When the insider trading and backdating scandals occurred in the last decade, many asked, “Where were the lawyers?”
“We were there,” remarked Stasia Kelly, currently a partner at DLA Piper who previously served as general counsel of Fannie Mae, Sears, MCI/WorldCom and AIG, “but we weren’t being invited to the important meetings.”
New regulations and increased expectations from shareholders, company executives and board members have led to profound changes for today’s chief legal officers. Not only are they being invited to the meetings now, they are expected to make key contributions. A number of active and former GCs were interviewed to find out what their biggest challenges are and how the job has evolved over the years.
Knowing the Business
The two biggest changes, according to GCs, have been: (1) a greater emphasis on knowing the company’s business and (2) the assumption of non-legal tasks.
In addition to identifying and minimizing areas of risk, GCs are now, in most instances, seen as value-added, C-level partners and are expected to bring a commercial focus to the dispensation of legal advice. When Kelly became GC of Fannie Mae in 1995, “Nobody thought about explaining the company’s strategy to the GC,” she said. “That attitude has changed. Now you need to understand the finances and what is going on in the company. The lawyers need to be in the room.”
To ensure you have a seat at the table, you need to “demonstrate that you know the business. It gives you credibility,” explained the GC of a Fortune 500 multinational company. It also shows that when issuing opinions, you will factor in what it takes to run the business and help it succeed. This knowledge is important for the entire legal team. During his tenure as senior vice president, general counsel and secretary of Hewitt Associates, Steve Kyono embedded his lawyers in different departments to learn what was going on. “They attended department meetings, visited our operations centers and sat in on overviews of the company’s strategic and operating plans. They also went to meetings with senior leadership so they could understand their views and the direction they wanted to take the company.”
This helps establish mutual trust and respect, and shows that, despite the stereotypical impression that lawyers say “no” most of the time, they can help in proactive ways. As another GC put it: “Lawyers have been trained to think things through logically; we ask a lot of questions; we help identify problems before they occur.”
“You want to be brought in early, to help influence and direct a project, instead of after the fact, when it might be too late,” agreed Jeff Fiarman, executive vice president, general counsel and secretary of Weight Watchers. As KPMG’s recently released 2012 general counsel survey “Beyond the Law” concluded: “The GC’s role is moving from one of ‘fire-fighting’ and reacting to events to being more strategic and anticipating risks at an earlier stage.”
Basic Financial Acumen
In addition to knowing the specifics of what your company does, you also need a working knowledge of accounting principles. “Basic financial competence is extremely important. You should know how to read a balance sheet and P&L statement, understand basic terms such as ROI and EBITDA and, of course, know how to create, track and enforce budgets,” noted Grier Raclin, former senior vice president, general counsel and secretary of Scientific Games.
The KPMG survey corroborated this point: The skills that will stand GCs well in the eyes of company leaders include “being more commercially and financially aware in order to take a more proactive stance in risk identification and assessment and working in partnership with others across the organization.”
“Before going in-house, I recommend two things: a business degree of some sort and a secondment to an in-house legal department to get an idea of what life is like as a client,” said George Miller, senior vice president, general counsel and secretary of Sigma-Aldrich. “The degree isn’t as important as understanding what it means to manage a business to the bottom line and having empathy for the pressures and risks associated with that.” Another option for getting up-to-speed might be the Association for Corporate Counsel’s Mini MBA program.
GCs also have to manage the legal department. Though this isn’t new, it is worth mentioning because it requires skills that are not native to most lawyers — e.g., mentoring, motivating and deploying talent, appraising job performance, defusing conflicts, identifying and grooming successors, creating budgets and controlling costs. “It’s like running a little company,” noted one GC.
The recession and increased focus on profitability have made the financial aspects of the job even more critical. “Managing the bottom line has become much more important. Budget pressures go up every year,” another GC said. “Last year, I didn’t know if I’d be able to meet my budget — for the first time in my career. We had to work really hard to decide which things we were going to push for. You need to know what’s important for your company in order to make those kinds of decisions.”
In addition to all of the usual tasks, today’s GCs are often assigned oversight of various non-legal, non-revenue-generating areas. Some even manage their companies’ business development activities. “The mantra seems to be: ‘If it doesn’t fit somewhere else, give it to legal,’” as one GC explained.
