Dan
Welcome to Sound Business Insights. I’m Dan Watkins. This episode is about what is a general counsel. This podcast is not intended to provide legal advice.
Neil
Dan, one of the things that most companies should have is a general counsel. It’s a little nebulous. What do you consider to be an overview of what a general counsel is?
Dan
Well, let’s break it down into two parts. One is stock exchange, large corporation, publicly held corporation.
Neil
Yes,
Dan
Investors, formal corporate counsel, the guy with a three-peat suit, that’s the guy who is full-time or almost full-time and handles compliance issues with the SS e c and gives advice different from regular company counsel. That’s what general counsel is. Real businesses that form their company’s professionally have company general counsel that they can call on, and they usually call on them in advance before trouble happens to avoid trouble, and they utilize that council with a team of other professionals to make sure that they’re doing everything in the most proficient and profitable manner as possible.
Neil
That leads us right into, you often say there are three key people that any business owner should have on their team. Who are those three key people?
Dan
Yeah, if you’re a company owner and you are trying to do everything right in the best way you can for your company, you’re going to have general counsel. You probably already do, and that attorney or couple of attorneys or law firm will advise you on things that have to do with your business, your field specifically, and in general, you’ll also have a banking relationship because opportunities come along and if you wait to go get your banking relationship started, you’re behind the eight ball. And also expenses happen. You need to have some kind of a flexibility there, some backup. And finally, and maybe most importantly, you’ll have some type of accountant who’s a professional. I’m not talking about if you’re still just using a C P A or your tax guy for your taxes. I’m talking about how do you define what is profit? How do you define it to match what you are doing to match tax deductions, to match zoning, to match licensing, to match future sales, your exit strategy, to match all those things. How do you get your accounting? What is actually important to you? What is a real profit to you that’s your professional accountant who you talk to on a monthly or quarterly basis?
Neil
I often think about the concept of a coach, Dan Olympic athletes and professional athletes, they’re the top of their game. They’re rich, they’re making money, they’re performing at the highest level, and yet they all have a coach. Isn’t that the same idea here?
Dan
Well, it’s a lot cheaper here. Those coaches make a lot of money. If you go get a corporate or company council and you say, I want you to form my company, or I want you to advise me on my corporate structure, they’re not going to charge you pretty much money. If they have experience, they’re going to look at your corporate structure, spend maybe a couple hours, maybe four hours max.
Dan
You might spend a thousand dollars and you’ll have somebody that now knows your business structure, knows your goals, knows what you’re trying to achieve, and can worry for you. They already know what to worry about. They’ve had a thousand clients just like you, go down that same road and seeing the horror stories and the successes, and they can tell you, oh, I like what you’re doing here. Or Maybe you should watch for that. And you can pick up the phone and it costs you less than probably your cable bill per month. And you’ve got someone there who can give you advice that’ll save you tens of thousands of dollars or make you hundreds of thousands of dollars.
Neil
And that’s a critical element of a general counsel. You want someone with experience, someone who’s been there, done that,
Dan
You get to do what you do best and not worry about doing something that you didn’t even know about that got you in trouble.
Neil
And then as business owners, we all have those moments where something comes up and we just need a quick answer or we need insight into how big a problem is this, how much should I worry about this? Or how do I go after this opportunity? I’ve never done this before. Is that part of your role as a general counsel? Yes.
Dan
We have transactions and litigation attorneys. We have experience from both sides of the aisle. We have the deal makers and we have the “watch out; Don’t do that; You can get sued” lawyers! And we all work together so we all can spot the same issues and provide good advice. And that’s what every business owner needs. It’s the least expensive form of insurance you can buy.
Neil
So you’ve always said that at the outset. You really need to have a business plan and you really have to have thought this out. But it’s also important to continue to update it and to look ahead and to plan for what’s coming and where you’re going. Is that part of your role as a general counsel as well?
Dan
We’re not MBAs, but from experience for the last 35 years, A Business plan can be one paragraph. It’s just got to start. And once you start, this is my business plan, even if it’s garbage, it can evolve into a wonderful reminder of where you’re going and the way you get the best business plan is working with your general business attorney, a good accountant or CPA who will ask you questions. What are your goals on this? What are you thinking about that? What if we take this $500,000 a year you’re making, and we structure it this way. We work on budgets instead of working on paying your expenses, work on future budgets, what I want a budget for. And instead of just you make whatever’s left over, you end up having less taxes, more profit, more equity, and more protection and what you’re doing.
Neil
So in your experience, Dan, opportunities arise, do you think most people, business owners plan for, okay, in six months we’re going to attempt to find an acquisition target? Or is it more of a, Hey, something’s come up, I might want to pursue this?
