Legal Professionals

As a result of the heightened regulatory environment in the United States, general counsels have acquired new importance in the executive suite. For years, many chief executives have regarded their general counsels as consigliore on many issues, but today they are a strategic human capital asset. In the financial sector especially, but also in the consumer or healthcare industries, the prospect of being fined or sanctioned for violation of government regulations is real and substantive.

For example, in the U.S. broker-dealer industry, regulatory fines related to investment research and its lack of independence resulted in total fines of $1.4 billion in the Wall Street broker-dealer community. In the mutual fund sector, a number of firms were fined $400 - $600 million in several different cases, as well as forfeiting future profits by agreeing to reduced fees. So on a practical level, the risk exposure of not having an outstanding general counsel to guide a firm through these perilous times is huge. The present regulatory environment and its sometimes dangerous political currents can pose a threat to many otherwise ethical and well-managed companies.

For various reasons, many major financial services firms, including Bank of America, UBS, Alliance Capital, Janus and Putnam, have, recently changed their general counsels. The decision to hire a new general counsel may be prompted by crisis or regulatory action, but in a quieter context this is a strategic decision. In some companies, a general counsel may be seen as a potential successor to the CEO or a senior operating executive. Consequently, the profile or specification for a general counsel has changed in some ways. General counsels are now selected for their broader leadership and management competencies – their maturity, client culture, international perspective, intellect, and adaptability, for example – and not just their narrower legal skills.

An interesting issue is where to source these individuals. In many recruitment situations there exists a strong preference for taking an experienced general counsel from an in-house environment, given their exposure to management responsibilities and breadth of view. However, this can sometimes mean cycling through a limited universe of candidates. An alternative, which is pursued frequently, is to recruit very senior partners – typically managing partners, management committee members, or practice group leaders – out of the major law firms. Typically, there will be a certain focus on legal or regulatory expertise as relevant to the client’s industry, and the search will proceed along a specialized-knowledge vertical. Interestingly, though, with few exceptions, law firm partners have no large-scale managerial experience.

General counsels have the advantage of viewing the breadth of the operations of a company and can provide appropriate points of perspective in the executive suite. Many clients are seeking a general counsel who has the ability to anticipate the next issue, to peer into the future and test the unknown, or to be astute in protecting the organization. We find that candidates with prior regulatory experience, or respected relationships with senior regulators, are valued by clients. Also, in the United States, experience in Washington DC, or some other type of political or governmental experience may also be valued in a general counsel, as this can often provide an extended network that is valuable to the institution.

Co-author: Elizabeth Lamb