April 30, 2021
Four Situations When a Private Equity Portfolio Company Needs a General Counsel
Since private equity firms are focused on value creation, often within a compressed time frame, it is unsurprising that sponsors often think of CEOs, CFOs and COOs as more critical to recruit than general counsel.
This attitude is changing, however. As private equity expands — the industry had $4.1 trillion in assets under management in 2020, according to Preqin, which estimated that it would more than double in size to $9 trillion by 2025 — Spencer Stuart’s Legal, Compliance & Regulatory Practice has also seen an increase in demand for filling the general counsel position at portfolio companies. More private equity owners recognize how general counsel play a crucial role in driving value.
We recently spoke leaders across the private equity industry, including current and former portfolio company general counsel, leading law firm practitioners who serve private equity and chief talent officers at private equity firms. Our conversations and our work in the industry point to several specific situations where a general counsel can play a critical role for portfolio companies.
When you plan to go public. When a private equity-owned company plans for an IPO, the general counsel can play a central role in navigating through the process as well as setting up the securities compliance and governance infrastructure required post-IPO.
A general counsel can add tremendous value by quarterbacking the project management process a company must undertake to go public, including working closely with finance and treasury on preparing disclosure documentation and managing the transaction; working closely with HR on executive compensation matters, including structuring and disclosure; and coordinating with investor relations, bankers, outside counsel and many other internal and external stakeholders.
Once the company goes public, the general counsel can play a critical role in standing up public company governance and securities compliance, including managing the routine corporate disclosure process, serving as secretary to the board, onboarding and recruiting new board members and managing a number of other critical tasks that only an inside resource closely aligned to the C-suite can do seamlessly and efficiently.
When you are in a complex industry. In heavily regulated and/or IP-heavy industries, like financial services, media and entertainment, healthcare and transportation, the general counsel is a key player on business-critical issues, playing both an offensive and defensive role. For example, in sectors like media, entertainment and fashion, the general counsel is indispensable for ensuring the protection of intellectual property and driving monetization strategies. In industries with heavy government oversight, a general counsel with a strong regulatory background and sector knowledge can help mitigate and navigate risks and enable business growth.
When you plan on scaling up, scaling down or carving out. Many portfolio companies operate with a focus on the exit. Before that exit, many face value optimization challenges that can include organic or inorganic (roll-up) growth, shedding of non-core assets and talent downsizing, or special carveouts.
Workforce downsizing comes with legal complexity, often implicating tricky employment law and severance/termination issues that may require careful handling by a general counsel with litigation and employment law expertise. On the other hand, some private equity-owned companies grow rapidly through M&A, which provides its own distinctive legal needs where a general counsel with an M&A toolkit and corporate development acumen can prove invaluable.
When you have multiple sponsors. Portfolio companies owned by multiple private equity firms are increasingly common, and they require a general counsel with high emotional intelligence who can juggle the various personalities and incentives at play, in addition to the legal considerations attendant to dispersed ownership. With fiduciary obligations to multiple owners, inter-investor relations can be difficult to navigate sometimes.
Coming soon: The attributes of a successful portfolio company general counsel
In our second article about the general counsel position at private equity portfolio companies, we look at the key elements of succeeding in the position.