Dan
Most of ours, most of the ones we represent are teaching us things. They’re on their game and they come to us with specific questions and they’ve taken it. If we formed them, they’ve taken it well beyond what we could ever imagine, and we’re just hanging in there trying to keep up. So yeah, the companies that we represent are, it’s wonderful. You’ve been in practice this long to see a company. We had a company start off with one healthcare center, and now it has 650 across the country. So all kinds of different levels of mergers and acquisitions and all kinds of structures and everything you can imagine. And they’re still going today. It’s been 25 years.
Neil
So Dan, what are the types of legal services that we provide to our clients as a general counsel?
Dan
Well, if we’re forming them, then we help them select the right kind of company with their goals in mind, Or if they’re merging or buying something else. Well, if they’re buying and selling, that’s different. We don’t have to do entity selection. We don’t have to choose between what kind of entity. They’re already something, but we give them advice on whether they should change or how to expand it or what they can and can’t do with their company. If they’re in the merger and acquisition stage, then it’s a whole different list of things we’re going to talk to them about and work them up, get them set and ready to go to do the best they can.
Neil
How about contracts?
Dan
Every company has contracts when they first come to see us. We don’t want to do a full dental exam on them. We’re just going to address what’s going on and get some background.
Dan
Because once our lawyers here get background on a company, know generally what they’re doing, then we’re ready for any kind of questions they may have. We don’t want to fix anything that’s not broken. We don’t want to go in there and say, you need to do this. You’re doing this all wrong. No, if they’re making a profit, they’re doing it all right. And if there’s something they’re concerned about, we’ll help them address it. But any of the main issues, employment, business, commercial contracts, all those will lead us to general background. And that means they don’t have to teach us or pay us to learn their general background for any questions they have in the future. We’ll get that at the first consultation. We’ll know what’s going on. And so if they come back and say, okay, you just handled my consumer or my lease or my independent contractor agreements, I got this other issue. We won’t have to say, oh, I need a couple hours of your time to get to know what you do. We’ll know,
Neil
And we’re not going to be creating that from scratch.
Dan
We just know you have a business relationship with your business lawyer who knows you and you got a problem, shoot them an email and they get an answer. And that’s why it’s so much less expensive than not. And then having trouble and having people try to get in and undo mistakes that you might’ve made because you’re not an attorney or you don’t generally practice this’s kind of law. That’s why we like the whole business relationship thing.
Neil
We’ve been in business now for four decades. We’ve been through the battles and thinking about it from a contract point of view and a document point of view, you’ve often talked about our proprietary library of contracts. These are battle tested, these have been through the wars and the things that we’ve learned over 40 years. How does that apply as we go forward and to our existing clients?
Dan
Well, battle tested and battle crunched, I mean the law’s changing every year.
Neil
Yes.
Dan
So every agreement we do, every transaction we do, we have a database filled with those types of transactions. And if you go year by year, you end up with a database that’s more specific to different types of situations. So we have that resource and we combine that with a very expensive research library that we keep and we pay for with several different sources so that we can take our, because every agreement we do has got to be an original for the contract.
Neil
Absolutely.
Dan
So it’s got to be passed through our research library and checked for new laws and just double checked. But you take the two together and you get more specific clauses, you get more what ifs, what if those kinds of clauses can help a deal not fall apart? And also more confidence in relying on, we got the latest law and we have the most innovative agreements.
Neil
So we’ve worked with so many businesses over the course of these decades. What are the odds that we’ve worked with someone pretty much just like them in that industry?
Dan
Not exactly like them, but because no two businesses are the same. But yeah, there’s a lot of similarities.
Neil
And so we can tell them what worked and what hasn’t worked, and
Dan
We get a lot of work from word of mouth and people in the same industry know each other.
Neil
Yes.
Dan
So once we go into a new area of business and we either merge, acquire, or form a company, they talk and they want, who’d you use? And how’d to go? And so we get a lot of work that way.
Neil
Yes. So you kind of brushed past another important topic, which is many companies are employers. Dan California is a hard place to be an employer. So what role does a general counsel have for our clients who are employers?
Dan
Well, there’s a problem in competing when you’re a smaller business with a large corporation in that they have in-house HR counsel.
Neil
Yes.
Dan
And HR experts and HR this and HR that. And all you have is your $400 an hour HR lawyer, and that can get real expensive, calling them about deductions and leave of absence and all the different protected classes there are bringing up. Every year they just come up with a new class in California. It’s people who are persecuted in India, part of a task cast. And so I didn’t even know that people are discriminating against those people in California, but they got a new law. And you’re supposed to be aware of that.
