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In June, when Tyco International Ltd. announced that it had joined the unhappy fraternity of companies hit by a business malfeasance scandal — losing their CEO, CFO and general counsel in one blow — the besieged board faced corporate triage and needed quickly to send the right message to the investment community. The first step, just weeks later, was the hiring of the well-regarded Edward D. Breen, former president and chief operating officer of Motorola Inc., as Tyco’s new chairman and CEO. The next step was to hire a new general counsel. In announcing the hiring of William B. Lytton, International Paper Ltd.’s general counsel and then-chairman of the board of directors of the American Corporate Counsel Association (ACCA), Breen referred to him as “a person with outstanding credentials as a corporate counsel and an impeccable reputation for personal integrity.” Breen’s recruitment of Lytton surprised no one. In a 29-year legal career — a top federal prosecutor in Philadelphia, counsel and staff director for the commission that investigated the infamous 1985 police bombing of the radical group MOVE’s complex in Philadelphia, deputy special counselor to President Reagan in 1987 during the “Iran-Contra” controversy and a succession of corporate counsel posts — Lytton, 54, earned a reputation as a lawyer who took on tough cases, turned them around and emerged with his reputation intact and his client’s restored. “Tyco was in many respects somewhat straightforward,” said Catherine R. Nathan, a lawyer and consultant for headhunter Spencer Stuart’s New York office who recruited Lytton for Breen and Tyco. “There aren’t that many people that could do that job,” Nathan said, and in Tyco’s case the criteria were basically, “highly qualified, with integrity, integrity, integrity.” In fact, she added, she presented Breen with four possible candidates. SCANDALS ALTER CRITERIA Lytton’s r�sum�, legal consultants say, is the kind corporate directors look for these days as corporate scandals, nervous investors and new federal laws have made the need for an experienced, independent corporate counsel more important than ever. In addition to the public reaction and increased scrutiny that has followed such catastrophic corporate scandals as Enron, WorldCom, Rite Aid and Tyco, corporate counsel are appraising the impact of this year’s Sarbanes-Oxley Act, which imposes on company counsel responsibility to take information about company wrongdoing directly to the board of directors if rebuffed or ignored by management. Some legal consultants say directors are increasingly hunting for lawyers with experience as federal prosecutors or who have held policy-making positions in government. Others say they want a track record as general or deputy counsel of another corporation of similar size and complexity. Others still suggest a combination of the two is desirable. Company directors are now well aware of what’s at stake in hiring general counsel, said Harold S. Barron, former general counsel at Unisys Corp., now a partner in the Chicago law firm of McDermott, Will & Emery and chairman of the American Bar Association’s business law section. “This is no time to hire anybody who needs on-the-job training,” Barron said. Consider the upcoming Feb. 10, 2003, two-day conference, “What the Board Really Expects from the General Counsel and Corporate Secretary,” being held in Washington, D.C., sponsored by ACCA and the National Association of Corporate Directors (NACD). The conference will examine the corporate counsel’s relationship with the board of directors, which NACD says “can have the tension of a high-wire act under the big tent.” One of the conference’s goals is to encourage counsel to be active advocates of good corporate governance when fraud is suspected or the company is in crisis. Consultants say there is no question that federal prosecutorial, Justice Department or business regulatory agency experience has acquired new currency these days among boards shopping for general counsel. “We’re searching right now for a highly qualified senior-level counsel with prosecutorial background,” said Jon Lindsey, managing partner in the New York office of attorney search consultants Major, Hagen & Africa. Lindsey, himself a federal prosecutor for six years, said that candidates with such experience bring two things of value to companies: They know how government works and they fit the public image of being “squeaky-clean.” Still, consultants caution against reading too much into the apparent demand for counsel with government experience. Take, for example, the recent general counsel hires by ChevronTexaco Corp. of Charles A. James, assistant attorney general in charge of DOJ’s Antitrust Division, and Raytheon Co.’s of Jay B. Stephens, formerly associate U.S. attorney general responsible for formulating policy on civil justice and federal and local law enforcement matters. Neither company is facing Tyco’s legal problems, and company officials say government experience was just one criterion behind their hires. In James’ case, said company spokesman Johnny Ng, company officials were equally impressed by James’ global antitrust and trade regulatory experience in private practice before he joined the Bush administration. In Stephens’ case, Raytheon spokesman James Fetig said, the hiring stemmed mostly from the relationship between Stephens and Daniel P. Burnham, Raytheon’s chairman and CEO, who worked together at AlliedSignal Inc. Not all companies facing scandal choose to go outside when they replace their general counsel. Perhaps the most notable example is Rite Aid Corp. When the Harrisburg, Pa.