December 14, 2022 – Given the environment that businesses operate in today, the general counsel role has become a critical, and invaluable, member of leadership teams everywhere, with no end in sight for the demand for these leaders. With that said, lawyerly advice is hardly this senior executive’s most important contribution. With their insights into virtually every aspect of a company, general counsels are getting the recognition they deserve as key strategic players, and in increasingly more instances successors-in-waiting for senior-most positions.
Virtually every scaling organization needs a general counsel. Like the chief people officer, the chief financial officer, and other roles that have evolved in stature in recent years, the General Counsel has historically been misunderstood relative to the true value within a rapidly growing organization. Those days, however, are all but gone.
“We are seeing the perception of the function from an entrepreneur and investor perspective evolve from functional lead to operator and strategic business partner,” said Alex Lebow, who co-leads the general counsel practice for Daversa Partners. “Great GCs are great operators. They are super cross-functional. They understand every piece of the business with incredible granularity, maybe even more than other functional leaders. I think the competition for top GC jobs is only going to become more fierce. On the search front that’s something that we anticipate. But I also think that you’ll see more GCs ascend to potentially chief operating officer and president type roles. There’s a number of examples of those across the industry right now. And I think there will be way more going forward.”
The rise of the general counsel role comes down to a growing awareness by CEOs and others of the value that a great GC can bring to a company. “It’s essentially a recognition of the fact that this is a critical member of the senior leadership team,” said Mr. Lebow. “More specifically, look at the enormous boom in fintech over the last several years. Companies that are innovating in regulated industries can’t not have a general counsel; you need to comfortably and confidently operate in the legal gray area, so you need a GC. Same thing with digital health, a huge area of focus for investors over the last several years. That’s a highly regulated industry in which you need to have a general counsel to help you navigate complex issues. So that’s one of the things that has led to more companies running an executive retained search to find their GC. I also think that over time, investors and CEOs have realized that a great GC is a point of leverage for a growing company.”
Getting to Yes
One of the things that sets a stellar general counsel apart is a knack for navigating what can be a murky business environment for start-ups and other fast-growth companies. “A great lawyer will help leaders across the organization get to yes,” said Brittany Rosenfeld, who co-leads the general counsel practice for Daversa Partners alongside Mr. Lebow. “As a lawyer, it’s really easy to say no, and ultimately that inhibits innovation and growth. There’s just an inherent comfortability that great GCs have at the bleeding edge of their industry. A great lawyer will be able to think outside of the regulatory framework available and help the team that they’re working with get to yes, and continue to push the envelope, all within the bounds of what’s legal. Every great GC has a hard line too, and they’re uncompromising on that. But, again, we’re in a rapidly moving, highly innovative and disruptive industry. You need to test and iterate and push, obviously, all without crossing a line, ever.”
The best general counsels, said Mr. Lebow, have a sharp understanding of everything happening across an organization, in particular how something on one side of the company will affect something on the other side. “A great GC is also comfortable in the regulatory gray area, inferring from policy crafted and historically applied to incumbents, and making safe decisions that still allow a company to innovate,” he said. “A great GC doesn’t view things in a binary way. That’s super important. There’s shades of comfortability, and a great GC will help founders understand the risk associated with XYZ decision so that founders can make their own call. And, a great GC will have their tentacles in everything across the organization without at any point slowing things down.”
“In my opinion, the GC is one of the most cross functional people in an organization,” said Ms. Rosenfeld. “They’re involved in contracts, for instance, and that keeps them connected to the sales organization. Product counsel is also an enormous thing, especially in Silicon Valley, so they’re deep in product. They’re obviously connected to HR and business operations. So they’ve got a great, non-biased perspective into things happening across the organization. And as it relates to lending on a cohesive strategy for anything, your GC is going to have a really unique perspective.”
General counsels tend to approach problems differently than leaders of most functions, said Ms. Rosenfeld. “I think that’s because GCs think differently, and naturally approach problems from a different perspective. So, at the table you end up with a much richer conversation with more diverse perspectives. GCs tend to approach questions and problems from a different angle than your head of product or your head of marketing, for example.”
A Few Steps Ahead
If a great general counsel is doing their job, they also tend to think several steps in advance. “They’re obsessed with second- and third-order effects,” said Mr. Lebow. “Take the product roadmap, for example. Decisions that you make today will set your organization down a path, and your GC is exceptionally well positioned to understand the long-term implications of product decisions made today as it relates to the product’s positioning within an evolving, regulated space. When legal is leveraged correctly it allows companies to move faster by helping them skate to where the puck is headed. Because to do things once takes less time than having to do them twice because of a strategic error.”