Neil
Yes.
Dan
I don’t know how your average business is going to be accused of discriminating against something they never even heard of, but that’s California. And you should have someone other than your four or five, 600 an hour lawyer you can call. And that’s what we have our trained paralegals here who can answer your HR person or your admin or your manager’s questions on basic stuff without having, you have to have that formal call with the lawyer and get billed at lawyer’s fees.
Neil
Absolutely. I got this person that just doesn’t show up for work ever on time. What do I do?
Dan
It’s just like too many people in the phone line. It should go from your manager to our manager. And then the problem is solved instead of from your manager to you, to me, to my manager. And then everybody’s having a hard time getting the actual communication going straight. You can get it from the employee, your manager, our HR person.
Neil
Yes.
Dan
Problem solved. Quick Answer. And they run it by us and we say, yeah, that sounds right.
Neil
Small bill. Great.
Dan
Very small bill.
Neil
So there’s been a pretty major shift in the last couple of months, and it started here in California, and then it was clarified by the United States Supreme Court regarding arbitration. California’s been trying to shut that down as an employer. That really changes the game. It’s a central defense, if you will. Would you talk a little bit about that? For our employer clients,
Dan
It’s not over. California’s not done. They’re carving out piece by piece and then letting lawyers run it up to the Supreme Court, hoping for the feds to change the law or them some relief. So yeah, I wouldn’t say it’s over, but for now, the employers are winning. You can still use arbitration agreements in most situations. Not all, but we’ll see. We keep an eye on that for our clients to let them know and we look at their agreements to make sure they’re not out of bounds.
Neil
Yes.
Dan
Because at the same time, California’s passing new and tougher regulations for violation of employee rights that are penal, sometimes criminal. So it’s like we have a new segment coming up that you and I’ll be talking about, about new areas of the law, and one of those is penalties for violation of employee rights. Unbelievable.
Neil
So you’ve kind of led us right into some of the most common issues that our employers face. Wage and hour issues, PAGA issues. How does the arbitration agreement help in those types of situations?
Dan
If you have an arbitration agreement, it’s more difficult to do what’s called a class action. And if you do a class action, you don’t have to spend two and a half years watching plaintiff’s counsel run up the fees. It’s like being in federal court. The arbitrator can control what discovery is allowed and discovery. I mean, the way lawyers make money litigating against each other, they just start drafting questions and torturing the other side, answering 500 questions they could have done in five, and then they charged $40,000 saying that was reasonable and they blackmail you into settlement arbitrations. The arbitrator controls what’s going on from start to finish. The arbitration fees are expensive, but nothing compared to what happens in open court.
Neil
And that leads us right into disputes. If you’re in business, Dan, it’s not a matter if, it’s a matter of when you’re going to get into a dispute with either a supplier or customer who have another business.
Dan
The golden rule, right?
Neil
Absolutely.
Dan
The more money you make, the more likely you are to be sued.
Neil
Absolutely.
Dan
So, If you plan on being successful, plan on being sued or having to sue someone for stealing from you,
Neil
Right. So how does the Watkins firm as general counsel, we’re here to help with those problems as well.
Dan
We plan for that. We meet with our clients, we identify potential issues, and we identify them by listening and also by asking questions based on nightmare situations we’ve seen other clients go through.
Neil
Yes.
Dan
So we’ll be aware of things immediately we want to talk about in addition to things our clients want to talk about. That covers almost all of it.
Neil
So Dan, you’ve often talked about how the Watkins firm takes a unique approach to disputes. How are most business disputes actually resolved?
Dan
We look at the damages and we look at the
Neil
Chronology.
Dan
Chronology, yeah, That’s it. We are concerned about liability, but if there’s damages, but some lawmaker passed the law to give somebody the right to recover for damages, there are probably 12 different ways and different laws for each form of damage that you can seek in the law. So you should focus on the damages and whether they’re provable, because not all damages are recoverable. How you phrase it, how you present it can make it recoverable or not recoverable. And how we attack those damages can make them nonrecoverable damages.
Neil
So what’s the first step in resolving a dispute? Is it going right to court?
Dan
No, no, no. We want to get a chronology. We want the facts and we want them in chronological order because that chronology will help us see issues like tarot cards. They just pop out and you see these issues that would be otherwise overlooked, and you can use those issues, that new way of looking at the facts to couch your arguments, make your presentation to opposing counsel and scare opposing counsel at times.
Neil
So it’s a negotiation.
Dan
Right. And also to trap a trap the other side, because they haven’t seen the facts this way.
Neil
Yes.
