Legal Professionals

The powerful forces reshaping top corporate roles have also profoundly altered the position of General Counsel. It’s more complex, more demanding, and requires more leadership skill than ever. Recruiting or developing the right person for the job has never been harder – or more critical.

Historically, General Counsels have remained islands of stability no matter how tumultuous the seas of change around them. They switched employers less frequently. Legal expertise was more important to them than career considerations like the size of their teams or their budgets. They bore the company’s institutional memory and were rarely held accountable for strategic or operational performance. And when the time came for them to retire, succession often fell on the legal function’s next in line.

Recently, however, among large companies a noteworthy increase of General Counsel turnover has occurred. This increase in turnover has gone hand in hand with increased external recruitment of General Counsels, especially in the U.S. but, increasingly, elsewhere as well. With internal succession no longer a foregone conclusion, boards increasingly ask themselves where they should look: is it wiser to search globally for the best candidate or to leverage the insider’s knowledge that an internal candidate brings? If looking outside, should we consider only corporate legal candidates or should we look also at law firms, including that of our outside counsel?

The answer is far from simple. But it lies less in knowing where to look than in knowing what to look for – and what can be done to make the choice less problematic in the future. That means:

• Looking beyond the general considerations of inside versus outside
• Understanding the forces reshaping the role of the General Counsel
• Instituting talent development in the legal function

Boards and CEOs that take the trouble to do these three essential things can then better evaluate candidates for General Counsel, confidently choose the best one, and be assured that they will have a deeper pool from which to choose the next time around.

Inside versus Outside

In our experience, many organizations simply have entrenched attitudes on the issue of inside versus outside in the hiring of a General Counsel. Some boards and CEOs believe that they are better off looking inside first and going outside only after exhausting all the internal possibilities. Other organizations believe that there are always better candidates outside and therefore they almost always launch an external search. Still other companies tend to promote an internal candidate when the succession is natural, as in the case of a planned retirement, and go outside when the succession is unplanned, as when a General Counsel is dismissed, dies, or leaves abruptly.

None of these approaches is necessarily preferable. Sticking to candidates you already know because of the extra comfort it gives can be as self-defeating as believing that the outside market has, by definition, stronger candidates. Rather than automatically reverting to either approach, boards and CEOs should carefully consider the advantages and disadvantages of each course of action.

For example, even if capable internal candidates exist, some situations call for an external hire. This is particularly true when the company has been hit by a scandal or has engaged in fraud. Such circumstances may have so undermined the trust in the legal department that no internal successor to the General Counsel could possibly restore credibility for the function.

Sometimes, the departure of a General Counsel also offers an opportunity for a company to attract a diversity candidate, a goal that is no longer confined solely to the Americas. In other parts of the world, the recruitment of women and minorities has been climbing higher on the corporate agenda – and for good reason. More and more evidence indicates that companies that promote diversity and reflect it in their top management perform better.

Companies can also look outside for the entirely wrong reasons. For example, the deputy in the legal department may unfairly suffer from the stigma of having always been “number two.” The company then seeks a General Counsel from another company on the grounds of superior experience. But experience can be, at best, only a partial predictor of success. The real issue is whether the candidate has the competencies the company needs – what the candidate is capable of doing, not what he or she has done. In addition, cultural fit can also be an important consideration.

Sometimes, too, new external CEOs bring in “their” General Counsel – someone with whom the CEO has previously worked. This practice is inadvisable for three reasons. First, the hiring decision lacks transparency. There is no process for objectively determining who is the best available candidate, whether in-ternal or external. Second, the incumbent legal team may perceive the decision as a sign of distrust on the part of the new CEO. Third, the arrangement could create the appearance that the General Counsel lacks the required independence from the new CEO. Certainly, the General Counsel should be a trusted advisor to top management, but such trust is also built on the basis of an independence that puts the interest of the company above every individual interest.

As boards and CEOs prepare to choose a new General Counsel or consider succession planning for the role, they should examine their attitudes toward go-ing inside or outside. They might find that in simply doing what they have always done, whether that has been to go outside or to stay inside, they’ve overlooked the ultimate consideration: the competencies that are required in their new General Counsel. Over the past decade or so, those competencies have changed dramatically as the same powerful forces that have reshaped other corporate roles have also profoundly affected the role of General Counsel. Boards and CEOs are themselves no strangers to these forces, but they may be less familiar with precisely how the top legal role has been altered by them.

