Minnesota Law

Spring 2023
Cover Story

Guardians of Good Governance

As trusted advisors, Minnesota Law alumni help organizations and their boards avoid legal pitfalls and build better cultures

From Left to Right: Brita Johnson ’07, Claire Topp ’92, Jim Chosey ’89, Cherée Haswell Johnson ’03, Lee Mitau ’72, Amy Seidel ’98

Questionable business practices continue to fill headlines and raise concerns among shareholders, stakeholders, and the public. Recent examples include the corporate chaos surrounding Elon Musk’s Twitter takeover — punctuated by his firing of directors and senior managers — and the collapse of cryptocurrency exchange FTX, whose founder now faces fraud and money laundering charges. In Minnesota, numerous individuals involved with a nonprofit organization have been charged with defrauding the federal government of more than $250 million in food aid intended to feed hungry children during the pandemic 

Working largely behind the scenes, Minnesota Law alumni are guiding and advising companies, nonprofits, and their boards of directors on what constitutes good governance. They work in corporate legal departments, provide counsel to private companies and nonprofit entities, and serve on boards. They do so in a complex, rapidly changing world as regulations increase and pressure to act on the climate, diversity, and other environmental, social, and governance (ESG) issues grows. 

The ‘CEO Whisperer’ 

Serving on a corporate board during these challenging times is hardly business as usual, according to Lee Mitau ’72. Mitau has served many years as chair of the board of directors of Graco Inc. and H.B. Fuller Co. 

“The world has gotten more complicated and the demands on boards have greatly increased since I was a young director,” says Mitau, retired general counsel for U.S. Bank who also regularly attended board meetings of several publicly held companies while in private practice at Dorsey & Whitney. Mitau’s ubiquitous boardroom presence has led some industry insiders to dub him “the CEO whisperer,” according to the Star Tribune

Mitau notes several major changes that have impacted board service, including a requirement that the majority of directors of listed public companies be independent. In addition, regulations enacted in response to corporate governance scandals have increased the complexity of board members’ roles, and those regulations continue to grow with the Securities and Exchange Commission proposing new requirements related to climate and cybersecurity.

“The regulatory demands ratchet up all the time,” Mitau says. “The only place regulators can put these burdens is on the directors. But board members are not in a position to reach down into the company and change things directly. They can only operate through the CEO and the senior management team.” 

“Boards still have a duty to step in when they see bad strategy, bad culture, or ethical issues in general. The board should take responsibility for the company’s overall strategy and risk tolerance.”
Lee Mitau ’72

Even as corporate scandals make news, boards have a hard time policing actual fraud, Mitau says. “If you want to defraud your company and your board, you can get away with it for a while. But putting aside actual fraud, boards still have a duty to step in when they see bad strategy, bad culture, or ethical issues in general. The board should take responsibility for the company’s overall strategy and risk tolerance.” 

Focusing on ESG Issues 

Cherée Haswell Johnson ’03 is on the front lines of monitoring and reporting on ESG issues. She was chair of the global ESG Steering Committee at Dentsply Sirona, Inc., where she recently completed a stint as senior vice president, chief legal officer, general counsel, and corporate secretary. The company, based in Charlotte, North Carolina, is the world’s largest manufacturer of professional dental products and technologies. 

Organizations today simply cannot afford to ignore good corporate governance and ESG compliance, Johnson says. 

“You have to do what’s right for the company because that’s now the expectation, that’s now the standard.”
Cherée Haswell Johnson ’03

“There has to be engagement,” Johnson continues. “The repercussion of not engaging is definitely reputational damage, and you will lose investors in many cases. Your stock price can fall. This connection to the financial impact has gotten people’s attention, shareholders’ attention, so there really is no choice. You have to do what’s right for the company because that’s now the expectation, that’s now the standard.” 

While companies often touted their ESG efforts, Johnson says shareholders were not necessarily seeing their value in the past. Now she observes there is “a lot more execution than talk” on ESG issues. She expects the governance aspect, which is more challenging to track than environmental or social issues, to get more scrutiny. 

Johnson says that companies must assess if they have good governance practices and if they are being applied specifically to ESG. “That governance piece is just as important for ESG as it is for every other part of your business.” 

Board members should receive ESG training on environmental aspects, sustainability, and the importance of a diverse workforce, client and customer bases, and board, Johnson says, emphasizing that evaluation of
such efforts is key. 

Board members also need to hold senior managers accountable for doing what they say they are going to do, she says. They also should have insight into company culture, specifically on ethics and compliance issues, and should ensure that management has sound governance policies and reviews and refreshes those policies regularly. Employees need training as well so all parties understand expectations. 

“It's rewarding and impactful work,” Johnson says of her field. “I am grateful to spearhead such an important topic that has the capacity to impact each and every person on this earth. Building our ESG strategy is critical for the long-term value and resiliency of our company.”

Tricky Times for Board Members 

Jim Chosy ’89, senior executive vice president and general counsel at U.S. Bank, says these turbulent times make anticipating what’s next tough for board members. 

In addition to knowing the company, board members also must be mindful of inflation, recession concerns, supply chain disruption, post-pandemic issues, fluctuating financial markets, roiling domestic and global politics, a tight labor market, climate change, and the growing focus on ESG issues, he says. 

