When Gap Inc. completes its planned split into two independent retail companies next year, there could be very different attorneys at the helm of each business’ legal department, experts told The Recorder affiliate Corporate Counsel.
The San Francisco-based clothing giant announced Thursday that its Old Navy brand will spin off into a new publicly traded company, while namesake Gap and its legacy brands, including Banana Republic and Athleta, will form a separate to-be-named business now dubbed “NewCo.”
“It’s clear that Old Navy’s business model and customers have increasingly diverged from our specialty brands over time, and each company now requires a different strategy to thrive moving forward,” Gap board chairman Robert Fisher said in a statement that nods to the fact that Gap currently is more troubled than Old Navy, which remains the brand’s strongest label.
The statement also said that current Gap president and CEO Art Peck will become CEO of NewCo, while current Old Navy president and CEO Sonia Syngal will lead the new spun-off Old Navy.
A Gap spokesperson did not return an email asking for comment about the fate of Gap’s legal department, including that of executive vice president, global general counsel, corporate secretary and chief compliance officer Julie Gruber.
However, the announcement of top leadership could provide some insight, said Christopher Sagers, a law professor at Cleveland State University’s Marshall College of Law.
“NewCo boss will want to take his management team with him,” Sagers said, predicting that Gruber will likely head up that legal department.
Chelsea Grayson, former general counsel at American Apparel who also served in the CEO role there and now serves as CEO at True Religion Apparel Inc., agreed but not necessarily for the exact same reason.
Because of the challenges NewCo will face, particularly in the short term, its general counsel will need to be a “very seasoned veteran,” she said, adding that spun-off Old Navy likely will bring on as its top lawyer “someone very dynamic from a very cool brand.”
A general counsel “has to be flexible to be at a growth company,” Grayson said. It has “to be somebody who is familiar with the sorts of deals that one would do at a company that’s engaged in state-of-the-art marketing, that involve social media across all channels and platforms and that [involve a] state-of-the-art e-commerce initiative. It will be somebody who has all of that in their toolkit.”
While that lawyer likely will be bringing new perspective to new Old Navy, NewCo’s top lawyer will be dealing with the challenges associated with the legacy brand assets, including streamlining its brick-and-mortar fleet by shutting more than 200 of these brand stores over the next two years.
“That is always a big deal that heavily involves the GC because state and federal [laws governing layoffs] must be complied with,” she said.
In addition, Grayson said, this general counsel likely will be involved in the restructuring and streamlining of internal processes and work closely with outside consultants if any are brought in, as well as the person who manages human resources so that the general counsel can adequately mind the company’s corporate culture.
“People left behind at NewCo are going to feel just that—left behind—so the GC has to have their finger on the pulse of how that could affect culture,” she said.
To Dennis O’Rourke, partner and co-chair of the corporate department at Moritt Hock & Hamroff, whoever fills the general counsel role at each company will need to understand the workings of a transition from one entity to two separate companies that operate independently from each other.
“Everyone involved in a transaction like this is focused on the date that it’s going to happen, but the focus needs to be as much, if not more so, on what happens the day after it occurs,” he said. “The company that transitions better will perform better, and that’s as applicable to a legal department as much as it is to a business.”
Wachtell, Lipton, Rosen & Katz is advising Gap Inc. in the spinoff transaction, according to the company’s statement.