Risk Type Compass.

Based on extensive global psychological research, the Risk Type Compass places individuals into one of eight distinctive Risk Types. While risk management has previously focused on procedures, regulation and legislation, Risk Type Compass uniquely assesses the risk-taking nature of individuals. By identifying critical individual differences in risk appetite, you can develop your skills and organisations can maximise potential and balance the contributions of risk-takers and more risk-averse individuals.

We recently ran our annual Future Leaders reunion. Ahead of the session over 125 alumni were asked to complete a survey to assess their Risk Type. The participants found the insight incredibly valuable. We hope this, in combination with our other services, can help raise the number of lawyer CEOs in the future – both in the US and here in the UK!

If you are interested in the Client Development Centre supporting you or your team with the Risk Type Compass analysis or anything else please get in touch. With over twelve years' experience supporting General Counsel and Heads of Legal build optimal legal functions, we provide practical solutions to your operational, management and leadership challenges.