-based pharmacy chain’s long-time general counsel and vice chairman Franklin C. Brown retired three years ago, shortly after the ouster of Rite Aid Chairman Martin L. Grass in an incipient corporate fraud scandal, Rite Aid’s directors decided to stick with in-house legal talent. The board first went to Brown’s second-in-command, Elliot S. Gerson, and when Gerson, 60, announced his retirement in June 2002, Rite Aid promoted Gerson’s deputy, Robert Sari. Rite Aid officials declined to discuss their reasons for sticking with in-house counsel, citing the pending federal criminal charges announced this summer against Grass, former GC Brown, former CFO Frank Bergonzi and Eric S. Sorkin, executive vice president for pharmacy services. Government experience was certainly an important consideration in Tyco’s hiring of Lytton. But there were other factors involved, according to legal headhunter Nathan: “These things always come down at some point to a personality fit,” Nathan said. “He [Breen] needed somebody who was tested and who was unflappable because of the nature of what he was walking into.” Lytton also had the experience of working as counsel for major international conglomerates including the operation divisions of Lockheed Martin and Martin Marietta and GE Aerospace. Lytton joined GE Aerospace in the late 1980s at a time when the company was facing a federal defense fraud prosecution, and one of his first accomplishments was to engineer a “global settlement” of the case as well as several other GE disputes with the government. “Tyco is an unbelievable challenge,” said Nathan, referring to the diversity of the electrical component manufacturer’s numerous subsidiaries in more than 100 countries. “Tyco has more than 2,000 subsidiary lawyers all over and with all different titles.” Nathan said Lytton also had the prestige of having been brought into GE by general counsel Ben W. Heineman Jr., who, according to Nathan, is often considered to have “really set the standard for general counsel.” In September, Lytton’s predecessor at Tyco, Mark Belnick, became the first senior in-house counsel to be indicted in this year’s round of U.S. corporate scandals. Belnick, Tyco’s former CEO Dennis Kozlowski and former CFO Mark Swartz were indicted on Sept. 12 by the Manhattan district attorney’s office. All three had also been civilly sued by the U.S. Securities and Exchange Commission and by Tyco itself. Tyco contends that Belnick made $35 million in compensation not approved by Tyco’s board of directors, including the use of $14.6 million in Tyco zero-interest loans to buy his home in New York. The alleged improper conduct by the three former Tyco officials went back five years before June 3, 2002, when Kozlowski resigned. ‘POLITICAL EXPERIENCE’ KEY Lytton said he did not want to discuss Tyco’s legal troubles or those of his predecessor. And he discounted his prior experience working for companies in trouble as the prime reason he was sought out by Tyco. “I think that companies, whether they are in trouble or not, but especially if they are in trouble, should be looking for someone who has some political experience and by that I mean small-p political: The way you interact with various organizations as general counsel.” Lytton said situations such as the one he had taken on at Tyco “don’t happen to a general counsel except in the rarest of cases. 99.9 percent of the time the most significant thing you’ll face is something that is perfectly legal, but very risky. “Let’s say [management] came to you suggesting a capital investment in Baghdad right now — $100 million,” Lytton continued. “That could make sense from a business standpoint, but it could also be a pretty stupid investment. That’s much more the type of situation that a general counsel is faced with.” Charles Elson, director of the Center for Corporate Governance at the University of Delaware, agrees. Elson said the next generation of corporate counsel should expect to work with more active hands-on boards of directors who rely on their counsel’s independence: “It’s a change that says they represent the interests of the company rather than the interests of general management. It’s an important change.”

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