Managing Authorized Pitfalls Devoid of a General Counsel

Table of Contents Study Market Lawful IssuesKnow Authorized and Governance Requirements Acquiring a form agreement at…

In a 2016 article for the Harvard Company Critique, previous Basic Electric normal counsel Ben W. Heineman, Jr., wrote, “The CFO-GC alliance has often been significant because the finance function and the legal functionality are genuinely the nervous method of the company — sending significant signals to all pieces of the corporation about the precision of the financials and compliance with the law.”

Heineman helps make a superior point. But what’s a CFO to do if there is no standard counsel to enable deal with legal matters?

Andy Brownstein

Small, escalating private firms have a tendency to retain the services of a CFO before hiring a standard counsel (GC) or building any in-dwelling authorized capabilities. Instead, they count on outside the house counsel to manage lawful matters and wait right up until they attain a specific dimensions and scale to build a lawful section.

Having said that, just since there’s no large-stage executive to oversee lawful issues doesn’t necessarily mean lawful oversight isn’t necessary. In the absence of a GC, that oversight often lands on the CFO’s desk.

In my company management knowledge, as a CFO and basic counsel of a start off-up that grew into a 50-employee organization, and now in a 2nd stint as a attorney predominantly serving private corporations, I have had the chance to get the job done with and for CFOs integrally concerned in authorized matters at their businesses. 

Even even though they have minimal to no lawful instruction or practical experience, CFOs have properly-honed skills and instincts that enable them to competently take care of lawful difficulties. They are good, meticulous, and know how to control outside the house industry experts. Most importantly, they have the one particular skill frequent to fantastic CFOs and great attorneys — they know how to evaluate possibility.

How does a CFO get from getting excellent instincts to competently taking care of authorized problems? Right here are some strategies.

Study Market Lawful Issues

 Most industries have exclusive state and federal lawful and regulatory techniques. Every marketplace also has its very own lawful norms and procedures mirrored in, for illustration, professional agreement language. The CFO of an automotive supplier, software-as-a-support corporation, or health treatment program wants to know the nuances of conventional industry contracts. By carrying out so they can fully grasp the contract parties’ obligations and evaluate pitfalls. 

Due to lawyers’ continuing education prerequisites, most states have teaching courses accessible on practically each and every legal difficulty possible, and the systems are not reserved for lawyers. A CFO can and really should choose advantage of these types of instruction. In addition, numerous legislation firms perform seminars on concerns suitable to company leaders, and they are usually content to invite executives no matter if the firm is a customer or not.

Know Authorized and Governance Requirements 

 With no GC in place, quite a few legal and governance concerns connected with entity administration could drop to the CFO. Entity kinds include C corporations, S corporations, confined legal responsibility companies, and partnerships. Each and every imposes distinct obligations in tax, authorized and regulatory compliance, governance, administration, and organization boards.

Acquiring a form agreement at the all set places a enterprise in a a lot more beneficial negotiating position.

In addition to filing necessities with area, state, and federal organizations, condition statutes impose obligations for shareholder communications, the conduct of board conferences, and record-keeping, among other points. If this space falls inside a CFO’s area, authorized coaching is beneficial. In some cases, other company providers, these as accountants and payroll companies, can give information and facts and training on lawful troubles that may not require an attorney.

Standardize Professional Contracts

CFOs incorporate worth and cut down legal challenges by investing in the developing the company’s have type contracts. Whilst some contracts have to be bespoke, a lot of firms offer with the identical agreements consistently. Establishing a portfolio of form contracts that reflect the one of a kind desires of a business enterprise requires an investment in outdoors lawful counsel. But that investment decision is normally speedily gained again — type contracts decrease ongoing lawful costs involved with the negotiation, drafting, and examining of contracts.

In addition, possessing a variety agreement at the prepared puts a company in a more advantageous negotiating situation. Whichever bash goes initial — in this illustration, the occasion with a kind contract — anchors the starting off level of negotiations with their most well-liked phrases. 

Determine and Monitor Hazard Landmines

A CFO tasked with authorized oversight desires to be familiar with and check contingent authorized pitfalls. Several of these landmines lurk in contracts inside of provisions labeled “limitations of liability,” “indemnification,” and “representations and warranties.” If there is no in-house counsel to lean on, a CFO should really collaborate with exterior counsel to prepare a checklist of these sorts of landmines. That will permit operational dangers to be monitored and managed internally.

Collaborate With Other Organization Leaders

CFOs want a apparent comprehending of corporate method and options and troubles confronted by the distinct departments. A CFO can help other executives spot challenges, in parts these as human assets and facts technology, that may have legal implications. To spot those people challenges, even so, a CFO must continuously talk and collaborate across departments.

Seek out Assistance from Professional Friends

Though CFOs have to be mindful not to share trade insider secrets or operate afoul of antitrust regulations, friends can be a fantastic sounding board for tough challenges. They can also provide information or route on where to obtain answers. Trade teams, this kind of as the CFO Management Council the Association for Economic Specialists, and other folks can also be means for info, education, and path. 

Realize When It’s Time to Escalate

In some situations, a CFO can manage a trickly legal dilemma devoid of consulting an outdoors law firm. On the other hand, recognizing people challenges that involve the involvement of a lawyer, each to protect the corporation and the CFO separately, is critically crucial. Locations that need outside the house counsel may perhaps involve tax regulation, pension strategies, and employment legislation, notably when an staff alleges discrimination or harassment.

A CFO are unable to — and must not — consider to oversee a company’s authorized affairs the way an seasoned typical counsel would. Having said that, with the right schooling and accessibility to sources, a CFO can build programs, check and regulate legal threats at a significant degree, and create recommendations for when to get in touch with in outside counsel. 

Andy Brownstein is an attorney with GreeneHurlocker and a former CFO with about 25 yrs of working experience counseling early-stage and experienced firms in corporate, M&A, and genuine estate issues.