One industry where the value of a general counsel is obvious is fintech. Many financial technology firms offer products that resemble those that a regulated bank might offer, but they are not banks, nor do they want to be. “So if you’re an innovative fintech and you want to keep bringing products to market to serve your customer base, what you build, how you build it, how you communicate to your customers about the product, all have an implication on the way that it’s going to be received by regulators,” said Mr. Lebow. “So if you’re a digital bank, for example, and you want to create a deposits product, you need to understand what specifically you can offer your customers from a feature perspective before you cross into the territory of a regulated financial product that only a chartered bank can bring to market, and a general counsel can help you get there.”
Inside the High Demand for General Counsel Leaders
The legal and compliance market is booming. The number of in-house lawyers and law firm partners with aspirations of becoming a general counsel is at an all-time high. Unfortunately, landing the position is a challenge. Every search has specific criteria established by the executive leadership team and board which must be met. Some of the criteria could include specific industry experience or business knowledge, a background in public company securities and governance, as well as expertise in regulatory, compliance, litigation, M&A, employment/labor law, intellectual property, government relations, leadership, career track record, law firm training, law school ranking, and the list goes on, according to Robert Barker, co-founder and managing partner of BarkerGilmore, which specializes in building corporate legal and compliance teams.
“Keep in mind cultural fit and soft skills which cannot be found on the resume are equally important,” he said. “And diversity can play a major factor in the CEO and board’s final decision. Most are using the general counsel position as a means of adding diversity to the executive leadership team,” he added. The demand for excellence is understandable as the general counsel plays such a critical role. One wrong answer or move during the interview process can lead to immediate disqualification. “Even after an offer is made, any red flag demonstrating a lack of judgment or ethics discovered during the background investigation will lead to a retraction,” said Mr. Barker.
Another sector where you’ll see the general counsel’s footprint is healthcare, with its constantly shifting regulatory landscape. “From a privacy perspective, for companies in the electronic health record or medical record space, for instance, there’s a lot of red tape that you need to build around as you bring new products and features to market,” said Mr. Lebow. “Companies in the fertility space also have that regulatory landscape that has changed recently. And a great GC is going to understand where landmark cases are and how different decisions could affect the company’s ability to sell a product, market a product, or whatever. And they can help the company plan for all those different potentialities. So, in any regulated industry, a GC is going to help you keep your finger on the pulse of what’s happening, and help you play offense vs. sitting and waiting for laws to take hold and then reacting.”
Finding Great GCs
For those who recruit general counsels, as with most top-level functions and sectors, finding the best prospects calls for a good knowledge base of individuals’ backgrounds and current roles. First, there’s pedigree, said Ms. Rosenfeld. Those who have worked for the top firms focused on the technology industry will know the issues they’ll be facing as a general counsel.
Ms. Rosenfeld also sees those who have worked in the less-defined areas of the law as great potential candidates. “Complexity exists in the gray area,” she said. “When there is a written black and white regulation that you need to follow, that’s actually straightforward. But when you’re a lawyer inside of a Web3 or crypto company, there is no regulation that applies to what you’re doing. So, you’ve got to extrapolate based on what’s out there for fintech or defi (decentralized finance) or other analogous industries.”
And lastly, Ms. Rosenfeld looks for candidates in pioneering categories and industries, and cites payments platform Block (formerly Square) and vacation rental platform Airbnb, among a handful of others, as excellent sources of legal talent. “Block has done an exceptional job of building its legal organization, and you see lawyers that have worked for Block all over tech in category-defining businesses,” she said. “Airbnb as well. Early on, Airbnb needed to figure out issues like KYC, money laundering, and payments, and that’s all really hairy stuff, and they did it successfully. So people who worked there I would put into that elite category.”
When to Hire
If you head a start-up, the best time to recruit a general counsel, said Mr. Lebow, is usually around your Series B financing. “If you’re a late-stage company preparing for an IPO, you obviously need a general counsel,” he explained. “But if you wait to hire a GC until you’re in IPO prep, the incoming GC is going to inherit a tremendous amount of legal debt. The same way that an organization may have technical debt, an organization can have legal debt. At Series B is when I think the complexity justifies bringing somebody in-house. And you can build the right way so that when it is time to prepare for an IPO, or even just when the business is a bigger thing, you don’t have a tremendous amount of legal debt, which is expensive to clean up.”
“Also, at any Series B organization, there’s a tremendous amount to do,” he added. “And great GCs are cross-functional. So as a utility player I think they’re valuable. In a world where everybody’s just trying to add value, great GCs know how to add value across the organization. So, you’re going to get a lot out of them, more than just your legal work. In fact, that’s actually not the main reason you hire them.”
“Overall, it has been incredible to see the evolution in the legal function over the past few years,” said Ms. Rosenfeld, “and we are excited to continue helping high growth technology companies build out their leadership teams.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media