Whether external or general counsel, lawyers quickly earn a seat at the “head table” and become the trusted go-to advisor for decision-makers in a company. Major transactions, decisions and plans will involve a lawyer, and their input is critical.
Whether external or general counsel, lawyers quickly earn a seat at the “head table” and become the trusted go-to advisor for decision-makers in a company. Major transactions, decisions and plans will involve a lawyer, and their input is critical.
Further, law school — with its entrance exam and limited admission — is typically made up of ambitious and intelligent individuals with significant academic achievements.
Skills honed over time include the ability to cope in high-pressure situations, negotiating and analyzing large amounts of information. Further, individuals with legal backgrounds who have revolutionized their respective verticals include everyone from the late Sergio Marchionne, a graduate of Osgoode Hall Law School and former chief executive officer of Fiat Chrysler Automobiles, to Theo Epstein, a graduate of the University of San Diego School of Law and general manager of the Boston Red Sox and Chicago Cubs.
Why then, with this coveted role and valuable skills, do so few end up at the head of the table and instead we see many from financial and business backgrounds making the leap to leading organizations as CEOs?
The obvious answers on why lawyers don’t make good CEOs include everything from risk aversion, lack of financial background and the stigma attached to the reason why lawyers are hired in the first place, as gatekeepers. The reason may also include lawyers themselves.
In the last 10 years, I have worked for a technology-focused investment company that has built, sold and acquired more than 50 businesses. Over time, I realized that by working alongside the business people, a general counsel has a mix of a unique skillset and opportunity to climb the ranks, but overcoming the preconceived notion attached to lawyers and our own pedigree is often difficult to overcome.
It is important to take a look at the various stages of a lawyer’s background to understand why this is the situation.
Law school in general focuses on the downside of particular actions, while entrepreneurs will focus on the upsides for a business from risk taking.
One of the most successful lawyers to make the jump is Frank Blake, former chief executive officer of Home Depot, who rightfully stated that “law school trains you to worry about things that no normal human being would worry about.”
While that type of mindset may help in certain situations, as an entrepreneur, it also creates complexity and ambiguity for problems that need to be solved. It is a way of thinking that is not easy to detach from, which could be one reason for holding lawyers back.
While law school does instill valuable qualities such as the ability to process overwhelming amounts of information and build a narrative, most schools fall short when it comes to exposing future lawyers to basic financial information. For many in the corporate world or those serving as general counsel, this can be a valuable asset.
This lack of training often leads to lawyers avoiding “numbers” and the financial side of the business, instead being pigeonholed in their role as gatekeeper. This becomes obvious in organizations, and this proverbial handicap carries with them for a long time.
After graduating from Georgetown law school, Chris Sacca did a brief stint at Fenwick & West LLP in San Francisco. He eventually landed at Google and later created one of the most successful VC funds with Lowercase Capital, with early seed investments in Uber, Instagram
and Twitter.
When I spoke to Sacca, he discussed his early law firm days and told me, “New, creative, unconventional approaches to things are not particularly relished in law firms.” This stays with you. We are quickly taught “the model” and then stick to the model, as it works well.
“Most law firm cultures are built around a strong bias to risk aversion, essentially highlighting each risk and decrying each as a block to feasibility,” said Sacca. “As an entrepreneur, we encounter risk at every turn. Yet, the distinction is that we must weigh the relative likelihood of a bad outcome and the cost of the eventuality and use that analysis to make a decision. It’s about seeing everything through a lens tinted ‘no’ and transitioning to a world view that starts with ‘yes,’ even if the next question is, ‘how?’”
Many GCs have seen this in dealing with a very rigid external counsel who will be fixated on details that are part of an internal checklist they follow almost religiously, which can create an obstacle in moving the deal forward. This is not by accident and is ingrained in our early years as a lawyer.
Recently, I completed an industry test given to new mergers and acquistions hires for their competency in our specific vertical and scored very well. When an M & A associate wondered how I knew all this, my reply was simple — because I listen, ask questions and make sure I understand the sensitive business issues to better serve the company. This skill does not come naturally to many, and when we first transition into an in-house role, many of us will rightfully stick to the same formality and structure we are accustomed to in private practice. Over time, however, this can become a hindrance in gaining the trust of the business people in being known as the “deal breaker” and person that says “no” to most everything. There is also a reluctance after completing law school, bar exams and years at a firm to suddenly feel like more learning and training are required.
I spoke to Montreal-based Mitch Garber, a former lawyer who is the CEO of Caesars Interactive and chairman of Cirque du Soleil, who touched upon this. “In-house lawyers can take two paths — being the pure in-house counsel (usually known as the person who says ‘no’ to everything) or being the pragmatic lawyer who takes an interest in the actual business and the people running it and is seen to look for solutions while protecting the company,” he says. “Having the respect of peers, as someone who truly understands the business and its competitors, is key.”
Apart from being part of higher-level decisions that are not purely legal, this is the first step to being considered more than an “asset” with one set of skills and someone capable of moving into the higher seat. This includes understanding the business beyond the legal department and taking a keen interest in all areas so as to contribute when the opportunity presents itself to demonstrate one’s abilities.
In 2010, I became a shareholder of the company and was on the ground floor in building some of our most successful ventures, including Valnet, a web publishing company, and Valsoft, a vertical market software company. I have advised on everything from accounting issues to hiring top talent to understanding market expectations of both the web publishing and software business. Priorities also changed: Rather than justifying a larger legal spend, I was negotiating flat rates with firms, keeping on eye on our bottom line and the proverbial bigger picture. Expanding the legal team was not focused on surrounding myself with point persons for specific tasks but creating an efficient independent department where part of my time could be spent on bringing value to the company as a whole. This did not come easily, as I spent many nights understanding our verticals, financial lingo and what drives revenue for our business.
A GC is a central figure in most high-level decisions and transactions with the business people. If used properly, they can should go from highlighting the unfeasibility of decisions to absorbing and learning the intricacies of the business and its strategy.
The following are examples of some high-profile attorneys turned CEOs with similar track records during their tenure in what can be labelled “turnaround specialists” for their respective companies.
FRANK BLAKE: Home Depot, 2006 to 2014
Former lawyer and GC Frank Blake led Home Depot to its most successful period from 2006 to 2014. Blake entered at a time when Home Depot was facing a slowing economy, its struggling stock price and company morale at an all-time low. He turned the company around with what is described as a slow and methodical climb exercising discipline. In the end, the company’s total shareholder return, including dividend reinvestment, exceeded 150 per cent during his tenure.
CALIN ROVINESCU: Air Canada, 2009 to present
Calin Rovinescu was former managing partner of Stikeman Elliott who took the helm at Air Canada after the global recession, with serious liquidity issues due to a $2.9-billion pension deficit position. Much like Blake, through hard decisions — including union negotiations — he turned the company around. Air Canada’s finances have since been tightened, the pension deficit was in surplus and a lower-cost vacation airline, Rouge, was successfully launched. Rovinescu, much like Blake, is also noted for re-engineering the culture at the company.
BRIAN MOYNIHAN: CEO and chairman of Bank of America, 2010 to present
Much like Blake and Rovinescu, Brian Moynihan was promoted to CEO at a tumultuous time when appointing a lawyer who lacked operational expertise to rescue one of the largest financial institutions in America was met with much skepticism. Sticking to a disciplined playbook dubbed a “back-to-basic strategy” under Moynihan, Bank of America’s revenues have increased by US$8.3 billion or 10 per cent, at a rate of 3.2 per cent a year, while shrinking its cost base by US$4.3 billion over the past three years or 2.4 per cent a year.
