© 2015 The Texas Lawbook.
By Sean Elliott of Haynes and Boone
(Nov. 30) – During my tenure as a general counsel at CARBO Ceramics, I read many articles written by skilled lawyers that gave advice on a myriad of substantive legal topics. They were usually well-reasoned and provided observations based on a thoughtful analysis of the law.
This article provides my view on six key attributes that are expected of today’s general counsel, and how those attributes play into the exercise of judgment and sound decision making which are paramount in the discharge of the GC’s responsibilities.
Attribute 1 – Knows the Business
The GC is an integral part of a live, breathing business. As such he or she is expected to be a full-fledged member of the executive team who is passionately committed to the advancement of the company’s business goals and objectives.
To do so, the GC must know the primary drivers of the company’s business and how it makes money.
For example, why do customers buy the company’s products over the competition? What drives the company’s fixed and variable cost structures? What is the company’s growth strategy, and how is it to be implemented over the next five years?
The GC should be able to read and understand the company’s financial statements and have a basic understanding of the accounting principles underlying them. This is a less favored part of the job for some lawyers but nonetheless incredibly important, especially in publicly-traded entities.
Most strategic decisions at the company will have some type of bearing on the financial statements, and the GC needs to be savvy in this area to be on the same page with the rest of the executive team.
These insights into the company’s business can take time to build, especially for a GC that is hired from the outside. However, I have found that most members on the executive team take a great sense of pride in their areas of specialty, and do not mind explaining them to the GC that shows genuine interest.
Another practical and informative way to build this knowledge base is to see things in action. For example, the GC might go on a sales call, visit manufacturing facilities or attend investor meetings or conferences when feasible.
Attribute 2 – Keeper of the Trust
As every law student that has completed their required professional responsibility class knows, a lawyer is a fiduciary for its client, and in the case of a business entity, the lawyer’s client is the entity itself.
Black’s Law Dictionary describes a fiduciary as “[a] person having duty, created by his undertaking, to act primarily for another’s benefit in matters connected with such undertaking.”
Given the complexity of the matters on which they must provide advice and recommendations, the GC needs the CEO and other members of the executive team to trust that he or she is acting in the company’s best interest.
Practically speaking, that trust is not automatically given because of an overlying fiduciary duty. Instead, it has to be earned and re-earned on a regular basis.
Specifically, the other members of the executive team need to know that the GC is trying to find solutions to legal issues that may be impediments to business priorities.
Over time, the GC’s track record in finding these types of solutions will speak for itself. If the GC is generally successful in finding ways around legal landmines, his or her co-executives will notice. Then, when a situation comes up where the GC says “no, we just can’t do that,” the co-executives trust the GC has looked at every alternative, and none of them are viable. While this response may not be enthusiastically embraced, it will be accepted from a GC that has earned the requisite degree of trust from the executive team.
Attribute 3 – An Appropriate Appetite for Risk
Several years ago, I sat in a meeting between a new in-house lawyer and a sales manager who were discussing a customer contract. The lawyer did an excellent job of highlighting the many unfavorable provisions that the customer insisted be part of the deal.
In summary, the lawyer told the sales manager that the contract couldn’t be signed because it was too risky. The sales manager told the lawyer, “where you see risks, I see opportunities.”
In general, lawyers tend to be risk-avoiders. We are trained to analyze and find the potential problems and pitfalls with the situations that come across our desk.
We tend to be most content when our client’s exposure for those risks is either expressly disclaimed or assumed by another party in meticulous documentation. Of course, non-lawyers do not always approach matters from the same vantage point.
An effective GC must bridge this gap by helping the company find an appropriate balance between legal risks and potential business rewards. Stated another way, the GC must find a way to advance the company’s goals and objectives using an acceptable risk profile. That involves taking risks in the GC’s decision-making and trying to mitigate as opposed to completely avoid them.
To complicate things further, the parameters of acceptable risk are not always constant. For example, in tough times, the company may be willing to take additional risk on warranty or indemnity terms in its sales contracts just to get some much needed business in the door.
When times are good, those exact same provisions may be viewed as unacceptable and unnecessary. This dichotomy may be puzzling to some, but to a GC that is in tune with the company’s business conditions and strategy, it will make sense.
Attribute 4 – Solid Ethical Compass
I once participated on a panel presentation concerning the attributes of the GC. Afterwards, a senior lawyer told me that he was disappointed our discussion did not address ethics. I stated we ran out of time, but that I also take the GC’s commitment to ethics as a given. The senior lawyer then took a moment to explain that his experiences were unfortunately somewhat different.
To avoid any confusion on the issue, the GC absolutely must be committed to overseeing and maintaining ethical standards at the company. At no time should the advancement of business goals come at the expense of illegal or unethical behavior.
While a simple concept, admittedly this can become more difficult in practice, especially given the increased prevalence of a rules-based legal system. Often the GC is faced with detailed regulations that may not make logical or practical sense given the facts and circumstances of the company’s business.
There can be pressure to bypass or ignore provisions that seemingly can’t be intended to apply to the company and just get things done. The GC and his or her staff need to be the ones that push back against these tendencies, even if they are originating at high levels, and keep the company on a course that avoids the slippery slope that can come with an overly subjective approach to legal and ethical compliance.
Attribute 5 – Exceptional Diplomacy and Tact
The GC is required to participate in difficult decisions and make complex judgment calls. The job involves conversations where the GC is faced with stopping or altering a particular course of action that other members of the executive team may strongly wish to pursue.
Like in many aspects of life, the way a message is delivered can be as or more important than the message itself.
The experienced GC will approach these conversations with a requisite degree of diplomacy and tact. Using the trust relationship that has been built with co-executives over time, the GC should explain why the desired course of action is not desirable for the good of the company, and seek to gain the buy-in of the other executives.
While the GC is typically vested with the ability to directly or indirectly stop actions that cross any lines, doing so in an autocratic manner can destroy the very relationships that are essential to serving the company’s best interests.
Attribute 6 – Open to New Challenges
One of the most dynamic aspects of the GC’s job can be the variety of work. There are no boundaries to the types of legal issues that will come across the GC’s desk, and the scope of issues can change as fast as the company’s underlying business environment.
For some lawyers, this is discouraging, as they prefer to stay inside the ambits of their core expertise and prior experiences. However, to be successful as a GC, the individual needs to thrive on and enjoy the constant flow of new challenges.
While it is impossible to be an expert in all fields, the GC needs to be open to learning about new areas of the law on an expedited basis, and applying his or her inside knowledge of the company’s culture and objectives in making decisions on issues that may not have previously confronted the company.
Moreover, the GC should be open to the possibility of new challenges that are not solely related to legal duties. As a member of the executive team, it is fair game to expect the GC to help with items such as entertaining customers and employee relations.
Once they understand the underlying business and have the trust of the CEO, the GC may also be uniquely positioned to help with other business tasks, such as leading the acquisition and integration of a new business line or serving on a committee that will make recommendations concerning the entry into new international markets.
The position of General Counsel requires a mix of skill sets. While the GC is typically responsible for the company’s legal decisions, he or she should take action within the parameters of the other attributes associated with the job. GCs that recognize and navigate these attributes will be in a better position to provide effective counsel and make tough judgment calls as expected by their clients.
R. Sean Elliott is Counsel in the San Antonio office of Haynes and Boone, where he focuses on corporate securities, mergers and acquisitions, corporate governance and general business transactions. He was the general counsel of CARBO Ceramics from 2007 to 2015. His email is sean.elliott@haynesboone.com.
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