Custom-Fit Counsel
Advising what your company should do can be controversial, but it's part of a GC's job.
May 31, 2009 at 08:00 PM
9 minute read
A long time ago, when I was a young associate in New York, a partner remarked that a good inside counsel needed only two things: a desk phone and the directory for Cravath, Swaine & Moore.
Since then, the technological references have become dated, and the professional alternatives have expanded. As a result, these days any in-house counsel armed with little more than a smart phone ought to be able to obtain optimal advice for any combination of lead time, price point and venue.
Except that's not enough either. If the option backdating tempest taught us anything, it's that the standard isn't, “What's the best answer you can find?” but instead, “What's the best answer for this company?”
I thought of that when earlier this year (in one of the only great newspapers I know of that is printed on pink stock) I saw a parade of notables criticizing a Silicon Valley company for repricing employee stock options. “It's unfair,” they cried, “for a company's employees to reprice when the company's shareholders can't.”
Among the critics was a prominent GC with big firepower. If it's him vs. me in the boardroom, most directors will pick him. Actually, given the psychological and sociological phenomenon involved in board and small peer group decision-making generally, they're probably taking his counsel every time. I probably would too.
Except he was wrong. Or, more correctly, the critics were making at least one fundamental assumption that was incorrect, as is often the case with conventional wisdom.
Here's why: In the case of option repricing, they assume stockholders are locked into stock prices just like employees. Except they're not. Stockholders can get in and out of their positions 24/7–and in split-second intervals therein. And that's before factoring in derivatives trades or naked short-selling.
In contrast, employees can only “reprice” in one way and at one time: by voting, with their feet, to work elsewhere. That tends to be a single trade made after much deliberation. One that is almost never unwound once announced. It's a path that tends to be trod by the better employees first. Accordingly, it's a problem you want to fix before you have it.
(Or, as another wise person once told me, “Never solve a problem you can avoid.”)
Last month, another notable Silicon Valley company elected to reprice its employees' options as well. This came as a “surprise” to many; the company was known as a stalwart of shareholder rights and values. Had the company forsaken those values? Unlikely. Instead, management probably determined (in part on the advice of counsel) that in order to live up to their commitments to stockholders and otherwise, they needed to take action, which might subject the company to criticism and abuse, including from subsets of groups they were ultimately trying to benefit.
“Should” is a decider's term, a moral term. That's an area from which lawyers often–and often should–shy away.
But there's a balance to be struck. As in-house counsel, you can use your phone and browser to find advice on how to do things such as reprice employee options. You can even get advice about who's likely to complain, and what the consequences will be. But it can be hard to get (and it can be against any lawyer's nature to give) advice on whether your company should do something, such as repricing employee options. And while the decision itself probably isn't your call, as an inside counsel your obligations as a manager and a fiduciary may make giving that kind of advice part of your job.
Even if that advice is at odds with that of a great GC.
Self-preservation note to draft: In fairness, I suspect much of his advice, as is the case with most edited content, got left on the cutting room floor.
A long time ago, when I was a young associate in
Since then, the technological references have become dated, and the professional alternatives have expanded. As a result, these days any in-house counsel armed with little more than a smart phone ought to be able to obtain optimal advice for any combination of lead time, price point and venue.
Except that's not enough either. If the option backdating tempest taught us anything, it's that the standard isn't, “What's the best answer you can find?” but instead, “What's the best answer for this company?”
I thought of that when earlier this year (in one of the only great newspapers I know of that is printed on pink stock) I saw a parade of notables criticizing a Silicon Valley company for repricing employee stock options. “It's unfair,” they cried, “for a company's employees to reprice when the company's shareholders can't.”
Among the critics was a prominent GC with big firepower. If it's him vs. me in the boardroom, most directors will pick him. Actually, given the psychological and sociological phenomenon involved in board and small peer group decision-making generally, they're probably taking his counsel every time. I probably would too.
Except he was wrong. Or, more correctly, the critics were making at least one fundamental assumption that was incorrect, as is often the case with conventional wisdom.
Here's why: In the case of option repricing, they assume stockholders are locked into stock prices just like employees. Except they're not. Stockholders can get in and out of their positions 24/7–and in split-second intervals therein. And that's before factoring in derivatives trades or naked short-selling.
In contrast, employees can only “reprice” in one way and at one time: by voting, with their feet, to work elsewhere. That tends to be a single trade made after much deliberation. One that is almost never unwound once announced. It's a path that tends to be trod by the better employees first. Accordingly, it's a problem you want to fix before you have it.
(Or, as another wise person once told me, “Never solve a problem you can avoid.”)
Last month, another notable Silicon Valley company elected to reprice its employees' options as well. This came as a “surprise” to many; the company was known as a stalwart of shareholder rights and values. Had the company forsaken those values? Unlikely. Instead, management probably determined (in part on the advice of counsel) that in order to live up to their commitments to stockholders and otherwise, they needed to take action, which might subject the company to criticism and abuse, including from subsets of groups they were ultimately trying to benefit.
“Should” is a decider's term, a moral term. That's an area from which lawyers often–and often should–shy away.
But there's a balance to be struck. As in-house counsel, you can use your phone and browser to find advice on how to do things such as reprice employee options. You can even get advice about who's likely to complain, and what the consequences will be. But it can be hard to get (and it can be against any lawyer's nature to give) advice on whether your company should do something, such as repricing employee options. And while the decision itself probably isn't your call, as an inside counsel your obligations as a manager and a fiduciary may make giving that kind of advice part of your job.
Even if that advice is at odds with that of a great GC.
Self-preservation note to draft: In fairness, I suspect much of his advice, as is the case with most edited content, got left on the cutting room floor.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllGC Conference Takeaways: Picking AI Vendors 'a Bit of a Crap Shoot,' Beware of Internal Investigation 'Scope Creep'
8 minute readWhy ACLU's New Legal Director Says It's a 'Good Time to Take the Reins'
'Utterly Bewildering': GCs Struggle to Grasp Scattershot Nature of Law Firm Rate Hikes
Trending Stories
- 1Law Firm Associates, Staffers Continue to Put a Premium On Workplace Flexibility, Study Finds
- 22 Carter Arnett Litigators to Join Baker & Hostetler in Dallas
- 3People in the News—Nov. 27, 2024—Flaster Greenberg, Tucker Arensberg
- 4Cybersecurity Special Section 2024
- 5How I Made Office Managing Partner: 'Being Understanding, Fair and Impartial Are Key Requirements,' Says Gregory Noonan of Hogan Lovells
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250