Mark A. Belnick began his guest lecture at Stanford Law School with a cautionary tale, recounting events leading to his indictment as general counsel of Tyco International in 2002. To a rapt class of some three dozen upper-level Stanford business and law school students, he described how his attempt to satisfy both his ethical duties as a lawyer and the demands of the CEO ended badly.
In 1999, for instance, Belnick pushed for full disclosure when the Securities and Exchange Commission launched a probe of his company's acquisitions accounting. Later, when the federal Consumer Product Safety Commission approved a recall of faulty Tyco sprinkler parts, Belnick backed it. But his advice didn't sit well with the top brass, and he was kept at the margins of decision-making. At one point, Belnick said, CEO Dennis Kozlowski even asked him whether he worked for Tyco or for the government.
Still, Kozlowski rewarded Belnick handsomely for handling the SEC inquiry - giving him a $15 million bonus and loans worth an additional $14 million. That largesse eventually made Belnick a target of New York state prosecutors, and in September 2002 he was charged with defrauding Tyco shareholders of millions of dollars through "egregious self-dealing transactions."
Two years later a jury cleared Belnick on all counts. But he still faced civil suits, and his reputation was in tatters. He warned the Stanford class, "General counsel today may need to hire lawyers for themselves." His lesson for would-be in-house lawyers: "If you're general counsel and you find yourself fighting with the board of directors because they're doing wrong and won't listen, get out."
Belnick was one of several guest lecturers who shared war stories and professional wisdom in a new spring-quarter class: The Role of the Modern General Counsel. Led by former Apple Corp. general counsel Daniel Cooperman, now of counsel in the Palo Alto office of Bingham McCutchen, the class plunged students from the law and business schools into real-world crisis scenarios as preparation for practicing corporate law.
Cooperman's first goal is to teach students what in-house lawyers actually do. "We want future attorneys who will be working in law firms to become familiar with the agendas and mind-sets of the corporate clients they'll be facing across the table," he says. But he also wants to prepare the next generation of general counsel for the rigors of a changing environment.
Many top-level executives, he observes, still think general counsel should be used mostly for damage control. "Business leaders need to understand that in-house lawyers are not just plumbers you call when you need a leak fixed," he says. "They're an important part of a company's leadership team."
Cooperman taught the Stanford class with Joseph A. Grundfest, the sponsoring law school professor and a former SEC commissioner, and Anastasia Kelly, a partner in the Washington, D.C., office of DLA Piper and former general counsel to AIG, Sears Roebuck, and Fannie Mae. Other guest lecturers last spring included Leslie R. Caldwell, a partner at the New York office of Morgan, Lewis & Bockius and a former federal prosecutor; Mark Chandler, general counsel of Cisco Systems; and Thomas M. McCoy, the retired general counsel at AMD.
Seeing the law and business students work together on projects delighted Cooperman. "Over the course of the term, the students discovered their differing approaches to problem solving and learned to value each other's perspectives," he says. "What could be better preparation for an in-house career?"
To date, Stanford's approach to teaching in-house skills is unique. Most other law schools hold two- or three-day corporate counsel institutes, similar to continuing legal education programs offered in various cities by the Association of Corporate Counsel (ACC). Northwestern University School of Law offers a summer corporate counsel practicum for JD-MBA students. And last January, Yale Law School began offering its Lawyers as Leaders: Challenges of a General Counsel class.
In California, some institutions offer dual JD-MBA degrees to prepare attorneys for various corporate practice areas. But those students take separate courses at the business and law schools to get the degree. The significance of the Stanford program, Grundfest says, is that it recognizes that the skills required by a general counsel are substantially different from those required of a litigator or a transactional lawyer.
"Law education has a traditional bias on cases," he says. "But we teach a kind of problem solving that leads to avoiding litigation, which is the real measure of a good general counsel. You can't find those solutions in legal opinions."
Continuing legal education companies applaud the innovative classes. "Law schools really must rethink their curriculum - there's virtually no training on real issues for corporate counsel," says Ian Nelson, business development and marketing vice president at New York's Practical Law Company, which produces online content designed to help its subscribers practice law more efficiently.
Cooperman's third-year law and second-year MBA students conduct postmortems of recent crises in the corporate world and explore the ethical and legal issues they raise. They are taught to respond with a multifaceted approach - making contingency plans, managing public relations, preparing for regulatory investigations, and anticipating congressional hearings.
