Finding and Keeping Your General Counsel: A Roadmap for Portfolio Companies

Private equity investment hit an all-time high of $1.1 trillion in 2021, with continued momentum into 2022. 2023 saw a slowdown due to macroeconomic headwinds, but the long-term outlook for PE remains bright. As these portfolio companies come under new ownership, leadership teams are being evaluated against their capability to take them through the next phase of growth. While the chief executive officer and chief financial officer typically get the most attention among these leadership roles, other functions, particularly the general counsel (GC), play a critical role in setting strategy and in protecting the portfolio company from missteps.

In examining how the legal function has evolved in portfolio companies, Russell Reynolds Associates found that the most sophisticated ones are ahead of the curve in recruiting senior legal leadership – a general counsel or chief legal officer – into the C-suite. We analyzed the profiles of 40 GCs at portfolio companies to develop a point of view on their experiences and backgrounds. We also gathered survey data from 26 portfolio company GCs to better understand where they sit in the organization, what falls within their remits, and how they spend their time.

We found that most portfolio companies believe the GC is a strategic necessity to respond to increasingly complex regulatory environments, transactional activity, and to be prepared for potential litigation. Most portfolio companies hire a GC early in their growth journey. In fact, 62% of the companies we surveyed are on to their second (or later) GC hire, indicating early investments into the legal function. Furthermore, these tend to be seasoned leaders with an average of 25 years of experience post-JD.

We hope this report helps portfolio company CEOs, boards, investors, and PE fund talent partners better understand:

1. Why GCs are critical to portfolio companies’ success in today’s environment
2. Which experiences and responsibilities are critical for portfolio company GCs
3. How to find their first – or next – portfolio company GC

General counsels are critical to portfolio companies’ success in today’s environment

From rapid technological advancements to increased M&A activity, portfolio companies are navigating an increasingly complex and dynamic environment.

The need for a strategic legal voice on the executive leadership team has never been more important, and portfolio companies with weak in-house legal teams are at risk. An unsophisticated in-house legal function can either lead to poor commercial outcomes or over-investment in outside counsel, which continues to rise in cost.

Who is the portfolio company general counsel?

We analyzed critical experiences for portfolio company GCs, along with their place in the organization, their key responsibilities, and the key activities they spend their time on.

DNA of a portfolio company general counsel

Successful portfolio company GCs bring several key experiences to the table.  Most have prior GC experience, come from the same industry, and have worked at portfolio companies before. Almost all have a combination of in-house legal and law firm experience.

_{* Externally appointed GCs only
Sources: Russell Reynolds Associates Survey of Portfolio Company GCs N=26, 2023; Russell Reynolds Associates RTTT Analysis of Portfolio Companies GCs N=40, 2023}

Where does the general counsel sit in the portfolio company organization?

Portfolio company GCs most often report to the CEO, while teams reporting to them functionally span legal, corporate secretary, compliance, risk, regulatory/government affairs, and at times corporate sustainability and ESG.

_{Source: Russell Reynolds Associates Survey of Portfolio Company GCs N=26, 2023}

Where do portfolio company general counsels spend their time?

Portfolio company GCs allocate about half their time and efforts to commercial and M&A activities, and an equal amount to governance, compliance, and litigation. The best GCs combine being commercially savvy with having the gravitas to manage the board.

_{Source: Russell Reynolds Associates Survey of Portfolio Company GCs N=26, 2023}

Implications for portfolio company CEOs, boards, and PE fund talent partners

Budgeting to build a legal team

In their developing stages (< $250 million), companies will allocate a larger percentage of revenues to their legal department as they begin to put proper legal infrastructure in place. As the company scales its operations, the legal spend decreases as a proportion of revenue but the GC remains a critical advisor to the CEO and executive management.

_{Source: Russell Reynolds Associates Survey of Portfolio Company GCs N=26, 2023}

How to find your first – or next – portfolio company general counsel

1. Examine your company’s risk and regulatory situation 

• Consider the regulatory environment in which your company operates and whether it is equipped to navigate current or emerging regulations.
• Examine your company’s risk profile and understand whether there are unaddressed legal or compliance risks. 
• Review your company’s external legal spend and determine whether it is cost-effective to bring capabilities in-house.

2. Determine whether you have the right capabilities to tackle your legal mandate

• Assess the volume and complexity of commercial agreements and decide whether you have the right internal team to negotiate these agreements. 
• Consider your litigation docket and whether you need an experienced leader to manage litigation and investigations. 
• Consider your M&A strategy and whether you have adequate legal expertise to execute that strategy.

3. Be intentional about having a legal voice on your leadership team

• Assess the leadership team’s maturity and whether they would benefit from having a senior legal perspective at the table. 
• Take stock of ‘orphaned’ (or non-existent) functions (e.g., sustainability, government affairs, risk and compliance, etc.), that could benefit from senior executive oversight.
• Upon hiring a GC, ensure they report to the CEO and are part of the C-suite, and create a meaningful job profile with a breadth of responsibilities.

4. Determine the best talent solution based on your unique needs

• Look for an executive who can bring a deep business perspective along with legal expertise and where essential, industry experience. 
• Use this as an opportunity to offset gaps you may have elsewhere on your leadership team – e.g., if your company is founder-led or has a first-time CEO, you want to recruit a more experienced executive into the GC role. 
• Make smart trade-offs depending on your company’s growth stage – e.g., if your company is about to IPO, ensure that you recruit a GC who has public company experience and ideally has taken a company through an IPO before.

Authors

William McKinnon leads Russell Reynolds Associates’ Legal, Risk & Compliance Officers capability in the Americas. He is based in Washington D.C.
Jason Kipkala leads Commercial Operations for Russell Reynolds Associates’ Legal, Risk and Compliance Officers, and Human Resources Officers capabilities. He is based in Toronto.
Harsonal Sachar leads Knowledge for Russell Reynolds Associates’ Legal, Risk & Compliance Officers, and Human Resources Officers capabilities. She is based in Toronto.

Data & Analytics

Siddharth Tiwari is a member of the Data Services Team serving Russell Reynolds Associates’ Legal, Risk & Compliance Officers capability. He is based in New Delhi.