Corporate Responses to Legal Risk and the Role of Consulting Firms

By Maria Lucia Passador, Assistant Professor of Law, Bocconi University; 2025 Winner of ACC’s Carl Liggio Memorial Paper Competition

In today’s governance landscape, the allocation and management of specialized expertise have become central to how corporations respond to legal risk. Boards are increasingly faced with the strategic decision to appoint specialist directors or to rely on external consultants who can be engaged on a case-by-case basis. This is not a binary choice. Rather, it is a delicate balancing act shaped by cost, flexibility, and fiduciary responsibility, as each approach presents distinct advantages and challenges.

Internalizing Expertise Through Specialist Directors

Appointing specialized directors can strengthen the board from within. It may ensure that expertise in areas such as sustainability, technology, or diversity is always present in board deliberations and decision-making, rather than an intermittent input. This model may align oversight more closely with the corporation’s long-term trajectory and reflect the longstanding optimism of governance theory that directors represent “the best hope for high-quality major decisions in the large corporation” (Robert Haft, Business Decisions by the New Board: Behavioral Science and Corporate Law, 80 Mich. L. Rev. 1, 1981).

Internalized expertise can reduce informational gaps, tie decisions to strategy, and may signal commitment to governance to stakeholders. When done well, it integrates technical insight with collective judgment rather than treating expertise as an external add-on.

However, this path is also fraught with challenges. It can be costly to identify and recruit directors who combine deep technical knowledge with independence and a capacity for oversight. Even when appointed, there is the risk of over-specialization, where the director’s narrow focus fragments board deliberations or unintentionally shifts responsibility away from the board as a whole. Boards should therefore ensure that specialist insight enhances, rather than substitutes, collective deliberation and consider other opportunities to obtain expertise that may not reside with the current board. Regardless of approach, it does not let the board off the hook with respect to upskilling.

Externalizing Expertise Through Consultants

Engaging external consultants offers the opposite model. Rather than embedding expertise on the board, corporations can tap highly specialized knowledge as needed, whether in response to regulatory changes, emerging risks, or crisis events.

This approach provides flexibility and can be cost-efficient in certain contexts, avoiding long-term commitments associated with board appointments. It also allows boards to draw on a wider range of perspectives across industries, geographies, and disciplines.

Yet externalization introduces its own difficulties. Consultants should be carefully integrated into board processes to ensure that their advice enhances, rather than undermines, the board’s exercise of fiduciary duties. There is also the danger of boards deferring too heavily to external experts, where the line between advisory input and delegated authority may blur, raising concerns about accountability. When that happens, accountability can weaken and the board’s oversight role may be diluted.

Governing the Use of External Advisors

To manage these tradeoffs, corporations typically rely on a range of mechanisms to preserve accountability while benefiting outside expertise. When mechanisms such as the below are in place, consultants may be integrated effectively without compromising fiduciary judgment.

• Robust vetting of consultants’ credentials, experience, and independence, often accompanied by background checks, reference assessments, and conflict-of-interest reviews.
• Clear contractual frameworks that define the scope of work, responsibilities, deliverables, and fees and help create transparency around the relationship.
• Quality assurance and risk management protocols further reduce exposure, while insurance coverage is frequently used to manage potential liabilities.
• Structured communication channels that ensure advice is integrated into board deliberations rather than operating in parallel.

Crucially, reliance on external advisors does not transfer fiduciary risk away from directors. Consultants provide information, analysis, and recommendations, but responsibility remains firmly with the board. Directors should evaluate advice critically, weigh costs and alternatives, and ensure alignment with the corporation’s best interests. Simply outsourcing judgment is not permissible.

The Evolving Role of Consulting Firms

Understanding these dynamics also requires a broader view of how consulting firms themselves have evolved. Originating in the late nineteenth and early twentieth centuries, early consulting firms focused on efficiency, productivity, and the application of scientific management. As corporate challenges have grown more complex, they have diversified into multiple domains.

Today, the consulting industry encompasses:

• Strategy consulting firms which help corporations craft long-term visions, pursue innovation, and manage mergers, acquisitions, and transformations.
• Management consulting firms that provide comprehensive services across strategy, organization, and performance improvement, often working closely with senior leadership teams.
• Operations consulting firms that focus on optimizing supply chains, manufacturing, logistics, and procurement, aiming to bring efficiency and cost savings.
• IT consulting firms that support digital transformation, data analytics, cybersecurity, and the adoption of cloud and artificial intelligence technologies.
• Sustainability consulting firms— that guide companies on sustainability issues, renewable energy, carbon reduction, and social impact initiatives.

The rise of such firms reflects the growing need for insights from external advisors. As regulation, technology, and stakeholder expectations accelerate, consulting firms provide modular expertise that corporations—and their boards—can deploy rapidly in response to evolving risks.

Many consultant firms already offer services that approximate board functions, such as director training, board evaluations, and governance audits. As corporations confront increasingly complex challenges, consulting firms may expand further into quasi-governance roles, raising important questions about the boundary between advice and oversight.

Proceduralization, Accountability, and the Board’s Core Role

The potential expansion of consultants into governance-adjacent roles highlights a broader trend toward proceduralization: the formalization of oversight through processes, frameworks, and external validation. In principle, this trend can strengthen governance by promoting consistency, documentation, and discipline.

However, if the outsourcing of expertise goes too far, it may risk diminishing the board’s substantive role. A governance system that prioritizes process over judgment may create a culture of compliance that looks robust on paper but lacks meaningful deliberation. The challenge for boards is to ensure that procedures and external expertise support, rather than replace, engaged decision-making.

Expertise as an Input, Judgment as a Duty

In sum, corporate responses to legal risk continue to oscillate between internalizing expertise through specialist directors and externalizing it through consultants. Each path carries costs and benefits, and most corporations pursue a hybrid model, combining permanence with flexibility. Consulting firms have evolved into critical players in this ecosystem, adapting their services to the expanding demands of corporate governance.

Whether they remain advisors or evolve their roles, the central challenge remains the same: boards should ensure that expertise enhances rather than substitutes judgment, reinforcing fiduciary duties rather than diluting them. For boards and executives alike, the task is not to choose between expertise and accountability, but to ensure that one consistently reinforces the other.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.