Being a CEO isn't as cushy a job as it used to be. According to a recent study by Booz Allen Hamilton, the rate of CEO dismissals has increased 170 percent since 1995, and the average CEO tenure has dropped to only 7.6 years. The situation is unlikely to change any time soon; the shaky economy, public skepticism of corporate America and increased regulatory scrutiny are bound to keep top executives in heightened peril of dismissal for months, or years, to come.
With memories of Jeff Skilling and his ilk still fresh in their minds, CEOs are relying more than ever on the advice and guidance of their general counsel.
"A whole host of issues have converged to make the CEO's life a challenging one," said David Goehl, senior director for business development at LexisNexis Martindale-Hubbell. "But I think it's an opportunity from the in-house counsel's perspective, as well as outside law firms, to work together to benefit the CEO."
A GC who can rally behind the top executive's business goals while keeping him or her out of legal trouble is an asset no CEO can afford to be without. And GCs who don't secure the CEO's trust may find themselves looking for new jobs.
At a recent Martindale-Hubbell Counsel to Counsel forum in Washington, D.C., titled "What's On Your CEO's Mind--And What You Should Do About It," in-house counsel shared their ideas and best practices for winning and keeping the CEO's confidence.
Panelists agreed that contributing to the boss' business objectives is the quickest route to the inner circle. But you can't contribute to those goals without first determining what they are. GCs need to key into the CEO's principal objectives for the business and communicate those to the rest of the department.
"At the beginning of each year, we invite our CEO to come talk to us about his priorities for legal and for the company, and then design measurable goals for the department based on that information," said Laura Stein, senior vice president and general counsel of H.J. Heinz Co. Management at Heinz organizes its corporate objectives around four business imperatives: achieving sustainable growth; squeezing out costs; reducing complexity; and measuring performance. Stein takes those imperatives and asks everyone in her department--down to the administrative assistant level--what they can do to contribute to those strategic goals.
For example, to help with the corporatewide goal of reducing complexity, Stein's team decreased the number of legal entities it uses, thereby reducing the amount of separate tax returns and balance sheets it has to maintain.
"We're focused on helping the company reduce its complexity overall," she says. "All of our goals are driven by how we can help the CEO achieve success."
Other panelists agreed that GCs must understand the CEO's chief objectives and design goals around those objectives.
"There's an ongoing dialogue at our relationship meetings and in the normal course of business about how much money we're spending, what objectives we're achieving, and what's on the radar for the future," said Bjarnie Anderson, director of legal services for Barclays Bank.
One goal that most panelists agreed was top of mind for the CEOs at their companies was controlling costs. The results of the Corporate Legal Times/Dickstein Shapiro Morin & Oshinsky Survey of CEOs ["Back To Business" p.38, October 2004] confirm that belief. Thirty-two percent of CEOs indicated that reducing costs was the most important way the general counsel could improve the legal department, and 83 percent said it was important for their GC to have a firm grasp of financial issues.
CEOs expect every department to set and meet budget projections, but legal expenses can be difficult to predict, especially when the company gets hit with a broad discovery request or unanticipated litigation.
Several panelists recommended compensating outside counsel using alternative fee arrangements rather than traditional billable hours as a way to add predictability to the legal budget without sacrificing quality of representation. Among the types of alternative arrangements panelists recommended were flat-fees for a certain service, an hourly rate with negotiated discounts and performance-based bonuses, or project-based benchmarks.
The essential feature of all such billing arrangements is that they shift some of the risk from the company to the law firm, and create incentives for the firm to control their costs.
"This isn't a panacea, or a solution for everything that comes down the pipe," said Laurel Harbour, a partner at Shook, Hardy & Bacon. "But there's a lot of situations that in-house counsel and outside counsel can come to a consensus on."
Some in-house counsel expressed concern that without investing significant time and money into tracking and analyzing legal costs they couldn't negotiate fair terms with outside counsel. But law firm lawyers disagreed, saying that law firms are already aware of how much a given matter will likely cost.
"We know exactly what a deal on average costs, and we know exactly what pieces of litigation likely will cost," said Michael Dockterman, a partner at Wildman, Harrold, Allen and Dixon in Chicago. "Any law firm should be willing to share with you what they know about the range of costs and talk fairly about what the price should be."
Measure Of Success
Even if your department is minimizing expenditures on outside counsel, avoiding costly litigation and streamlining operations, the CEO might not be aware of your contributions to the bottom line.
"Lawyers in general certainly have a job to do in showing businesspeople that what we do adds real value--not just containing risk, but actually adding value," said David McFadden, partner at Gowling Lafleur Henderson in Toronto. "Businesspeople look at lawyers and legal services as part of their cost center."
Panelists agreed it's essential that general counsel find ways to highlight their achievements to upper management in a way that will resonate with their business sensibilities.
"We try to monetize legal work in a way the financial folks can understand," said Kathleen Chagnon, former vice president, general counsel and corporate secretary of Constellation Energy Group Inc.
Each year, she created a presentation for upper management that measured her department's work against benchmarks--for example, how much other companies in the energy industry spent on regulatory issues that year, or how much companies with similar revenues spent on litigation. She also highlighted specific opportunities the legal department identified and acted on--such as a strategic acquisition or winning a potentially costly case on summary judgment. She says top executives responded favorably to the presentations because they offered quantifiable examples of the savings the company realized as a direct result of the legal department's work.
"This gives executives a sound bite to take away," she said. "We give specific examples of when legal brought real value to the bottom line."