The Reshaping of the General Counsel Role

The most prominent forces bearing on the General Counsel role and requiring specific and often new and complex competencies include the following:

• Global operations require more intellectually challenging legal abilities. A more global and more regulated world requires General Counsels and their teams to be able to master more sophisticated, complex, and cutting-edge areas of the law and business. Among those are capital markets transactions, tax planning schemes, and international litigation, to name only a few.
  
  
• Regulatory responsibilities exert more pressure than ever. The need to monitor, influence and comply with the regulatory framework in a multitude of markets has put greater pressure on General Counsels of internationally operating companies. They are expected to be in closer contact with the outside world, be it regulators, lobbying groups, or other industry players. They need to understand the political, economic, social, and cultural situation in which various laws are embedded. They especially need to be able to address rapidly evolving environmental regulations, as efforts to address climate change accelerate around the world.
  
  
• Demands for corporate performance and corporate integrity have become more insistent. Ben Heineman, Jr., former General Counsel of GE and currently distinguished senior fellow at Harvard Law School’s Program on the Legal Profession and a senior fellow at Harvard’s John F. Kennedy School of Government, has written: “The greatest challenge for General Counsel and other inside lawyers is to reconcile the dual – and at times contradictory – roles of being both a partner to the business leaders and a guardian of the corporation’s integrity and reputation.”[1] The tension between those two roles has only intensified as the corporate scandals of recent years have brought more legal scrutiny while the demands of investors, the rise of Private Equity, and the recent economic downturn have put companies under intense pressure to perform – or else. In choosing a General Counsel, boards and CEOs must find someone who can effectively reconcile the demands of high performance and unimpeachable integrity.
  
  
• New business phenomena require new legal frameworks. From e-commerce to new media to biotechnology and more, the world is witnessing an explosion of fast-developing businesses. Their legal frameworks are developing with equal rapidity. In these and other industries, the General Counsel must actively help shape these legal frameworks and guide their companies into unfamiliar legal territory.
  
  
• Legal norms for governing the globalized world are lacking. National laws do not necessarily provide an answer to all of the legal questions that can arise in a global marketplace, nor do international organizations always have the authority and credibility to impose and enforce rules. In addition, the laws of different countries may sometimes conflict. Absence of rules, however, does not mean absence of law. A company’s General Counsel must be able to provide guidance in those areas where the norms are not yet clear.
  
  
• Companies are increasingly focusing on corporate governance and global risk management. Be-cause legal risk cannot be dissociated from other risks, particularly financial or reputational risk, the General Counsel role now goes well beyond legal risk management, putting the General Counsel in closer contact with the board of directors and some of its key committees.

These forces and the competencies they demand lead to two inescapable conclusions. First, in order to meet both the internal and external challenges that these forces have created, the General Counsel will have to be fully integrated into the decision-making process at the very top of the organization. He or she must be able to understand the broader context in which the company operates and proactively participate in setting the direction. The role must also be closely interlinked with risk management, compliance, internal audit, and corporate affairs and communications.

Second, no single person can fully understand the complex environment in which today’s company acts: the associated risks, the maze of national and international laws and regulations, and the company’s detailed operating conditions in locations around the globe. The General Counsel must therefore be capable of leading and, where necessary, creating a competent and cohesive legal team. The skills required include the ability to recruit, retain, and evaluate people. They also include the ability to collaborate, to motivate teams, and to establish trust. And they include the ability to manage a far-flung function in a multi-cultural and multi-lingual context. Few potential candidates possess this range of competencies, especially since the legal field tends to reward technical proficiency rather than business or leadership skills. Legal education also focuses largely on technical skills, not leadership; and law graduates tend to be experts in the legal system of only one nation. Given these limitations, a General Counsel who can build a strong team is all the more necessary.

In the more complex world in which a General Counsel has to operate – and lead – the difference between an average performer and a star performer can be great, and so can the consequent difference in a company’s exposure and standing. In choosing a new General Counsel, boards and CEOs should be acutely aware of the stakes involved. In addition to diligently seeking those potential stars who have the demanding mix of competencies today’s world requires, boards and CEOs can increase their chances of success by paying far greater attention to internal development of legal talent.

