1. www. NYLJ.com
Volume 247—NO. 27 Thursday, February 9, 2012
Management
Successful General Counsel By
Lee
Udelsman
Succession Planning
I
n February 2011, the Central Laborers Pension To begin, you need to determine if you have the
Fund, which owns more than 11,000 shares of right candidate(s) internally. If you do, what are
Apple stock, introduced a proposal at the annual you doing to help prepare them for their new role?
shareholders meeting that would require the In most companies, the GC’s successor is already
company to “adopt and disclose a written and working in the legal department. They have been
detailed succession planning policy.” The proposal incubated over time, serving as either a deputy GC
also called for Apple to develop emergency and or a divisional or Europe, Middle East and Africa
non-emergency succession plans and to adopt a (EMEA) GC for a key aspect of the company’s
formal assessment process to evaluate, identify and business. If that is the case, the GC must ensure
groom top candidates within the company. that this person has had meaningful interactions
The proposal was rejected, with Apple claiming with the board, dealt with new corporate governance
that publicly discussing successors would and securities requirements if it is a public company,
ISTOCK
“undermine the company’s efforts to recruit and contributed to the company’s future growth plans,
retain executives” and “invite competitors to recruit and possessed the ability to think as a strategic
our high-value executives. Furthermore, executives business partner. Opportunities to interact with
who are not identified as potential successors may and the public when you do not handle succession board members, shareholders, analysts and
choose to voluntarily leave the company.” smoothly. Ideally, every company should have a other constituents are essential, especially for a
While Apple’s situation was more immediate succession process in place for all of their C-level public company. This means that the designated
and sensitive than most, given Co-Founder and executives. If not, they should develop one. You successor will, over time, be given ownership of
CEO Steve Jobs’ declining health, it reflects a need to have your house in order, and that includes things the GC has traditionally owned. This shifting
greater trend: Succession plans are being more making sure you have the right people leading the of responsibilities should begin while the current GC
broadly and publicly discussed. The increased legal team. is still in the saddle. One way to do this is to transfer
scrutiny is coming from both shareholders and Where Should You Begin? the corporate secretary functions to the successor
federal regulators. The Securities and Exchange or have him represent the legal department on the
Commission has expanded the legal definitions General counsels face new responsibilities, audit committee or other board committees.
of “risk” and redefined succession planning as heightened expectations and unprecedented Remember that when assessing internal
fair game for shareholders who want greater challenges in today’s business environment, candidates, the general counsel might think
transparency. In the SEC’s own words (Legal especially as more companies develop a global someone is well-suited to be the next GC, but it
Bulletin 14E, Oct. 27, 2009): “One of the Board’s footprint. In addition, GCs need to help define the is the rest of the executive team, the board and
key functions is to provide for succession planning the other people in the legal department who will
so the company is not adversely affected due have to work with the successor, so all of these
to a vacancy in leadership. Recent events have players should be consulted during the selection
underscored the importance of this function to
Succession planning is not something process. Naturally, it is particularly important that
the governance of the corporation.” that can be done once and then the CEO and board members are comfortable with
As a result, companies can no longer dodge the forgotten. It is an ongoing process. It is the person. We have seen this happen too many
succession question. Dave Heine, an Executive times to count: A candidate meets all the listed
Vice President at leadership consultancy PDI
never finished. Criteria creation and needs criteria, but the chief executive or a particular
Ninth House, says, “If you say nothing at all assessments must become a regular part board member just can’t go with him. This usually
about succession, investors get skittish. You of the executive team’s agenda. boils down to one of two things: The CEO seeks
don’t necessarily have to name names of potential a stylistic change from the current GC who has
successors, but you should outline your criteria criteria for the GC position, identify internal and/ mentored his successor, or the successor simply
for selection and what you’re doing to develop or external candidates, select their successor, and does not possess the “gravitas” to lead the legal
internal candidates.” It can cost your company groom them to take over. function. Both the CEO and board want someone
financially and tarnish your standing with analysts Everyone wants to know when they should who has been around the block, has dealt with the
start—i.e., when should they make plans for the same kinds of issues and/or troubles the company
GC’s succession? It’s never too soon to start, faces or may face in the future, and has a capable,
Lee Udelsman is a partner and leader of the New York but if you want a baseline, begin looking for a strong and confident demeanor. Know what your
in-house practice group at legal search firm Major, Lindsey & successor when the current GC is within two years directors and officers expect and add those things
Africa. He can be reached at ludelsman@mlaglobal.com. of retirement. to your criteria.

2. thursday, February 9, 2012
If you do not have an internal candidate, or even search, this list of requirements, which should be Be Business-Centric
if you do, you may still want to conduct an external updated regularly, will enable you to continually
search. Sometimes, the CEO and/or the board wants reassess the legal department’s needs and polish Today’s and tomorrow’s GCs not only need the
fresh blood, someone who has worked in a different position descriptions so you can recruit candidates above-mentioned technical, legal and soft skills,
company and can bring new ideas and perspectives who will be able to guide it in the future. they also need a comprehensive understanding of
to the team. And even though the person who has As PDI’s Dave Heine explains: “Spell out the the company’s business, its existing limitations and
been second-in-command may seem to be the most challenges the current CEO (or GC) has faced and exposures, and the up- and down-sides to various
likely candidate, some number twos are just that: compare them with what the next one will have potential moves, and they need a proven ability to
number twos. They may not be comfortable making to deal with. Doing this shows that you have your assess risk. For instance, what if Company A has
difficult decisions or interacting with the board. If eye on how your industry is evolving and how the a number of old consent decrees in place, but the
you do not have a satisfactory internal candidate, marketplace is changing, and what that implies industry standards or conventions have changed
you need to start your search as soon as possible. about the qualifications you’ll need in your next since those decrees were entered? If the company
The general counsel will usually work with the CEO (or GC).” In other words, where do you want distributes a particular product, it runs the risk
head of human resources on an external search, the company to be in the next five, 10 or 15 years, of running afoul of some of those decrees. This
and in most instances, will utilize the services of and what are the qualifications of the leaders who seems like it would be an easy decision, right?
