Execs negotiating employment need a lawyer with right temperament, knowledge
May 10, 2019
By Walt Williams
After being offered the top job at an association, the next step for many executives is to hire an attorney to represent them in contract negotiations, and finding a lawyer with the right qualities for the role is crucial for success.
According to attorneys and compensation experts, executives need someone who will fight for his or her client but not leave any bad blood between the executive and board members after negotiations have concluded. And it is important for the attorney to be well-versed in nonprofit law.
“I have sometimes seen people being represented by attorneys who do not know very much about not-for-profit law, and in particular about the constraints on compensation that are associated with not-for-profit status,” said Brian Vogel, senior principal with management consulting firm Quatt Associates.
“It is really helpful to have someone who understands intermediate sanctions, who understands the limited range of vehicles there may be for deferred compensation involved. … Things an attorney is familiar with in the for-profit sector may not be relevant in a not-for-profit context,” he said. (The IRS may impose penalties or intermediate sanctions when a nonprofit organization is determined to have provided excess benefits.)
Not all association executives work under employment contracts, but a large number of CEOs do. One reason for bringing in an attorney is to make sure the terms of the document are as clear as possible, particularly in terms of annual adjustments to compensation and when bonuses are awarded, according to Vogel. Attorneys can also help iron out language concerning the performance review process, what outside activities a top executive can engage in and, perhaps most importantly, severance in case of termination.
“No matter how good you are, there’s some possibility they will want to get rid of you, so make sure you spell out what severance will be and what it will be based on,” Vogel said.
Thinking of the future
When it comes to hiring a lawyer, earlier is better than later, according to experts contacted by CEO Update. An employment lawyer could cost $5,000 to $7,000 or more, depending on where the attorney is based, but some associations will cover all or some of these expenses as part of hammering out an agreement with the executive.
Negotiations often begin with the presentation of a term sheet, but that is not always the case, said Cynthia Lewin, a partner at the law firm Venable. When she worked as an in-house staff counsel in the nonprofit sector, she would use the contract of a prior CEO as a starting point.
“But even if I didn’t have one, I wouldn’t have just used one off the internet to hire a CEO,” Lewin said. “I would have hired an employment lawyer to provide me a standard CEO agreement.”
It is not uncommon for some executives to waffle on whether to bring in a lawyer on contract negations, said James Wilson, a partner at the law firm Webster, Chamberlain & Bean who works with nonprofits. Particularly when executives are first joining an organization, they feel optimistic that any problems that arise down the road can be worked out. But while that may be true at first, there is no guarantee the positive vibes will last.
“There are things that you have to be disciplined on about protecting yourself and know what to ask about, and sometimes it’s easier for a lawyer to step in and play that role than an executive that wants to keep things very positive,” Wilson said.
The top thing Wilson looks for in contracts is the language concerning length of the executive’s term and the conditions for termination. In some cases, the language is already agreed to by the parties and not up for negotiation, but in other cases it is not, he said.
“(An attorney) wants to make sure that whatever contract they’re signing gives them the stability that frankly makes it worth their while to consider the opportunity. … However, no matter what the term says, you have to pay attention to the termination rights so that if the executive is terminated, they’re going to be treated fairly in terms of severance for the role they played,” he said.
Jonathan Howe, president of the law firm Howe & Hutton, compared such language to a prenuptial agreement: “What you’re doing is outlining what the terms and conditions are for marriage. And should there be a divorce, this is what is going to happen.”
When it comes to representation, Howe believes it is good practice for both the executive and the association to have independent counsel. Some organizations default to their in-house staff counsel, but that is a mistake in that the executive will likely be that person’s boss in the near future.
For staff attorneys, “it is putting himself or herself into a bit of a predicament knowing that whatever they do may come back to haunt them when the new guy comes aboard,” Howe said.
Also important for maintaining a healthy relationship is the temperament of the executive’s attorney. Everyone interviewed by CEO Update said executives should work with an attorney who will stand firm for them but do so in a professional, cordial manner. What executives do not want is an attack dog.
“You can get somebody who comes on too strong,” Lewin said. “Even if the CEO is trying not to burn their bridges, at some point it’s recognized the attorney is the mouthpiece for the CEO. If the CEO is too demanding and is viewed as greedy and unpleasant out of the gate, that’s not good.”