Hiring a Law Firm Partner as General Counsel Law firm partners have neither the insider advantages of internal candidates for General Counsel nor the functional experience of a sitting General Counsel. Nevertheless, there are many talented law firm partners who could potentially fill the General Counsel role. The real issue is whether they have the right attributes for succeeding in the position, including: A generalist’s grasp of the legal landscape. Because law firm partners often specialize in a narrow, complex area, make sure that they have been exposed to a wide scope of legal fields. Experience with other legal systems. Law firm partners are often experts within a particular domestic legal system and operate in a particular country. But many also have international experience such as handling cross-border transactions subject to the laws of another country. Ability to go beyond legal risk assessment. Good General Counsels must be able to take business factors into account in recommending a course of action, to balance many different interests, and sometimes to advocate a solution that is legally not the safest. A collegial temperament. Law firm partners who understand that General Counsels are often implicitly measured by their judgment, collaborative skills, and ability to quietly exert influence are likely to make the transition more easily than partners who are accustomed to a starring role in their firms. Managerial skills. Make sure that General Counsel candidates from law firms are adept at the cost side of legal operations. In addition, they must be able to manage a geographically spread and heavily matrixed department, a skill that is often found among international practice heads in law firms. The absence of any of these qualities should not necessarily be regarded as decisive. Most top law firm partners are capable of quickly adapting to the generalist legal role and of covering a broad variety of matters across different geographies. In an environment where the job of General Counsels continues to grow more complex, there is no good reason to categorically ignore this talented pool of potential candidates.

Talent Development: Securing the Future

Far too many companies are still forced to look outside for a new General Counsel simply because they have been unable to groom a successor internally. This lack of fully prepared internal candidates is unsurprising given that generally little attention is devoted to succession planning and the systematic development of in-house talent for more senior legal roles. But by putting in place a comprehensive and professional talent development program for the legal function, boards and CEOs can create the luxury of having a much deeper talent pool from which to choose their General Counsel in the future. In fact, given the difficulty of finding talent with the req-uisite competencies for today’s top legal job, such a program may be less a luxury than a necessity.

The basic principles of a comprehensive program include the following:

• Identify potential successors early on. That’s “successors,” plural. Placing all of the company’s bet on one heir-apparent is too risky. It’s far better to identify several high-potential individuals in various parts of the legal function and guide their development. However, the program should not inadvertently create unhealthy competition. In fact, a carefully tailored program, by encompassing the development of legal talent generally rather than a single successor, can help the function retain its best people. They are likely to see the company as an exciting place to work that affords opportunities for personal and professional advancement.
  
  
• Focus first on developing a broad technical background. In structuring opportunities for the development of critical competencies, initially emphasize such indispensable technical areas as M&A or litigation. Over time, as high-potential participants gain technical expertise, the focus should shift to leadership and business skills.
  
  
• Expose promising legal talent to different jurisdictions. Companies that operate in many countries and cultures around the world need lawyers who understand the challenges of working with many different legal systems.
  
  
• Develop their management, business, and leadership skills. Today’s General Counsels often must manage and lead a far-flung and complex legal function while serving as a member of the top leadership team deeply involved in major business decisions. Yet there are few roles in legal departments that offer opportunities for talented people to develop and demonstrate the many skills that might someday be required of them in the top legal job. The solution lies in rotating promising talent into roles outside the legal function in such areas as business development, Human Resources, compliance, or even general management. They can thus acquire valuable managerial skills, learn many aspects of the business first-hand, and build credibility with other executives in the company. If such non-legal assignments are not an option, similar opportunities for developing these skills can be found in interdisciplinary project teams and ad hoc assignments.

With a comprehensive talent development program in place in the legal function, boards, CEOs, and the incumbent General Counsel can engage in genuine and productive succession planning.

It should be remembered, however, that succession planning is not synonymous with talent development. World-class succession planning aims to find the best possible successor and increases the likelihood of doing so by insisting on the development of internal talent. But it also continues to scan the external horizon, benchmarking against potential external candidates. In that way, boards and CEOs can go beyond simple either/or arguments about inside versus outside and accomplish what should be the ultimate goal: keeping the company positioned at all times to appoint the best possible General Counsel for its needs.

This article is taken from our EXPERTS journal "Selecting the General Counsel".

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1 “Caught in the Middle,” Corporate Counsel, April 2007.