Why hiring general counsel is important

The most exceptional general counsels go beyond the simple task of cost reduction through risk avoidance. They offer direct, continuous, and time-sensitive advice on critical decisions, enabling you to unlock greater revenue potential before committing significant resources. Rather than solely managing deal contracts, a remarkable general counsel strategically collaborates with the sales and finance teams, empowering you to secure larger deals from the outset.

Employing an exceptional general counsel who possesses comprehensive knowledge of your company's intricacies allows you to proactively identify and address issues. This proactive approach eliminates the need to seek outside counsel only when problems arise and prevent risks from escalating into crises. This becomes particularly vital when developing groundbreaking business models (e.g., Airbnb, Square), pioneering new industry categories (e.g., Groupon, Twitter, crypto), navigating complex regulatory landscapes, competing against formidable established rivals, or operating in patent-rich markets. In such cases, the right general counsel comprehends your industry, operations, products, and sales models, enabling your executive team to devise effective business plans, mitigate risks, and discover innovative and cost-efficient solutions to legal challenges. Additionally, they often serve as brand ambassadors for your company, proactively establishing legal frameworks for emerging technologies within your industry.

When to hire

When outside counsel fees begin to skyrocket, CEOs confidently opt to bring counsel in-house. In the overwhelming majority of instances, the addition of a general counsel signifies the pivotal moment when you transition from collaborating with an execution-oriented external entity to forging a partnership with a strategically astute executive who possesses the ability to shape the company's trajectory.

The catalysts for hiring a general counsel strongly hinge on the type, scale, and complexity of your company, surpassing other executive hires in importance:

• When operating an enterprise SaaS company, the need for a general counsel arises when customer contract negotiations intensify or when the complexity and strategic significance of customer and business development relationships increase. Engaging in deals with prominent entities like Microsoft necessitates the support of a general counsel who can facilitate successful agreements while safeguarding your company's long-term interests.
• For enterprises relying heavily on patent portfolios as a key differentiating factor, it is advisable to enlist a general counsel early on to incorporate this process into your overall strategy.
• In the case of pursuing international expansion as a significant part of your business strategy, a general counsel can offer guidance and coordination for legal matters across different countries. Once your employee presence outside the US reaches a critical mass, compliance and HR-related legal risks become more prominent, and navigating the varying regulatory regimes becomes essential. For instance, European countries may have stricter data privacy laws but exhibit more leniency in other domains like cryptocurrencies.
• If an initial public offering (IPO) is on the horizon, it is crucial to have an experienced go-public general counsel as part of your executive team well in advance, preferably before the financing round preceding the filing. This ensures proper preparation of the company's governance and legal functions to operate effectively as a public entity.
• Industries characterized by high regulation such as crypto, fintech, biotech, space, defense, or rapidly evolving sectors like AI often necessitate the early involvement of a general counsel. Given the intricate connection between these companies' strategies and legal, regulatory, and compliance concerns, having a general counsel from the early stages of the company's life cycle is highly beneficial.
• Consumer companies frequently opt to engage a general counsel at an earlier stage to proactively address legal and regulatory aspects pertaining to consumer protection, data privacy, and international compliance.

2022–2023 trends

Growing demand for industry specialists in initial phases. As previously mentioned, numerous entrepreneurs originating from predominantly unregulated tech companies have ventured into highly regulated sectors such as crypto, fintech, biotech, space, or defense. We have observed a surge in these companies engaging general counsels at earlier stages to collaboratively develop long-term strategies.

Seeking expertise in a financially limited environment. With the recent market contraction and the emphasis on cost reduction, many companies have shifted away from relying solely on renowned firms for their legal needs. Instead, they are increasingly opting to outsource specific issues to independent contractors and smaller legal firms. This approach enables them to conserve financial resources while often benefiting from more specialized and focused services.

Writing the MOC

In The Hiring Process, we delve into the intricate details of crafting a comprehensive mission–outcomes–competencies (MOC) document.

An exceptional all-star general counsel will:

• Display appropriate pragmatism and possess the ideal risk tolerance for employment in an early-stage firm
• Establish oneself as a dependable consultant to the CEO and executive group
• Align seamlessly with a company and culture centered on product development
• Demonstrate a proclivity for decisive action when confronted with incomplete information in decision-making scenarios
• Demonstrate a history of successfully recruiting, training, and nurturing exceptional teams

Additionally, they will possess proficiency in, or have access to professionals who possess proficiency in, several of the pivotal matters listed below:

• Intellectual property encompasses patent prosecution, licensing, and litigation,
• Financial matters involve debt and equity financing,
• Maintaining privacy is crucial,
• Labor and employment law governs workplace relations,
• Executive compensation addresses high-level remuneration,
• Contracts and product licensing ensure legal agreements,
• Litigation handles legal disputes,
• Tax matters pertain to taxation,
• Antitrust regulations prevent monopolistic practices,
• M&A refers to mergers and acquisitions,
• IPO involves initial public offerings,
• Securities law and SEC reporting focus on financial transparency,
• Corporate governance ensures proper management.

Archetypes and backgrounds

Once you possess a clear understanding of your specific requirements, it is essential to prioritize the recruitment of a general counsel who possesses the relevant background and skill set to effectively address those needs. We will now delineate three overarching types of general counsel commonly observed in the market: the pre-IPO corporate governance and securities counsel, the commercial counsel, and the regulated industry expert.