Dan
They’re just working off what sounds good. Knee-jerk, knee jerk compression or the facts, this sounds pretty bad. And they don’t look at the chronology. So once you get that in mind and you’ve got the damages analyzed, then you can tell your client, this is what you risk a lose to lose for real by law, not just a hunch. You can be specific about that. This is what it’s going to cost to resolve. If we go all the way or if we go halfway or right now and they can make a business decision. Risk versus fees versus exposure. Put it all on a mathematical formula for them and that will help them make a decision.
Neil
What percentage of our cases, Dan, do we resolve through simple negotiation before it ever gets to a lawsuit?
Dan
I would say probably 50%.
Neil
Great. So if we’re not able to negotiate a resolution with the other side, a lawsuit probably gets filed. What’s the next step after that?
Dan
Well, sometimes they come to us and the lawsuit’s already been filed. But if they come to us before the lawsuit’s filed, then we will do two things. We’ll help them try to negotiate a settlement and help them prepare in advance for a lawsuit, get their evidence, get their documents, give them information about the issues. All you have to do if you’re an average business person, is give them the law and tell them what you need and they’ll go get it. They’re smart. They wouldn’t be a business if they weren’t. They have handled problems. They’re problem solvers. So we want to see those people as soon as possible, tell them our take on it and the next time we see them, 90% of the time they’re bringing me or our attorneys great evidence. Everything we ask for, all of a sudden it just comes in Because you spotted the issues together and they know where all the evidence is and they bring it to you and all of a sudden your case is much better.
Neil
Is mediation an effective tool for these types of disputes?
Dan
Absolutely. If you get a good mediator,
Neil
Who gets to choose the mediator?
Dan
The parties have to agree on the mediator together. It’s voluntary. So both law firms will suggest this mediator or that mediator, and if they can agree on one, then they’ll go to that mediator.
Neil
What percentage of those cases that reach mediation do you think it resolved in mediation?
Dan
I would say 70% to 90%.
Neil
Yeah, substantial portion of them. And then a lot of contracts then call for arbitration as an alternative to a trial?
Dan
Correct.
Neil
What is arbitration like?
Dan
Arbitration varies depending on the arbitration service. Some are excellent, some are not so excellent. Some are outrageously expensive, some are right in the middle. Have since we’ve been doing this so long, we have maintained two lists, the don’t go to list and the preferred list. And they’re long, I hate to say it, they’re both equally about the same length. They’re several pages long. Some are just traps and some are just, we got to go to one of these mediators because they will figure out a way to get our case resolved.
Neil
So arbitration is an all or nothing game, is it not?
Dan
Arbitrators? You want a nice intelligent arbitrator because you don’t generally get a right to appeal. So you’re gambling if you go to someone who has little experience in that area of law. So you have to know you’re judge shopping on arbitration, and both parties have to agree. And usually opposing counsel will want to have an intelligent arbitrator too. I can’t imagine. I’ve never run across in 35 years a lawyer saying, no, I want someone who doesn’t know about this kind of law.
My case is terrible. That’s the only way I’m going to win. I’ve never come across that. I don’t think I ever will. So yeah, we share experiences. That’s another way we learn about certain arbitrators first. We’ve gone to hundreds of different arbitrators over the years, and also we talk, we’re part of this community for a long time, and we talk to other lawyers. We all talk about who’s a good arbitrator and who’s not.
Neil
So the point of this discussion really is as the general counsel, we’re not just going to be able to tell them, yeah, this is a problem, or Yeah, we can help you this far, and then we’re going to have to go outside and get somebody. The Watkins firm has been in trial for 40 years or more. We’ve got a proven track record and we can take a case wherever it needs to go. But our goal upfront is what does the client need? What does the client want? What are their objectives? What’s the best way to get this done?
Dan
That’s right. They’ve cut down over the last 20 years, the amount of percentage of money they spend on our judicial system. And these judges, especially in San Diego, have more work than they could ever do and less support staff. So it’s the toughest job I can imagine as being a judge here in San Diego.
They work hard, they get there early, they work through lunch, and they work late, and they have 1900 cases on their calendar and they can only do 40 trials a year. The rest have to settle or resolve some way, which puts a lot of pressure on the parties to even get a fair trial.
Neil
So we’ve had a pretty broad conversation about all the things that a general counsel does and should do for a business in your mind. For most small to mid-sized business people here in San Diego, Dan, why do they really need a general counsel?
Dan
They’re cheap. They make you more money.
Neil
Yes.
Dan
And you’ll sleep better at night knowing when you have one. If you get a good one, it’ll be the best decision you ever made.
Neil
Thank you, Dan.
Dan
Thank you. You can learn more about the Watkins firm at https://watkinsfirm.com or call our office at (858) 535-1511.