Most lawyers recall a day in law school that went something like this: The torts professor is discussing damages for a case, puts a bunch of numbers on the board and someone in the class shouts out, “If I was good at math, I would have gone to medical school, not law school.” If you are a general counsel or aspire to be one, here’s hoping that person was not you. In-house lawyers need to understand the business’s numbers if they want to be true advisors. One place to bolster this understanding is through your relationship with your organization’s CFO.
Successful general counsel want to be consiglieres to the CEO, trusted advisors to the board, and business partners with other C-suite executives. No general counsel can be those things without a grasp of the financials that drive the business. Every CEO and board we speak with when conducting searches for general counsel, or even lower-level in-house counsel roles, wants a lawyer with business acumen. That requires understanding what drives a business, and in for-profit organizations, a key driver is numbers.
You don’t have to be an accountant or an MBA, but you do need to understand the basics of what is required from a reporting standpoint to provide solid legal advice, push back when necessary and help mitigate risk for the organization. You should have an understanding of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), cash flow, operating profit margin, and so forth.
Connecting with your CFO is a good starting point. Have regular conversations. Talk with him or her about Investor Days and communications with investor groups. Find ways to take on projects with the CFO that are not always related to filings and disclosures — maybe a new software integration that impacts both the legal and finance functions. A relationship with the CFO built on trust and communication outside the heat of battle will help the organization when hot issues need to be addressed.
Ben W. Heineman, Jr., former general counsel of GE, wrote a Harvard Business Review article, How the CFO and General Counsel Can Partner More Effectively. “The CFO-GC alliance has always been important,” he wrote, “because the finance function and the legal function are truly the nervous system of the corporation, sending critical signals to all parts of the company about the accuracy of the financials and compliance with law.”
General counsel demonstrate business acumen by understanding the business and financials, and by working closely with the CFO to keep the “nervous system” operating effectively. This could play out in litigation. As general counsel, you will be focused on defending the company, while the CFO is focused on the organization’s financial well-being and the litigation’s impact on financial statements. These two positions are not mutually exclusive. Your working relationship with the CFO will allow for a healthy dialogue that considers the financial implications and any required disclosures if you are reporting publicly.
Historically, we have seen corporate and securities lawyers rise to the top of public companies. This could be attributed to the fact that those lawyers, compared to most, have a better understanding of financial statements. It is always surprising when a lawyer is interested in a job with a public company and has not pulled the company’s SEC filings. Securities lawyers do not make that mistake. Others often do.
A general counsel is expected to have good judgment. This can come into question when a lawyer is looking for a new role after working at a series of failed companies. As a member of leadership, the general counsel plays a role in an organization’s success or failure, and knowledge of the business and company financials are key. Understandably, there are factors beyond their knowledge or control. However, better knowledge might help them avoid a costly career move.
If your long-term goal is to move beyond the general counsel role to CEO or a board position, your demonstrated knowledge of company financials and business acumen will be your table stakes.