Hiring a General Counsel: What to Look For

The Increasing Trend of Legal Leaders Joining Startups

A recent publication in Corporate Counsel has brought attention to a notable shift: an increasing number of experienced legal professionals are transitioning to startup environments to assume the position of general counsel.

For certain individuals, this move represents a pursuit of improved work-life integration. However, a significant driving force is the desire to establish and lead a legal department from the ground up.

Alternatively, many are attracted by the prospect of contributing to organizations with strong, purpose-driven missions.

Benefits for Startups, Particularly in Regulated Sectors

This trend presents considerable advantages for startups, particularly those operating within heavily regulated industries. Constructing robust in-house legal teams has historically been difficult for these companies.

Reliance on external law firms can lead to substantial legal expenses. Access to qualified legal talent is now more attainable than ever before.

Founders now have a greater opportunity to secure highly skilled individuals for their small and medium-sized businesses.

Challenges and Considerations for Founders

While the increased availability of legal talent is beneficial, it also introduces complexities. For CEOs of rapidly expanding startups, and even established mid-sized technology firms, selecting the appropriate legal leader is a critical decision.

The choice will have long-term consequences for the business. Therefore, a careful and considered approach is essential from the outset.

Finding the right resource is paramount to ensuring future success and mitigating potential risks.

The Advantages of Employing In-House Legal Counsel

A key advantage of securing an in-house attorney lies in their capacity to develop a comprehensive understanding of your business operations.

This deep familiarity enables them to deliver more pertinent legal guidance and offer distinctive perspectives on diverse business strategies.

Law firms inherently prioritize risk mitigation, which can sometimes conflict with a company's growth ambitions.

However, CEOs are often prepared to assume calculated risks to propel the business forward.

Consequently, having skilled in-house counsel capable of effectively managing the potential drawbacks of these risks is paramount.

The Value of Proactive Legal Partnership

Executives require a legal advisor they can rely on, both for resolving issues as they arise and for proactively identifying and communicating potential risks.

Business leaders don't benefit from counsel who simply discourage risk-taking or offer post-event criticism.

Instead, they need a professional who can navigate the outcomes – both positive and negative – of business choices with composure and organization.

Cost Considerations and Predictability

Traditional law firm billing, based on hourly rates, can present budgetary challenges, particularly for startups operating with limited resources.

While alternative fee structures are gaining traction, they are often restricted to simpler cases, with more complex matters still billed hourly.

Employing a full-time attorney with a fixed salary provides greater cost control.

Over time, this investment should yield superior legal advice and a more predictable legal spend.

• Cost Management: Predictable salary versus fluctuating hourly rates.
• Expertise: Deep understanding of the business’s nuances.
• Risk Management: Proactive identification and mitigation of potential issues.

Ultimately, an in-house legal counsel can be a strategic asset, contributing to both the legal health and overall success of the organization.

The Significance of Experience and Perspective

When assessing potential General Counsel candidates, a crucial element to consider is their tolerance for risk. While many in-house legal professionals profess to be “business-oriented,” this often doesn't translate into practical application.

A limited number of in-house legal leaders demonstrate a genuine willingness to accept calculated risks to achieve strategic business goals. The legal profession’s training often predisposes practitioners to focus on potential negative outcomes.

However, a substantial spectrum exists between assuming a risk and facing a disastrous consequence. Exceptional GCs prioritize business needs, accept associated risks, and confidently manage outcomes.

Evaluating a Candidate's Risk Management Approach

CEOs can effectively gauge a candidate’s experience with challenging situations through targeted questioning. Specifically, inquire about instances where their perspective differed from that of external legal advisors.

Request detailed explanations. What was the basis of the candidate’s disagreement? What ultimate course of action did they recommend? Did they present the situation to business leaders, allowing them to participate in the decision-making process?

Furthermore, thorough reference checks are invaluable. Communicate directly with references, explicitly stating your desire to understand the candidate’s capacity for clear communication, independent judgment, and business-focused decision-making.

Specifically, ask references about the candidate’s interactions with outside counsel – frequency, context, and nature of those interactions.

Establishing Clear Expectations

Prior to extending an offer, a CEO should articulate their expectations regarding risk assessment, contribution of insights, formation of well-considered opinions, and the pursuit of business objectives. Alignment on the role’s scope and expectations is paramount.

Hiring a new C-level executive, including the General Counsel, is a significant undertaking for most CEOs. Therefore, diligence, critical evaluation, and a demand for high-quality performance are essential, mirroring the standards applied to all other C-suite members.

Maintaining Equilibrium During Difficult Times

An effective General Counsel recognizes that legal disputes or public controversies impacting a business are a distinct possibility, if not an inevitability. Often, when a company encounters its initial lawsuit or significant controversy, a sense of disarray can prevail.

This is where a GC possessing substantial experience and a pragmatic understanding of how these scenarios typically unfold can be invaluable. They can guide the business toward a favorable resolution, doing so with organization and decisiveness. When considering an in-house attorney, it’s crucial to assess the candidate’s previous experience in navigating legal challenges for businesses and their behavior under pressure.

Inquire about the candidate’s history with crisis management or handling turbulent events related to business operations. Then, delve deeper – request concrete examples of a time the candidate steered a crisis to a positive result (or, perhaps more instructively, a less successful one). How did they collaborate across different departments to formulate a crisis management strategy?

What adjustments would the candidate make if confronted with a comparable situation in the future? It’s important to gauge how a candidate will respond to instability and their capacity to transcend it, directing the situation away from the most unfavorable outcome.

Avoid a lawyer prone to panic, exacerbating existing chaos, and certainly not one who simply presents information without offering guidance. A strong legal professional articulates the facts clearly and succinctly, suggests a strategic path forward, fosters discussion and welcomes management input, and ultimately assumes responsibility for managing the situation and its results.

Chief Executive Officers should prioritize evaluating how an in-house lawyer can propel the business forward, rather than solely focusing on their ability to foresee and circumvent risks. If a candidate consistently emphasizes risk avoidance as a primary concern, instead of prioritizing business advancement, it may indicate a lack of confidence in their ability to achieve a successful outcome.

You shouldn’t depend on counsel unwilling to accept calculated risks due to deficiencies in their crisis management skillset.

Avoiding a Restrictive Legal Department

Ultimately, successful in-house legal leadership requires expertise in constructing and overseeing legal operations, and making sound legal judgments that don't impede advancement. Research from Gartner indicates that the most impactful General Counsels (GCs) demonstrate 51% greater success in implementing corporate strategies compared to others.

Essentially, top-performing GCs possess a strong grasp of the business ramifications of any given choice, carefully weigh the advantages and disadvantages, and guide the organization toward a favorable result. A legal team perceived solely as an obstructionist force is a cause for concern, and CEOs should demand a more proactive approach.

When seeking a new legal leader, prioritize a strategically-minded individual capable of propelling the business forward. This person should also be able to lead a team that collaborates seamlessly with other departments to achieve company goals.

While anticipating and handling legal issues is expected, it’s the business acumen and the capacity to perform effectively under pressure that truly distinguish exceptional legal professionals.

Key Qualities of an Effective General Counsel

• Strategic thinking and operational expertise.
• Ability to integrate legal functions with business objectives.
• Strong decision-making skills, considering both legal and business implications.
• Leadership capabilities to manage and motivate a legal team.

The role of the legal department should be to enable success, not to create barriers. Effective legal counsel provides guidance and support, allowing the business to navigate challenges and capitalize on opportunities.

A proactive and business-focused legal department is a valuable asset, contributing directly to the overall success of the organization. It’s crucial to identify and cultivate these qualities in legal leadership.