This was borne out by our interviewees. While the GC of one of Weight Watchers’ subsidiaries, Fiarman also held the title of vice president of business development; as GC of Take-Two Interactive Software, Seth Krauss has also managed internal audit, risk management, insurance and security; while GC at Covance in the 1990s, Jeff Hurwitz was chief of compliance, HR director, head of environmental health and safety, and oversaw the company’s Y2K program. During his tenure as GC at Global TeleSystems Inc., Raclin held several positions, including CAO, which involved the oversight of HR and facilities, among other areas. In addition, he helped manage the restructuring of the company with the CEO and CFO. While GC at Charter Communications, he was responsible for the programming, procurement and business development divisions. “Anything that principally involved negotiations,” he explained.
“There is a definite need for GCs to know other subjects outside of law,” according to Fiarman. “There isn’t a road map for many of the things you’ll be tackling. You’re often the first one trying to figure something out, so you have to be comfortable dealing with uncertainty and establishing precedents. To try and assess potential risks can be difficult when something has never been done before.”
Compliance, Governance and Protecting the Client
When asked what has had the biggest effect on their roles during the last several years, GCs ranked compliance and corporate governance the highest. Regulations like Sarbanes-Oxley, Dodd-Frank, the Foreign Corrupt Practices Act and the UK Bribery Act have dramatically increased the amount of work and pressure on the GC. While outside counsel advise clients on how to comply with new regulations, GCs are expected to help develop plans and timelines, and assume, with other business leaders, the risks of noncompliance.
Managing reporting lines is also extremely important. For instance, some chief compliance officers report to the board or CEO; others report to the GC, with a dotted line to the audit committee. “At Scientific Games, the CCO reported directly to the audit committee as well as to me and it worked quite well,” Raclin commented. The key is to avoid potential conflicts and increase the level of interaction and knowledge among all the necessary parties.
While GCs must answer to government regulators, shareholders, boards of directors and management, all of the experts pointed out that the GC’s foremost responsibility is to protect the company. Investors want short-term profits, while the CLO and other members of the management team are more concerned with the company’s long-term success. This can lead to struggles, because most people on boards have held prestigious positions in government or business and are used to getting their way. It can be difficult to tell them no. But it is the GC’s job to point out risks and offer carefully considered counsel. “You have to be independent, have excellent judgment and top problem-solving skills,” noted Hurwitz, retired senior vice president, general counsel and secretary of Dun & Bradstreet. “And you have to remember your allegiance is to the corporation, not to a specific individual.”
Social Media, Data Privacy and Other New Concerns
Just when you think you’ve mastered the job, GCs said, new responsibilities land on your desk. “The practice of law is dynamic. You have to be facile and keep up with what’s going on,” Krauss said.
A recent example is the need for policies regarding usage of the Internet and social media. The advent of forums like Facebook, Twitter and LinkedIn has led some companies to run up against privacy issues while trolling for information about new hires and/or when employees post things that could potentially expose them to liability. The utilization of these forums to market companies’ products has also created new challenges. The technology and how people use it are changing so fast it’s hard to keep up. How do you facilitate this type of communication, but also control it and keep the company safe? Most GCs revise their Internet policies frequently, but said it is a constant struggle to keep them up-to-date.
Another new area of concern is data privacy. “The government is considering rules that are going to be applicable to every company that collects information about its customers,” said one GC. “Even something as innocuous as a dry cleaner will be subject to new privacy regulations. Legal departments are going to have to get in front of this and stay involved. Most companies will probably end up producing detailed privacy codes, much like a terms and conditions document.”
GCs who work for multinationals have another concern when it comes to privacy. “I wish there was a more uniform approach to data collection. There are different rules for different countries. Dealing with data flows between Europe and the U.S. definitely adds a level of complexity,” Fiarman observed.
Another area that is taking up more of a GC’s time these days is patents. The stakes surrounding intellectual property have increased significantly and a GC must be ready to protect his or her company’s portfolio. “Defending patents was by far our biggest expenditure last year,” one GC said. Employment issues can also pile up in the GC’s office, said another. Perhaps as a result of the recession, “there is a lot of litigation that didn’t exist four or five years ago, and the GC will be held accountable.”
As our interviews and the KPMG study underscore, understanding your company’s business is essential to being able to offer appropriate counsel, negotiate commercial interests and anticipate problems. Today’s GCs need to help determine and navigate a strategic vision, be ready to take on a multitude of roles, and keep their companies out of trouble.
According to one of KPMG’s respondents: “Pure legal decision-making and just managing a legal process is not going to cut it anymore.” Bryan Jones, a U.S. partner in KPMG’s forensic practice, put it this way: “Senior management is looking for GCs to do more than ‘deal with my legal problems.’ They want more than that — and that makes today’s general counsel a lot more relevant.” •
Lee Udelsman is the managing partner of the New York office of legal search firm Major, Lindsey & Africa. He can be reached at 212-201-3986 or email@example.com.