Among other things, the class viewed and discussed Enron: The Smartest Guys in the Room
, a documentary based on the best-selling study of the emblematic scandal that surfaced in 2001, written by two journalists at Fortune
From the course, "I got a much better feel for the role a GC plays in keeping management in line with the regulatory requirements," says Shourav Lahiri, who completed a dual program last year and returned to the Singapore office of Pinsent Masons. "The pressures on a GC personally - the amount of legal exposure a GC has was frightening to me. Almost makes you not want to be one!"
A legal department's very structure and management, the students were warned, can have unforeseen consequences. In the Enron case, the in-house lawyers were dispersed to separate business units throughout the company, reporting to unit managers rather than to the general counsel. That setup, according to Cooperman, encouraged "going native": ignoring compliance issues for the sake of meeting unit goals.
More than one lecturer advised students that all of a corporation's lawyers should report "on a solid line" to the general counsel. And they said legal departments should be actively involved in managing litigation conducted by outside counsel.
Paul H. Dawes, a guest teacher and retired chairman of litigation at Latham & Watkins, underscored the importance of conducting a "prelitigation education" of the management team. "And beware of law firms that can't recognize conflicts of interest," he warned.
A number of speakers stressed legal officers' importance in promoting a culture of compliance within the corporation. As course coteacher Kelly told the class, general counsel must realize that "companies are run by human beings, who are invariably flawed." She said that means in-house lawyers must understand human nature and learn how to manage competing interests.
Ziv Shafir took the Stanford course in the first year of his joint JD-MBA program. "I saw that the general counsel has the opportunity to be the moral compass for an organization," he says. "Ironically, when we were put in the shoes of general counsel in various high-pressure situations, a lot of us were intimidated. ... Being GC was stressful and seemed like you were beset with life-and-death decisions from every direction. ... I am sure in ten years I would find it exhilarating and challenging, instead of intimidating."
Just 20 years ago, in-house counsel were "second-class citizens"
who worked shorter hours and made less money than lawyers in private firms, according to a March 2011 article in the Harvard Business Review
. They monitored regulatory compliance, closed deals, reviewed documents, and dealt with employee matters, leaving the more complicated work to outside counsel. Most candidates had worked in corporate law departments or acquired in-house skills at smaller companies.
"I pretty much learned on the job," recalls Teveia R. Barnes, a partner at the San Francisco office of Foley & Lardner and former associate general counsel to Bank of America, where she managed in-house lawyers and outside counsel and advised 15 units of the bank. "When I came from Simpson Thacher & Bartlett in New York, I attended the bank's internal management training programs and took a number of CLEs with the Association of Corporate Counsel," she says. "The rest was learning from experience."
Another method for attorneys to gain experience remains "seconding," or embedding associates from outside firms in a client's law department for an extended period. Michelle Banks, general counsel of Gap Inc., was seconded for a year to Itochu Corp. in Japan when she worked for Morrison & Foerster. One result of that assignment was her choice of an in-house career, joining Gap Inc. in 1999 and rising to general counsel in 2006.
"Gap provided management training programs, but it was the great mentoring I received from Anne Gust, my chief compliance officer, and from former GC Lauri Shanahan that were really important for my preparation," Banks says. "Now as part of the company's leadership team, I bring a risk filter to the conversation. I also ensure smooth interaction with the board, and see to it that our operations follow our code of ethics."
Recently, though, heightened regulatory scrutiny has transformed the in-house role, increasing responsibilities as well as prestige, according to the Harvard Business Review
article. "To land a general counsel job today, a lawyer needs experience negotiating with legal and regulatory agencies and industry watchdogs," it states. "And whereas corporate lawyers were once expected to understand just the rules at home - the assumption was that legal expertise didn't travel well across national borders - CEOs today need lawyers who can operate across geographic boundaries."
In particular, after Enron and other scandals, the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204) raised standards for corporate boards, management, and public accounting firms, requiring internal financial controls and independent directors, among other things. Last year's Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203) toughened those regulations and added consumer protections. This new regulatory environment, Cooperman says, means companies must continually make compliance adjustments. "Due to Dodd-Frank," he told the Stanford class, "at some companies compliance is becoming a stand-alone department."