a recruiting firm. will help get it there? Figure out what is going to Well, not when you run the numbers. It turns
Regarding an Outside Hire drive the company in the future. Is it monetizing out that the potential fine is $50,000, while the
or protecting IP assets, product development, a potential gain from selling the product could be
If you bring someone in from outside the specialized service? The company’s strategic vision $10 million (assuming that there is no risk of harm
company, one hurdle is what title/position (where and what it will be doing tomorrow) will help to the public).
should he be given? The most typical is deputy determine the skills you need in your leaders. The GC needs to consider all of these factors.
general counsel. However, some candidates will If your company is multinational, it may be In the recruiting business, it’s not uncommon to
not be happy with that, especially if they already important to have someone who is multicultural, hear a CEO or other business leader in a company
hold the GC title somewhere else. Some may be or at least who has worked for a company that complain that the legal department is too risk
willing to accept a lesser title if they’re coming has operations in various countries. International averse and does not bring a commercial focus to the
from a smaller company and have essentially experience is appearing more and more on the dispensation of legal advice. GCs need to present
been guaranteed the top position (assuming criteria lists we receive from clients. Even if the all of the facts and let the business team determine
their performance is satisfactory during the candidate doesn’t speak or understand other if the risks are worth the potential gain.
period before the GC retires). If this is your languages, he should have demonstrated that he Update the Plan Continuously
plan, make sure your recruiter knows to look is sensitive to cultural differences, comfortable
for someone who is low-maintenance and able doing business in different types of environments Even if you have all of the above in place, you
to put their ego on the shelf—someone who and works well with people from a wide variety of must not let it become stale. Succession planning
is motivated by the opportunity and happy to cultural backgrounds. He must be a quick study, is not something that can be done once and then
forgo the title for awhile. If the title presents an since he will need to get up to speed with regulations forgotten. It is an ongoing process. It is never
insurmountable problem, you might consider and requirements in various jurisdictions. finished. Criteria creation and needs assessments
changing the current GC’s title to chief legal With the heightened interest in a company’s must become a regular part of the executive team’s
officer and have the new hire come in as intellectual property, it is also becoming increasingly agenda. The criteria list for the successor needs to
general counsel. important that GCs are knowledgeable about be updated; the internal candidates must be newly
In terms of the immediate tasks assigned to this
person, one approach is to basically mirror the
GC’s job description, but change all first chair/ Shifting of responsibilities should begin while the current GC is still in the saddle. One
leader references to second chair/support. This way to do this is to transfer the corporate secretary functions to the successor or have him
will let everyone know that this person is the
“GC in training.” The successor is going to need represent the legal department on the audit committee or other board committees.
to come in and “own” some things right away.
This is not only for the company’s sake (to get monetizing and defending a company’s IP portfolio. assessed to ensure their capabilities still match the
the successor ready as quickly as possible) but This kind of proactivity can help transform the company’s needs; the grooming/development plan
because any qualified individual will need to legal department from a cost center into a profit for the successor should be regularly reviewed to
be intellectually challenged and professionally (or at least a revenue) center. If the company has ensure he is getting the exposure and experiences
engaged from Day One. Perhaps the company can been through an SEC investigation, the next GC he requires; and the external market should be
put the designee in charge of a specific division. should be familiar with the terrain. You will want scanned to capture any newly qualified individuals.
For instance, he could be given responsibility for someone in the chair who has been there and done As Raoul J. Buron, Vice President and Chief Learning
the legal aspects of the company’s Latin America that, who is battle tested and proven, and who can Officer at Prudential Financial, explains, succession
or EMEA offices. This will throw him onto the front withstand the heat. management is integral to comprehensive talent
lines quickly, teach him many of the things he will When putting together your criteria, remember management. “It’s a discipline, a mind-set that has
need to know as GC and enable both sides of the that “talent” is becoming a defining competitive to be embedded in your culture.”
equation (him and the company) to ensure they advantage. As they say in the book “The Talent And don’t stop at the GC position. Ideally, there
have made the right choice. Masters: Why Smart Leaders Put People Before should be redundancies at every key position
Tomorrow’s Challenges Numbers,” financial results, market share, brand, within the legal department. That may not always
and legacy products all have a half-life that seems be realistic, but it is a goal worth shooting for, since
Whether you decide to go with an internal to grow shorter by the year. Talent is the only you never know what can happen, and you don’t
candidate or conduct an external search, it is critical competency that endures. The authors define want to be caught short. In fact, most GCs ensure
to define the types of experiences, competencies, “talent masters” as people who “put people before that there is some level of redundancy in the legal
personality traits and leadership skills you want numbers for the simple reason that it is talent that department. It is their own position that is often
in the next general counsel. And be sure to apply delivers the numbers. Success comes from those overlooked.
“forward thinking” when you do this—i.e., don’t limit who are able to extract meaning from events and
the criteria to what the company needs now; include the forces affecting a business, and are able to look Reprinted with permission from the February 9, 2012 edition of the NEW YORK LA W
in the analysis what it will need tomorrow, too. In at the world and assess the risks to take and the JOURNAL © 2012 ALM Media Properties, LLC. All rights reserved. Further duplication
without permission is prohibited. For information, contact 877-257-3382 or reprints@alm.
addition to being integral to your GC succession risks to avoid.” com. # 070-02-12-21