In Tough Times, the Best GCs Look a Lot Like the Best Litigators
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By Robert G. Abrams
Legal Times
February 4, 2009
As the Wall Street meltdown continues and the federal bailout is deployed, it is still unclear what the bottom line will be. But one thing companies can be sure of is there will be litigation, and lots of it.
That puts the onus on general counsel to take immediate action to protect their constituents on an unprecedented number of levels. For any company directly or indirectly affected, having the right general counsel in place is critical if it is to manage the potential onslaught and emerge with its finances, reputation and operating structure intact.
What constitutes the "right" general counsel? While there is a laundry list of attributes that any effective in-house lawyer will possess, the game changes dramatically when major litigation, government investigations and shareholder disputes loom simultaneously. In challenging times, the qualities that distinguish top trial attorneys may be the key differentiators for successful general counsel. These qualities are big-picture thinking, judgment and credibility, and effective communication skills.
At the outset, an effective general counsel must be able to evaluate his company's exposure to the financial crisis from a variety of perspectives, some obvious, some emerging and others not yet revealed. He must make educated decisions to eliminate or mitigate risk and map out appropriate strategies. He must sell the plan to the board, investors and senior management. And lastly he must execute that plan.
Going back only a few years, it is easy to find telling examples of the named attributes at work (or not) and the value of having the right (or wrong) general counsel. As the financial hangover looms over 2009, corporations should be evaluating who will lead them through the difficult times ahead.
THINK OF THE BIG PICTURE
A key attribute of great general counsel is big-picture thinking -- that is, the ability to appreciate and consider all legal, business and public relations aspects of a situation, along with potential pitfalls and possible remedies. Counsel must recognize and balance the sometimes conflicting interests and desires of forceful constituencies -- directors, officers, external auditors, regulators and shareholders. Counsel must also think beyond the immediate crisis and consider long-term corporate goals.
An in-house lawyer who sees the whole scenario can help protect or salvage a company. Consider the case of Tyco International, where the chief executive officer and chief financial officer looted the company of more than $100 million. Afterward, a new general counsel implemented significant changes to guard against future wrongdoing and to restore investor and employee confidence.
One such change was the naming of a full-time ombudsman, who provided a critical means of gathering information in an environment of trust. This example of big-picture thinking signaled to internal and external audiences that Tyco was serious about addressing its errors.
More generally, think about government and internal investigations. In the past, the rush to self-report and obtain credit for cooperation meant companies would disclose highly confidential information. This disclosure frequently led to complete waiver of the privilege over that information. The information then often landed in the hands of plaintiffs counsel, thereby giving them a road map to the alleged wrongdoing.
However, a general counsel with foresight (and, more importantly, a litigation background) would hesitate before making sweeping disclosures and would weigh whether the short-term gains achieved by waiver would outweigh the long-term implications for the company. (And, of course, we now see that those general counsel who did not rush to report or systemically waive privilege for cooperation credit did grasp the bigger picture -- given the September 2008 release of the Filip policy, which retreats significantly from the government's position on giving cooperation credit.)
As companies strive to reduce risk, control costs and batten down the hatches, they should set a premium on a general counsel's ability to think beyond the legal ramifications of each decision. General counsel will increasingly need to choose between taking winnable (though not slam-dunk) cases to trial and risk potentially huge damage awards, high attorney fees, and a drag on shareholder value versus settling early. Before choosing the latter route, general counsel must look months and years down the road. Do the benefits of removing big-ticket litigation from the books today outweigh the message about the company's readiness to fight questionable lawsuits and the risk of emboldening competitors and plaintiffs lawyers tomorrow? When are settlements with licensing deals, long-term contracts or supplier agreements in the company's best interest, and when aren't they?
JUDGED CREDIBLE
Sound and steady judgment is also of paramount importance to all great general counsel. It is the key to achieving the access and influence necessary to persuade top decision-makers to accept counsel's strategies and vision.
The in-house lawyer's judgment is measured by his ability to make wise choices quickly and under immense pressure. A general counsel who has the confidence of his constituents will have the credibility to steer those constituents in times of crisis. But if they do not respect his judgment, they may second-guess his decisions and recommendations, perhaps rendering him ineffective or delaying action when delay is a real enemy.
A general counsel's credibility is a major determinant in whether a board adopts his tough or otherwise unpopular recommendations. When a general counsel is trusted, decisions such as whether to initiate and how to define the scope of an internal inquiry will be left to him. A strong history of making the right calls, even in less fraught situations, will give the general counsel the latitude he needs to prudently manage the company's response to major regulatory investigations, class actions, derivative suits and other litigation. Conversely, a general counsel with no such history will not be able to urge the tough calls when they need to be made. Indeed, he may not even speak up.
Remember the highly publicized incident where the general counsel for Hewlett-Packard Co. failed to question the advice of outside counsel to acquire board members' phone records through pretexting. By failing to exercise better judgment, the general counsel injured the company's reputation and created avoidable legal problems. Ultimately, the chairman of the board was charged with violations of state law and forced to resign. And to this day, the actions of the board, general counsel and outside counsel are held up as a what-not-to-do lesson on corporate governance.
Conversely, this past April, after announcing nearly $20 billion (on top of a previous $18 billion) in write-downs and the resignation of its chairman, UBS AG illustrated just how much currency judgment and credibility carry. The company's general counsel was named chairman, despite the fact that he was not a banker by training. Evaluating the unexpected choice, a former colleague explained that the general counsel had "a strong sense of fairness" and "keeps his head cool in a crisis."
PERSUASIVELY SAID
Finally, a general counsel must be able to communicate well with his audience in order to convince them to accept advice and reach consensus. Just as a trial attorney anticipates how different ways of presenting information to a jury will be received, so must an in-house lawyer think about how his arguments will be heard by various constituents. A wise counselor tailors his message to his audience.
Take the example of a general counsel who concludes that the company must offer a more robust disclosure of financial risks because its investment portfolio is heavily loaded with exotic derivatives that now have no market. Recognizing the issue and appreciating the ramifications are only the first steps; the ability to convince others that his recommendation is the right course of action may be the hardest part.
In-house lawyers at embattled companies can learn a lesson from the general counsel of Siemens AG, which recently put to rest a two-year internal investigation into corporate corruption. While the fines ultimately levied were record-setting, the investigation had the potential to last many more years at tremendous cost, causing untold business disruption and a severe drag on shareholder value.
In mid-2007, the internal investigation had reportedly stalled because managers were stonewalling. It was not until the general counsel made the bold decision to offer amnesty to internal whistle-blowers, protecting them against claims for damages and unilateral job loss, that the investigation got back on track. Amnesty was likely not a popular idea the first time it was mentioned within Siemens' walls, but it was the kind of game changer that an effective general counsel should suggest.
Whether a company has the right general counsel in place can be the deciding factor in how well that company survives or avoids a host of legal woes. Big-picture thinking, judgment and credibility, and effective communication -- we see these attributes at play every day when top lawyers engage in bet-the-company litigation. For many general counsel, it won't get much more bet-the-company than this.
Just ask Lehman Brothers or the Tribune Co. or General Motors or ...
*Robert G. Abrams is co-chairman of global litigation at Howrey. Based in the firm's Washington, D.C., office, he can be contacted at abramsr@howrey.com. |
