One of my former students emailed me yesterday to ask for advice: The former student is being offered a ground-floor opportunity to be the general counsel at a new hedge fund started by a friend. Here’s what I responded, lightly edited.
Great to hear from you, [NAME]. Congratulations on the new situation.
I’m glad you found the tips-for-new-GCs article useful. In 2005 my friend and co-author Bob Robinson and I did an updated version; it’s posted at https://www.oncontracts.com/350-plus-tips-for-new-general-counsel-from-others-who-have-been-there/
If you haven’t already, you might want to look at a document I maintain with basic legal tips for startups, at https://www.oncontracts.com/startup-law/. From an investor perspective, the tips are probably more relevant to VCs and angels than to hedge funds, but they should still be useful in terms of issues for you to be aware of in respect of your portfolio companies.
Some of the most important things I learned as a GC are:
1. Business is full of risks, and business people are willing to take some risks as long as they seem to make sense. Lawyers, in contrast, are trained to spot and warn about risks; too often that training metastasizes into the lawyer being “Dr. No.”
In part, that’s because we usually don’t share the upside of the risk. If the risk goes badly, it’s human nature for the business people to want to point fingers somewhere. We lawyers, being not of their tribe, are an obvious target. All of this means that we lawyers tend to focus on (and sometimes fret about) the downside of the business risks.
2. You’ll want the business people to see you as a team player — but at the same time, if someone has to go to jail, make sure it’s not you. If the business people want to start getting close to criminal- or unethical stuff, you still want to be respectful and supportive but to make it very clear that you might have to resign — and in some situations it might have to be a “noisy” withdrawal (see, e.g., this article about Sarbanes-Oxley Act requirements).
3. The great rule of improv comedy is never to say “no,” but rather to say “yes, and.” Likewise, one of my senior partners, the late Bill Durkee (as in Arnold, White & Durkee) used to say that a lawyer should never tell a client, or in your case a business executive, “No, you can’t do that.”
Instead, our job is to point out possible consequences and to offer suggestions about preparations for those consequences, matter-of-factly and supportively.
Example: “Sure, the company can do X. • We’d want to think about lining up a criminal-defense lawyer because this is the kind of thing for which the Department of Justice has recently been bringing criminal indictments against corporate executives. • One complication is that under the Sarbanes-Oxley Act, if we do decide to start doing X, I’m personally required to report it to the board of directors. • We’d want to add Clauses A and B and C to our standard contracts. • We’d want to check with our insurance broker to make sure we’ve got coverage for possible product-liability lawsuits, and also make sure we have director-and-officer (“D&O”) coverage for the shareholder lawsuits.”
(These things shouldn’t be said sarcastically.)
4. Never be afraid to cheerfully confess ignorance and ask the business people, or the portfolio company’s business people: “Hey, I’m just a lawyer — could you explain this to me the way you would to a college student?”
By the same token, you can cheerfully “play back” what you heard and say something like, “OK, this is what I think you’re saying: ….”
That’s all that comes to mind at the moment. Best of luck, and keep in touch.