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Knowing a good risk

Practising In-house
|Written By Cheryl Foy
Knowing a good risk

With this column, Canadian Lawyer InHouse welcomes Cheryl Foy, who will be writing a monthly online column about the issues facing in-house counsel across the country.

Those of us who choose to practise as in-house counsel must be less risk-averse and more open to change than our colleagues who practise privately in relative job security. All the change I have seen and continue to see for my in-house colleagues has led me to think a lot about the opportunities and challenges that arise for in-house lawyers as they assist their organizations in navigating through change.

In-house counsel don’t have the luxury of just delivering an opinion — we have to live with the opinions, implement them, and take responsibility for the actions of our organization when it acts on them. We also have an opportunity and an obligation to give our opinions in the context of the entire environment within which our organizations operate.

Like external counsel, one of the most valuable roles in-house lawyers play is that of objective adviser. Lawyers are trained to step back and evaluate situations in a way that many business people are not. Unlike our external colleagues who take great pains to identify and describe every possible risk (ever mindful of professional liability), to be effective, in-house lawyers must evaluate the likelihood of the risk and the potential damage. In-house lawyers lose credibility if we are unable to articulate the likelihood and damage of a risk. Offset against these are the business advantages to be gained.

Good in-house lawyers do not leave the evaluation of risk and the decision-making about those risks to the business people.

In 2001, when I first began my career as an in-house lawyer, and my new organization was downsizing, I was the primary advocate among the senior managers for trusting the employees. Trust involved not shutting down the laid-off employees’ access to their computers and to the network, not asking them to leave that day, but allowing them to work out the week, and to take their personal belongings home unsupervised.

While the trust was not blind and precautionary measures were taken to protect the company’s intellectual property and network, the employees demonstrated the trust was merited. While none was happy about the job loss, both the employees who stayed and those who left felt the downsizing had been handled in a respectful manner that preserved the existing relationships between the company, the departing employees, and the employees who remained. The company’s legal interests were also served as the downsizing resulted in no litigation and even had the company had a claim for wrongful dismissal, there would be no claims arising from the manner in which the terminations were effected.

While it is easy to give into the fears of “what if” and worst-case scenarios, the ability to evaluate the risk associated with a specific course of action, to identify ways to mitigate risk, and to identify the business interests served by taking the risk are skills in-house counsel must have.

It was that success in 2001 that gave me a different perspective on the acquisition of my company in 2009 by a U.S.-based public company. That was an interesting and complex deal from a number of legal perspectives. As a career experience, helping the board and management team navigate through and negotiate that deal was one of the highlights of my career so far.

I’ve read a lot about why mergers fail. At the risk of oversimplification, many mergers fail because of poor implementation. The anticipated benefits, including anticipated costs savings of synergies, are often not realized. While I did not remain with the acquirer of my company to witness much implementation, I was there in the months after the deal was announced and I walked away with a key lesson about the early days after the acquisition.

After the deal was announced, but not closed, I became an instant lame duck. I found it hard to let go and was committed to working for my company to the end. Thinking that it was only logical that the new company would want the benefit of my knowledge and experience, I persisted in trying to help them lay the foundation for their merger strategy until I realized one day that my help was not wanted.

As someone who had previously only been on the acquiring side of the game, being in the acquired company’s shoes was invaluable. I thought I had been respectful to the employees of the acquired companies in previous transactions (and being acquired taught me some things about what works and doesn’t on a human level), but one of the things I hadn’t applied my mind to was figuring out a way to maximize the role of the acquired company’s employees in ensuring the success of the transaction.

It is commonly assumed that employees of the acquired company will be angry (particularly if they are losing their jobs) and unco-operative. My observation is that we don’t give people enough credit. There’s a wealth of literature on how much of our sense of ourselves we derive from our work — whatever it is. While one has to allow for the full range of emotions, employees involved in transactions demonstrate they are proud of their work and their company and, almost without exception, will act consistently with that pride. No one wants her work to be for naught and it is shameful how much knowledge and know-how is lost when effective mechanisms are not in place to permit a transfer.

As in-house lawyers, we are in the best position to encourage our organizations to objectively evaluate risk and not to indulge in fear-based decision-making about people’s reactions to change. How many of those employees who have been working productively for an organization for many years actually present a risk to the organization in either a lay-off scenario or an acquisition scenario? If there is a risk, can it be mitigated to allow the company to reap the benefits of securing the employee’s cooperation?

Sometimes effecting this type of change is simply a matter of not going along with the tide of opinion around the management team table. That, in itself, involves personal risk but comes with the greater benefit of demonstrating leadership and independent thinking that is the hallmark of good in-house counsel.

Cheryl Foy is general counsel to ViXS Systems Inc. in Toronto, Ontario and can be reached by e-mail at cfoy@vixs.com.


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