Keep in mind that these general counsel archetypes serve as valuable tools to align your needs with a candidate's skill set. While they are not absolute criteria, it is improbable to find a candidate who strictly adheres to only one of these categories.

The pre-IPO corporate governance and securities counsel

Our expert counsel specializes in preparing your company for a successful transition to the public market. We work closely with internal departments and external counsel to meticulously manage the registration process, ensuring absolute compliance with SEC regulations and securities laws. Our dedicated team also focuses on establishing and maintaining robust corporate governance structures to meet the stringent requirements of a public company.

As your company progresses towards a public offering, it becomes crucial to have a pre-IPO counsel who truly understands the unique needs of your team, processes, and infrastructure in order to thrive as a public entity. Unlike most counsels, we possess the invaluable experience of building out securities and corporate governance capacities specifically for private companies, along with a track record of taking companies public. We bring a deep understanding of the intricacies involved, enabling us to provide unparalleled guidance tailored to your company's specific goals and aspirations.

The commercial counsel

This counsel guarantees that your company maintains full compliance with all current regulations and effectively mitigates risks. Hiring this type of counsel is common among enterprise companies, as they frequently face legal challenges associated with scaling the business, handling substantial commercial deal flow and licenses, and optimizing the commercial aspects of the company.

The most exceptional commercial counsels possess a wealth of expertise in structuring deals that yield long-term benefits for the company. Moreover, they have extensive experience in establishing a robust deal process and collaborating with finance teams to create a strong deal desk.

Typically, these highly skilled general counsels emerge from prominent law firms, ensuring that they bring a wealth of knowledge and proficiency to the table.

The regulated industry expert

This esteemed professional is invaluable to companies operating in heavily regulated sectors such as fintech, crypto, biotech, and health. Employing a general counsel of this caliber is akin to welcoming a highly proficient COO who possesses exceptional expertise in legal, regulatory, and policy matters. They boast a unique combination of industry knowledge, regulatory insight, and a prestigious background at a top-tier law firm. A prime illustration of their immense value lies in the case of a general counsel with prior FDA experience, whose invaluable insights can greatly assist a company in successfully navigating the complexities of the clinical trial regime.

Setting up your general counsel for success

Your general counsel plays a crucial role in facilitating employee compliance with an ethical code of conduct. They should serve as a dependable source of advice and guidance, ensuring that your teams fully comprehend and effectively implement legal and compliance policies. It is imperative that your general counsel fosters an environment where employees naturally seek their counsel, viewing the legal team as valuable partners rather than obstacles to overcome. Evaluating the candidate's ability to establish rapport with leaders is therefore of utmost importance.

In The Hiring Process, we extensively cover best practices. However, we have provided some specific recommendations below for each member of your executive team to consider when interviewing engineering leaders.

Make sure your candidate has the right appetite for risk

It is absolutely essential for a general counsel in a tech company to exude a sense of pragmatism and unwavering alignment with the ambitious risks that the CEO must undertake in order to achieve exponential growth. As CEOs incessantly strive to push the boundaries of innovation and venture into uncharted territories, the general counsel shoulders the crucial responsibility of leveraging their legal expertise to provide the company with a strategic advantage while meticulously identifying and raising awareness about any existential risks, even if it means being the lone voice of dissent in the boardroom. This distinctive risk profile sets apart the role of a general counsel in a tech company from that of their counterparts in larger organizations, whose primary focus revolves around foreseeing and mitigating brand-related risks, as well as upholding consumer trust.

Your general counsel should never report to your CFO

We highly recommend against the arrangement of having your general counsel report to your CFO. It is crucial for the heads of your finance and legal departments to have direct and unrestricted access to the CEO. When your general counsel is positioned beneath your CFO, it becomes significantly more challenging for them to identify and raise awareness about potential threats to the company's existence. Historical cases have demonstrated that CEOs who have relied on misguided advice from their CFOs have faced legal repercussions from external regulatory bodies. It is imperative to prioritize a reporting structure that ensures seamless communication between the CEO and both the finance and legal leadership.

Make sure your board is actively involved in the search

Many CEOs are often unaware of the crucial role played by the general counsel, who, similar to the CFO, closely collaborates with the board of directors. The general counsel's contributions are indispensable as they provide strategic guidance to the board, handle litigation matters involving customers or employees, and, in the case of an IPO, manage interactions with activist investors.

When considering candidates for this vital position, the board should carefully assess whether they possess the necessary skills to support the company's IPO efforts. This evaluation process becomes even more crucial in regulated industries where the board tends to be more actively involved. We highly recommend that one or two of the most engaged board members dedicate time to interact with potential candidates, ensuring they bring a strong and strategic approach to the table in the legal realm.

Look for connections to the right legal partners

Your company's general counsel must possess the expertise and connections necessary to assemble the right team, both internally and externally, to handle various legal matters. There is no strict rule when it comes to outsourcing specific legal functions. Your general counsel should be capable of determining which functions should be developed in-house to maintain institutional knowledge and which can be outsourced for efficient execution. It is crucial to thoroughly evaluate and assess these relationships during the reference process.

We express our sincere gratitude to Andy Hill and Jeff Nagashima for generously sharing their valuable insights and expertise for the creation of this guide.