The other day I had dinner with the General Counsel of a well-known large international company. In the past his company has been the target in a multi-billion cross border acquisition. This M&A in the end failed and the whole process had ended and his company had continued independent. Looking back at this intense and exhausting period, this GC had some very interesting observations.
A blinding star lawyer The first observation regarded the lawyers. Mergers and acquisitions of this multi-billion dollar size require the involvement of the world’s elite law firms. Interestingly enough not only some of the most prestigious law firms, but also one of the world’s most celebrated M&A lawyers had been involved. Naturally I was most interested to learn what this GC’s experience has been with this star lawyer. Had he really lived up to his reputation?
The answer turned out to be ambiguous and mixed. On the one hand the star lawyer was an excellent negotiator, had a wealth of knowledge on best market practice and was a master in distinguishing between what is trivial and what really matters. He was a fast thinker, but an annoying personality. He actually behaved like a star. He was anything but a team player. He bullied his fellow partners (from the same elite law firm) and treated everyone else - including this GC - with mild contempt.
The star lawyer acted with absolute supremacy. This behavior in combination that everyone was aware of his star status in his field of expertise, however turned out to have unwanted side effects. When it came to deciding on certain parts of the strategy towards getting the necessary approval of global regulators, the star lawyer ruled out a strategy proposed by the GC and his team of lawyers. He knew better and everyone should just listen to him and after a brief discussion everyone accepted that the star lawyer probably knew better. Except that he didn’t and the merger ended up being derailed by the regulators. Something that most likely could have been avoided if the strategy proposed by the CG and his lawyers would have been seriously considered. Due to the dominant behavior of the star, there never truly had been an open discussion.
‘Question everything and fear no-one’
Starstruck by Wachtell Another example, not related to the case above: last week on 4 September CVR’s counsel, Herbert Beigel, wrote to U.S. District Judge Richard Sullivan, seeking permission to add claims for breach of contract and breach of the covenant of good faith and fair dealing and to seek punitive damages in an ongoing law suit against elite law firm Wachtell Lipton.
The client CVR Energy Inc had in 2012 hired Wachtell to help defend back against a hostile takeover attempt by Carl C. Icahn. The defense failed. CVR, now controlled by Carl Icahn, started suing Wachtell for legal malpractice in the Southern District of New York. CVR alleges Wachtell failed to advise that CVR would face claims by Deutsche Bank AG and The Goldman Sachs Group Inc. for $36 million under the terms of engagement letters with the banks. CVR hired the banks as financial advisers to help fend off the hostile takeover.
Reading through the court filings, what struck me was how much CVR had ‘blindly’ relied on Wachtell. Hiring what is allegedly the worlds’ best M&A law firm had, as it seems, obliterated some independent critical thinking at the client side. The client just assumed Wachtell would know best and had failed to critically question some critical proposals and documents. Documents drafted by Wachtell seemed to have been signed without proper questioning (and perhaps even without proper reading). Something CVR now greatly regrets and the reason behind this ongoing law suit.
A bossy boss Back to my dinner with the GC. His second observation regarded the dynamics in the boardroom during the time of the merger. The GC had been working closely with his board for well over a decade. He had always been consulted on all strategic business issues, his opinion and expertise were highly valued. He was a trusted adviser in the true sense of the word. A consigliere. Yet in the high pressure situation of a bet-the-farm multi-billion takeover, he noticed the dynamics changed. The CEO and one other board member took the lead and all other board members just sat, listened and accepted everything these two had decided. Whenever one of them tried to raise an objection or even a second thought, they were barked at and disappeared with red faces behind their laptop screen.
Strong and bossy leaders tend to kill discussions that do not support their vision and ideas. In the case of legal issues, the GC was listened to and sometimes even his memos were read aloud for the minutes, only to be shoved aside by the dominant males. Obviously the fact that none of the board members had ever been part of a mega takeover might have made them feel insecure. The result being that all checks and balances went through the window. Thus creating potentially dangerous dynamics.
‘Fear is one of the most important drivers of behavior, fear of losing one’s job, fear of being seen as stupid’
Brilliant and destructive at the same time. Every organization needs visionary leadership. Leaders need to take decisions and lead the company. They must dare to be bold and should not fear to go against the stream. At the same time it is critically important that there are good checks and balances in place. Each board member had the obligation to personally contribute and critically question everything until completely satisfied.
Each client must also keep a critical mind and independent thinking when working with a lawyer. The lawyer might be the expert and the trusted adviser, but in the end it is client and not the lawyer who is responsible. Lawyers should actively engage in discussions with clients and make sure the client fully understands what is happening.
Lawyers have a natural obligation to keep an independent and critical mind. A lawyer should never be overwhelmed by the client, the judge, a star lawyer or a star firm. In this respect I think the (real life) example of the star-lawyer as described above is exceptional, but none less relevant.
In our practice we get regularly confronted with partnerships that are being dominated by one or more dominant and opinionated partners. Typically these partners have a large practice and a high revenue. They are smart people and master the art of the word. They often are amicable and short tempered at the same time. It is all the same mechanism: we need strong and dominant people to lead, but if not properly controlled, dominance will become destructive.