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Uh, Oh — There’s a New CEO in Town! What Do I Do?

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Uh, Oh — There’s a New CEO in Town! What Do I Do?Senior Advisor Noah Hanft is joined by Bart Schwartz, partner at Wilkie Farr & Gallagher and former General Counsel of Assurant, Inc., and Susan Blount, former Executive Vice President and General Counsel, Prudential Financial, Inc., in an online forum. They discuss the special challenges faced by GCs when a new CEO comes on board, and the best way to establish a strong working relationship right from day one.

Below are highlights from the webinar. To learn more, the video recording, and podcast are available on this page.

The average tenure of a CEO is 10 years and the average tenure of a General Counsel is six years, so many GCs are likely to face a CEO transition during their time in an organization. However, surviving a new CEO is not a given. Research indicates that executives and senior management are vulnerable when a new CEO takes office, and aside from the Chief Marketing officer, the General Counsel is the next most vulnerable member of the team. Here are steps you can take to make a CEO transition a win-win for both you and the CEO.

Warning signs can alert the General Counsel that the board is unhappy with the CEO or that the CEO is looking to leave.

Some boards are not subtle in showing their frustration with the CEO, but the General Counsel needs to distinguish between occasional friction and real warning signs.

“The General Counsel needs to be a keen observer as to what's really going on at the board level.”
— Noah Hanft

  • Look at how the board is responding to the CEO the same way you observe their responses to other decisions or business plans
  • Trust your emotional intelligence (EQ) and watch the body language in the boardroom
  • Notice if people are whispering to each other inside or outside the boardroom
  • Pay attention to conversations that abruptly stop when you approach
  • Protracted executive sessions can also be a clue that the CEO is considering leaving
  • If the CEO is ready to move on, they may vent their frustrations to you
  • The board may alert the GC that the CEO has plans to move on

When there is tension between the Board and the CEO, here’s the General Counsel’s role.

Recognize that there is a certain sensitivity about the relationship between a CEO and their board, particularly with the chair or lead director. When there is tension, a General Counsel should get involved. Find a way to moderate the differences.

“If you're not sure if the board is reading the CEO correctly, or vice versa, but you've had the benefit of quietly watching the two sides sparring in the boardroom, I think it would be malpractice - using that word colloquially - not to, at a minimum, talk to the CEO and find a way to enter into that conversation.”
— Susan Blount

CEOs can get their feelings hurt, too, so be diplomatic when raising the issue and be sensitive to the timing of your conversation. Diplomacy and mediation skills really come in handy in these types of situations.

Taking the situation a step further, what to do if the board and/or the CEO takes you into their confidence about a problem and places you in the middle, giving you important information and insisting that you not share it.

A CEO tells you in confidence that they are looking to leave and actively interviewing. Or, the lead director tells you confidentially that because of the CEO’s failure to make management changes, the board is dissatisfied and is considering a change. In these situations, do you remain loyal to your boss, to the CEO, or to the board?

  • Remember that the GC’s duty is to the corporation, not to an individual
  • To serve the corporation effectively, you need to have a good relationship with the CEO, the other C-Suite members, and the board
  • Always be as open and transparent as possible with the board or the CEO to the extent appropriate
  • If the board chair says, “I want to talk to you about something and I really don't want you to tell the CEO until I’m ready to,” or vice versa, you have to honor that confidence
  • Even if the duty of confidentiality runs to the client, you have a relationship of trust and confidence with both the CEO and the board, including the chair
  • At the same time, encourage the board and the CEO to be as open and transparent as possible to accelerate disclosures and discussions about the sensitive subject

“This has to do with much of the relationship between the board and the CEO, and the General Counsel is kind of in the middle. Professionalism, openness, transparency within the limits of what's appropriate, and promotion of that between the board and the CEO - to me that was the only way to go. And I had pretty good success with it.”
— Bart Schwartz

Whether it is a planned departure or not, this is the role of the General Counsel in the search process for a new CEO.

A strong board can conduct a search without the GC in the room and work with other executives, but a GC that gets involved early in conversations with the board chair and the head of HR can become the management liaison. The GC, however, has an additional obligation to serve in a counseling role. They must:

  • Understand the process for the search
  • Make sure there is a good record of that process that would withstand evaluation under the business judgment rule if the company were ever subjected to scrutiny

Once the search process is underway, there are often internal candidates that the GC may like and respect. During this process, the GC can be friendly but needs to keep them at arm’s length. For example, never give an internal candidate the impression that they, or anyone else, have the inside track, and never have offline discussions about the CEO selection process with others in the C-Suite. It is a tricky process, but even-handedness and professionalism are paramount and probably understood by those you’re close to without the need to articulate the rules of the road.

Take these steps to establish a strong working relationship with the new CEO.

Once the new CEO is named, reach out to begin building your relationship. With an inside placement, you can offer your congratulations and schedule a meeting as you likely already have a relationship. For an external placement, do some of your own research on them, introduce yourself, and let them know how you can be helpful to them during the transition.

When a new CEO starts, lots goes through the mind of a GC including:

  • How can I help the CEO get acclimated?
  • How can I gain the trust of the CEO personally and for my team?
  • What is the CEO’s vision and what kind of changes do they hope to make?
  • More narrowly, how does the CEO view lawyers and what their role should be?

Orienting the new CEO can be an important role for the new GC. An internal candidate has never been a CEO before and even if they have interacted with the board, they don’t have knowledge of the underlying mechanics of the board process. The GC can provide that background and explain how it relates to strategy and legal compliance. Strive to make the new CEO look as good as possible in front of the board. This transition gives the existing GC a real opportunity to show the new CEO the value of their support.

The quickest way to earn the confidence of the new CEO is to focus on them instead of yourself. Help the new CEO understand their biggest challenges and make it clear that you're trying to assist them in any way you can. It is a very important time to establish trust and assurance that you're there to work with them and help them serve the company. Embrace their vision for the company, establishing right off the bat that you are a team player and that they can rely on you.

A final tip:

A recent study by BarkerGilmore, The Role and Value of Today’s Modern GC: The CEO Perspective, found that CEOs want more from their General Counsel. They want their GC to be a strategic advisor. Download your copy of our study today and learn how sitting General Counsel are meeting CEO expectations.

Noah Hanft and our team of professionals are happy to help accelerate the initiatives that you're already pursuing or to supplement your current strategic thinking to help you realize your vision. Please reach out if you or your organization may benefit from our recruiting, coaching, or advising services.

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September Webinar - Video