“The board’s got an extremely difficult job, I think, more so than ever before,” says Chosy, who has worked in corporate law for three decades, much of that in-house. He advises directors on their duties and responsibilities and also helps prepare for and execute board meetings. 

Amid so much change, directors try to focus on traditional board governance matters such as strategy, financial performance, risk management, and long-term planning, he says. 

As directors of a large bank, board members receive presentations from a variety of federal regulators. Certain directors — for example, committee chairs — also meet separately with regulators to inform their oversight responsibilities. 

Chosy says the organization’s ethics, values, and culture are just as important to the board. Directors partner with senior management and the CEO to set the right tone at the top, especially in the highly regulated banking industry. His legal division at U.S. Bank includes a standalone ethics function, with a global chief ethics officer who oversees ethics across the institution and presents reports on the ethics program at board meetings. U.S. Bank has received recognition as one of the “World’s Most Ethical Companies” from Ethisphere Institute for eight consecutive years. 

“One of our core values is ‘we do the right thing,’” Chosy says. “Trust is foundational and fundamental to the business that we’re in, banking and financial services. People, our customers, our other constituents, and communities need to have trust, faith, and confidence in what we’re doing. Otherwise, we’re not going to be successful.” 

The Nonprofit Perspective 

Claire Topp ’92, a partner in the Health Group at Dorsey & Whitney who also leads the firm’s nonprofit and tax exempt practice, advises nonprofits on corporate governance. 

New charitable organizations often get board members who serve because they care about the nonprofit’s cause, but they do not necessarily have governance experience, she says. Smaller nonprofit organizations sometimes simply fill their boards with friends, thankful to find someone to serve. 

Topp trains directors to understand their fiduciary duties — of loyalty, care, and obedience to the organization — the same as applies to for-profit boards. 

The duty of care requires directors to be prepared, engaged, and ask the right questions, Topp says. They should not simply rubber stamp the executive team’s plans. Board members must stay apprised of committee work as well. 

Under the duty of loyalty, directors must use the nonprofit’s assets to accomplish its charitable objectives, according to Topp. They may not use their position or the nonprofit’s assets for monetary gain for themselves or family members. Every director should complete a conflict-of-interest policy disclosure statement annually. 

The duty of obedience requires board members to abide by the nonprofit’s policies and state and federal laws, Topp says. 

“Make sure you have the right board members and that you are assessing the makeup of your board in terms of the right level of experience and subject matter knowledge, diversity and inclusion”
Claire Topp ’92

When board members get management reports before board meetings, they should make an effort to determine what information they should have but did not receive, she says. A dashboard highlighting the status of issues can help directors identify financial, audit, or compliance trends or problems that need attention. 

“Make sure you have the right board members and that you are assessing the makeup of your board in terms of the right level of experience and subject matter knowledge, diversity and inclusion,” Topp says. 

Overseeing Risk 

Board members should never assume that fraud or scandal could not happen at their company, says Amy Seidel ’98, a partner in the Minneapolis office of Faegre Drinker. Seidel heads the firm’s public companies practice and advises public companies on corporate governance. 

“Boards have to conduct oversight continuously so we don’t find ourselves in a situation where problems have festered and then a year later there’s a big exposé that indicates that the board was asleep at the switch,” she says. 

Board members establish relationships with members of management, says Seidel. The audit committee chair, for example, could meet with the chief financial officer or the head of internal audit to get a sense of the culture and of possible risks. 

As interest in ESG issues grows, boards should consider how they will oversee the risks and costs associated with climate change, address consumer preference for climate action, and identify business opportunities in that space, Seidel says. 

“The focus on ESG has helped to advance the idea that the long-term value of our organization is going to be dependent on our relationships with our employees, customers, suppliers, and communities,” she says. Boards of businesses incorporated in Minnesota can consider such interests in making decisions under the state’s a multi-constituency statute. These considerations were introduced in the 1980s in response to takeover attempts aimed at the Dayton-Hudson Corp. 

“It’s really kind of a takeover defense to say we can decide that this deal is bad for the company because we think it’s going to be bad for employees and for customers even though the dollars that they’re offering might look good for shareholders,” Seidel says. 

Compliance Has a Deep Impact 

Corporate governance is near and dear to Brita Johnson ’07, who directs the office of ethics and compliance at multinational chemical corporation Dow, Inc. Her office has oversight over investigations globally and works with other departments in conducting investigations and bringing them to resolution. She also informs the board about ethics and compliance issues. 

“Whether you’re an employee, whether you’re a customer, or whether you’re a shareholder, you should care whether we’re doing that well because it has a deep impact on whether you want to do business with us, whether you want to work with us, whether you want to provide services to us,” Johnson says. 

Great policies will not do any good without governance structures and systems in place to ensure adherence, enforce rules, and hold accountable those who don’t follow them, she says. She sees examples of corporate ethics and compliance issues in the daily news. “It can happen anywhere, and it takes continuous effort, monitoring, and education, as well as making sure that values do continue in the right direction. I don’t think there’s a company out there that should assume that they’re insulated somehow from having an ethics and compliance issue.” 

As the “G” in ESG gains greater attention, shareholders, employees, and customers are pushing for more disclosure concerning ethics and compliance matters, Johnson says. For example, employees and others outside the company can report violations of law or Dow policy through an anonymous hotline. Most reports concern human resources issues, while allegations of misconduct such as fraud or bribery are less common. 

Johnson says, “This is an area where you’re never finished with the work.”