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Great advice from The Lawyer Whisperer

June 11, 2018

How to prevent a GC hire above you when you are the only lawyer in a start up company.

Julie Q. Brush

The Question: 

As the only lawyer in a mid-stage start-up (Director, Legal), what will happen if a GC is hired over me? Can I negotiate to leave with fully vested stock options? How do I protect myself?

In today’s emerging growth market, executives are hiring their first lawyers earlier and earlier in the company’s lifecycle. Depending on the type of company, its stage, industry; and its legal issues, this lawyer’s profile may vary – from full fledged Chief Legal Officer/General Counsel to something lower in the legal executive pecking order. In a mid-stage company, the first lawyer in the door is often a commercial transaction lawyer who is tasked with building a legal infrastructure and managing the blocking and tackling of all things Legal, which includes a heavy dose of “commercial” matters in all shapes and sizes. These lawyers possess between 10 – 15+ years of legal experience and have not yet held a General Counsel title. So running the show as the Legal Honcho is new territory (unless they’ve held a similar role in a start up company). Reporting structure is often to the CFO or other non-CEO exec – and compensation, while competitive on the cash, offers more moderate numbers on the stock grant.

When contemplating their first legal hire, some executives pursue a strategy of hiring a “good for now” attorney, but as the company matures and a liquidity event looks bigger and brighter (a la IPO), they opt for a more seasoned attorney with GC…and ideally IPO experience, who they will hire over their existing lawyer.

So when this does occur, what happens to the existing lawyer? Is there anything s/he can do to avoid this from happening? And if a departure is in the cards, can a lawyer leave with fully vested stock options? Let’s take each of these questions separately:

What happens to the existing lawyer when a GC is hired over him/her?

When a GC is hired over the lawyer who has been the sole internal legal counsel, one of a three results will occur: (1) the existing lawyer will leave by his/her choosing, which is typically motivated by the belief that career advancement will be limited; (2) the existing lawyer will stay and assume the role of #2 in the legal department – with a new reporting structure to the incoming GC; or (3) the incoming GC will fire the existing lawyer and hire either a lawyer of similar profile (to avoid or address a morale issue) or a more junior/less expensive lawyer.

Is there anything a sole in house lawyer can do to prevent a GC from being hired over him/her?

Nothing is guaranteed in life. And no matter how much a professional may to do ensure a specific outcome, the reality is that forces out of his/her control may intervene. But there are actions you can take to increase the chances of achieving want you want.

When joining an organization as its first lawyer, but without the GC title, the single most effective thing you can do to prevent executives from hiring a GC over you is to be great at your job. So what does this mean exactly?

Here’s what it means:

Be responsive. Communicate. Meet deadlines. Produce excellent work product. Be proactive to help where help is needed. Don’t be late…for anything! Know the business. Prioritize the business. Solve problems. Translate legalese into plain English. Treat everyone with respect. Manage your stress. Be positive. Be flexible. Be thoughtful and considerate of others. Behave like an executive.

Earn your way to the top by proving to the execs that you embody the legal leader they want and need.

A second measure you can take occurs during the interview process. Understand the role completely and look for “tells” from the executives as to how they regard the role, their attitude toward the legal function and their corporate growth plans. In addition, ask the executives directly whether they intend to hire over this position at some point in the future. I understand that pursuing this line of inquiry may create anxiety or be uncomfortable, but you must do it if you want complete clarity of the situation. Also, communicate your career goals should you join the organization and inquire about the milestones required to earn the GC title. By gathering as much information upfront about the role, communicating your goals and understanding the executives’ expectations, you can create a dynamic of mutual understanding when you walk in the door. This will give you the best chance to advance.

If a departure is in the cards, can the sole lawyer leave with fully vested stock options?

The short answer is no. If an attorney chooses to walk out the door, s/he won’t have the leverage to negotiate for such an aggressive ask. No company will agree to immediate stock vesting. While the outgoing lawyer may be feeling sour, demoralized and angry in such a situation, the reality is that s/he will be walking away with the already vested stock – and nothing else. If the lawyer is terminated, s/he may receive some kind of exit package, but it will not include fully vested stock options. So no matter how you slice and dice it, the outgoing lawyer will not leave with fully vested stock options.

As the sole lawyer in a mid-stage start up company, you are tasked with a great deal of responsibility. And while a lot is resting on your legal shoulders, the GC title is not yet yours. It is natural to wonder whether your reign will be short lived – and in some organizations, it just might be. But worrying about this potential outcome is a waste of energy. Instead, focus on being great at your job and doing the best you can for the company and your colleagues. Learn as much as possible in your role and grow as a professional. When the time is right, go for the promotion and make your case. You may or may not get what you want, but this approach will provide you with the best opportunity to succeed and come out of the end ready for your next big challenge.

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