Outside general counsel: An Invaluable Resource for Angel/Venture/PE Investors and their Boards of Directors

In today’s business world, general counsels are playing a more important role than ever, especially for the boards of directors of corporations large and small.

There are several reasons for this trend, not the least of which is the two major crises the United States (and the world) has experienced over the past two decades: the corporate scandals of the early 2000s and the economic downturn of late 2000s. This has led to a need for more activist general counsels to become corporate leaders when it comes to ethics and legal compliance, as well as for the safety and security of public and private financings.

For similar reasons, investors in early-stage businesses have insisted on the incorporation of outside general counsels into the management-level decision-making process earlier in their development, and have used the general counsel function as much for strategic guidance as for legal acumen. In other words, outside general counsels have had to become more proactive in their counsel, rather than being relied upon strictly for legal advice.

Additionally, outside general counsels have the important responsibility of making sure early- and mid-stage companies meet the highest ethical standards and remain in compliance with state and federal law, while balancing their activities against the constant requirement for younger companies (especially), to continue on a steady path for growth. Thus, outside general counsels must not only be deeply knowledgeable in the minutia of corporate law, but they must also have a comprehensive understanding of the client’s business and its overall strategy.

Outside general counsels have an increasingly important relationship with the board of directors

In this context, the way outside general counsels interact with a company’s board of directors is of critical importance. Outside general counsels have been called upon more often in the 2000s and beyond to work with boards of directors, advising them on matters of risk mitigation, regulatory compliance, indemnity and insurance, inter-stakeholder politics, employee management, strategic guidance, balance-sheet structuring and corporate governance — a much broader set of issues than the general counsel has typically been asked to address in the past.

Outside general counsels today are also often tasked with educating members of a board about their fiduciary duties and obligations, and about the way in which certain current laws and regulations may be used to the strategic advantage of the company. Furthermore, more and more often, regardless of the size or life-stage of any company, the general counsel is frequently consulted by the board and the CEO in connection with her/his perspective on how best to manage the various personal interactions that occur by and among investors, senior management, other outside-service providers, customers and vendors. After all, the general counsel knows them all and has interacted at some meaningful business (and sometimes social) level, with each of those constituents.

Outside general counsels also advise boards on compensation matters, communications, crisis management and a wide range of other complex issues that today’s early- to mid-stage companies encounter with regularity. The outside general counsel, as the individual who is responsible for handling some of the company’s most sensitive information, can almost always help ensure that boards are consistent, thoroughly knowledgeable and act in the company’s best interests at all times.

Considering how important the relationship between outside general counsel and the board of directors often is, it is crucial that the board be at least somewhat involved in the hiring of these business-savvy and legally astute professionals — a responsibility they should most often share with the CEO. The early involvement of the board in choosing the right outside general counsel can help ensure that the outside general counsel, the CEO and the board work in tandem for the continued successful growth and well-being of the organization as a whole.

Thomas Wyckoff of Wyckoff General Counsels is a 25-year corporate attorney and business executive with a deep resume ranging from public company CEO to trusted, multi-year corporate associate at one of New York’s most highly regarded Wall Street law firms, and as general counsel of several companies varying in size from startups to $100 million in sales. Connect with Tom to discover how Wyckoff general counsels can help you take your early- to mid-stage business to its next level as your outside general counsel.