Cooperman also says general counsel are now "gatekeepers," who essentially assess or vouch for the corporate client's own statements about a transaction. That puts them in the awkward position of policing for outside regulators while being employed as a corporate officer.
Cooperman says there's no sure-fire formula for achieving a balance between business goals and vigorous regulatory compliance. Walking that tightrope can be difficult, as Belnick discovered at Tyco.
Sarbanes-Oxley section 307 requires that if management fails to correct wrongdoing, general counsel must report "up-the-ladder" - either to the audit committee, another committee of independent directors, or the full board. Should the board fail to take action, in-house attorneys are permitted to make a so-called noisy withdrawal, notifying the SEC that they have resigned for professional reasons. (See 15 U.S.C. § 7245; 17 C.F.R. § 205.3(d).)
If any general counsel has actually resigned under these regulations, Cooperman notes, the public may never know the reasons, since the parties aren't required to disclose such details.
For most in-house counsel, however, such career-threatening drama is mostly a fantasy. Says Deirdre Stanley, executive vice president and general counsel of Thomson Reuters in New York, "I'm sympathetic to the dilemma in some highly regulated areas such as banking or securities; otherwise it can be overstated."
Gap's Banks says that balancing compliance with business priorities isn't one of her major concerns, adding that she "feels quite comfortable with the compatibility of my duties as general counsel, corporate secretary, and compliance officer."
But as GCs find themselves shouldering more risk management and gatekeeping, internal conflicts are bound to proliferate. "In-house lawyering used to be seen as the backwater of the legal profession, but that has changed," Cooperman told his class. "General counsel now have unparalleled influence within corporations as business strategists."
With their added roles and responsibilities,
general counsel in some heavily regulated industries command premium salaries (see "To Get Rich Is Glorious," opposite page). But the skills and seasoning required for such jobs add up to barriers of entry for young lawyers. The ACC's Becoming In-house Counsel
report (2005) offers this sobering advice: "The sad truth for most graduates looking to land in-house positions is that corporations rarely hire attorneys directly from law school."
A few major corporations, however, are experimenting with a new career track for young lawyers. In 2009 Hewlett-Packard began recruiting candidates from top law schools, including those at Stanford, UC Berkeley, Northwestern University, UCLA, and Columbia and Harvard universities. Since then HP has hired five lawyers for its U.S. offices and four for operations in India; it plans to hire six more graduates in 2012.
HP's new hires must complete a two-year graduate attorney program, rotating through various legal units and cross-training with HP's outside law firms. This year, HP recruits' starting pay was $115,000, with a $15,000 signing bonus - significantly below the median salary for all first-year associates starting out in Palo Alto, according to Robert Half Legal.
Pfizer launched a similar in-house pilot program with three third-year law students from Harvard and Yale, and it reportedly plans to hire more graduates this fall. "We need to train a generation of lawyers who know how to respond to what clients need," GC Amy Schulman told the Wall Street Journal
Part of the motivation for these experiments is saving money. According to a 2010 ACC/Serengeti survey, law department spending as a percentage of revenues rose by 35 percent in the past decade, more than twice the rate of increase in spending on outside counsel. Most survey respondents expected legal work to continue migrating in-house.
Gap's Banks, however, says her company won't be part of that trend. "We'll continue to hire mainly lawyers with already several years of experience," she says, adding that close supervision and mentoring are critical to help new hires grow professionally. Thomson Reuters' Stanley, who worked for Cravath, Swaine & Moore before going in-house, says her company will also stay with traditional hiring practices. "It's a rare corporation that can provide internally the training one gets from the many-sided law firm experience," she says.
Cooperman argues that for most companies, sending new graduates directly to an in-house position would be premature. "They will lack the wide exposure to various practice areas and [the] experiences critical to one's professional growth," he says.
Even so, it's never too early for aspiring GCs to become familiar with the rigors of the work. Cooperman has streamlined his course for the 2012 winter quarter: Readings will be pared down and prioritized; there will be fewer guest speakers but more interaction with the coteachers, including DLA Piper's Kelly once again and Larry Kramer, the law school dean, in place of Grundfest, who is on sabbatical. Because of "complicated logistics," Cooperman says, the course isn't open to nonstudents, such as practicing attorneys considering a career change. But he hopes to teach the course at other law schools.
Rene Ciria-Cruz is an associate editor at