THE ART OF THE DEALMAKERS
Meet the new stars: in-house counsel who can strategize M&As

By Chris Daniels

Bill Gula recalls a joke he read in The Globe and Mail that made him chuckle. A man in a hot-air balloon is blown off course, so he lowers the aircraft to ask a man sitting on a bench where he is. "You're in a hot-air balloon, 15 feet off the ground," replies the man on the bench. "You must be a lawyer," says the man in the balloon. "Yes, how did you know?"
"Because that's completely accurate — and completely useless."

The punch line delivers a biting insult at Gula's livelihood. Gula is a partner at Davies Ward Phillips & Vineberg, a law firm which represented in major deals last year such clients as Barrick Gold and Masonite. Yet, he laughed because he says it is an accurate characterization, very generally speaking anyway, of how corporate lawyers can sometimes operate.

Gula should know. He returned in 2004 to DWPV, where he spent a good chunk of his career after seven years on the investment banking side at Scotia Capital as managing director, head of mergers and acquisitions. While investment bankers sell clients on ideas "to create new business, law isn't so much about idea creation," says the 53-year-old. Lawyers are trained to assess risk, which means they can often nix an idea without suggesting how a goal might be achieved through alternative avenues. Without meaning to, lawyers can sometimes say a lot without saying anything that's much of use at all.

Yet, there is a new breed of lawyers today who are marrying legal know-how with business savvy. Call them strategists, the CEO's right-hand man, or even CEOs-in-waiting. In fact, lawyers-turned-CEOs have recently led American Express, Pitney Bowes and Time Warner. In Canada, there's George McClean, director of fleet and commercial sales at General Motors of Canada, and Laurie May, co-president of Maple Pictures, Canada's second-largest film distribution firm.
Corporate lawyers, in particular, seem to be rising in status — literally. At Fairmont Hotels & Resorts, in-house counsel Terence Badour is located on the same floor, and just a 30-second stroll to the office of the CEO. Ten years ago, the legal department was located two floors below. At ZSA Legal Recruitment, the country's largest legal recruitment firm, a record 50 percent of all its placements filled in-house positions. Says Susan Kennedy, a managing consultant at ZSA: "That's a reflection and recognition of their increase in importance."

Photographs by Kevin Kelly

But why the rise in status? For starters, Bay Street is seeing a flurry of mergers and acquisitions. According to financial-news provider Bloomberg, last year there were 2,213 deals valued at $156 billion, up from 2,086 deals in 2004, valued at $94.4 billion. In some ways, lawyers are forced to think more strategically because, as corporations look to generate shareholder value through consolidation, they also don't want to get tripped up by regulatory restrictions or corporate governance minefields. For Gula, all these facets of his work are like injecting a shot of adrenaline into his bloodstream. And "the size of the deal is a kick because the bigger the deal, the more profile it has," he says, with almost child-like glee.

One of the Street's potentially first blockbuster deals of 2006 is the $1.2-billion US hostile takeover bid for Fairmont Hotels and Resorts by U.S. corporate raider Carl Icahn, who wants to increase the stock's value by selling the luxury hotel operator to a larger firm. The Fairmont board rejected what it called a "coercive" bid that failed to treat shareholders equally — suggesting that Icahn is looking for a quick buck and that such a sale would not be in the interest of longer-term investors. Now the legal team — which includes Fairmont's Badour, 49, and Blair Cowper-Smith, 57, a partner at McCarthy Tétrault, Fairmont's primary law firm — is waging a defence, which includes seeking a white knight.

Badour and his department — comprised of five lawyers and seven support staff — worked through much of the holidays. He says they had to evaluate the Icahn deal not only for long-term and short-term shareholders, but also for stakeholders such as company employees and even creditors. Fairmont's uncertain fate makes his position stressful. Yet at the same time, he says it's "very exciting because [as lawyers] we have become so much more part of the corporate strategy, whether it's takeover preparedness or geopolitical risks associated with hotel expansion into other countries."

For Cowper-Smith, the Fairmont case gives him yet another unique experience, so he can help and advise future clients better. He has become so indispensable, for instance, to a client — Stelco, the country's largest steelmaker — that he now has a permanent office there and advises the board on legal and business issues. And it is that strategic thinking that Cowper-Smith loves. "It's like a game of chess," he explains. "Business has a beginning and an end, but it is essentially a series of moves, anticipations and guesses of what others might do."

Another factor may be contributing to the boost in image among, specifically, in-house counsel. Fewer than 40 percent of lawyers working at law firms are female (and still fewer make it to partner), yet 50 percent are employed at corporations, according to compINSIGHT's National Legal Practices & Compensation Survey in 2005. It used to be that lawyers who defected to the corporate side early in their careers were perceived as being unable to cut it in private practice (after all, firms have always paid much richer salaries). Yet, the country's brightest female lawyers — in fact, some of the brightest lawyers, period — are rejecting law firms for the more family-friendly culture of corporations.

Take, for example, Emily Jelich — who at 39 appeared last year in industry bible Lexpert magazine's list of Top 40 Canadian Corporate Counsel, 40 and Under 40. As assistant general counsel at RBC Financial Group, she oversees the securities business of the bank's clients. Jelich and her 20-person legal team have been instrumental in striking deals with investment bankers and traders to create, among other initiatives, new derivative products. She helped bring to market, for instance, weather derivatives, which can guard a company like a brewer from financial difficulties that could arise if cool temperatures hurt summer beer sales.

Jelich says she tries to keep the most interesting, demanding work in-house and farms out the less crucial assignments to law firms. Having spent little time at a law firm, Jelich never developed that "narrow perspective, that yes-or-no mentality to business issues." Adds Jelich: "The role of the lawyers has become more important in the eyes of the CEO because they must be conversant with and advise the CEO in the context of law, the regulatory environment and market standards, and balance this against the need to do business. The in-house lawyers of a decade ago were able to confine themselves to commenting on the law in more of a vacuum."

For Jelich, her reasons to work in-house are simple: "I have kids." She probably could have made more money at a law firm, but working in-house, 9-to-5, is more the norm than not. "I am happy to work hard," says Jelich, a mother of four, "but the probability of being home on Friday night was never in my control, at least at a law firm."

With the corporate lawyer's elevated status comes generous compensation. Fuelled by a multitude of deals, the "seven sister firms" — consisting of the country's biggest players — have been "crazy busy," says ZSA's Susan Kennedy. Partners in big firms are now pulling in $700,000, if not well into the seven figures, depending on factors such as how much business they brought to the firm. While senior in-house counsel typically make less, their $200,000-or-so plus salary with compensation package also includes generous stock options, car allowances, free cellphones, a BlackBerry and reimbursement of racquet/health club memberships.

Booming merger activity (and the stock market rebound) has Wall Street hopping as well. Bonuses are expected to hit a record $21.5 billion US for 2005, with the average bonus being $125,000. For the lawyers-turned-dealmakers, the future looks very bright indeed.

And contrary to that stuffy, risk-averse image of lawyers, some spend their money in pretty nifty ways. Gula, for instance, is an avid collector of electric guitars (Jelich is a soccer mom; Cowper-Smith is a snowboarder) and includes, among his 25 prized possessions, instruments previously strummed by the likes of rock legends Keith Richards and Eric Clapton. Such guitars are typically sold at auctions to the tune of somewhere between $10,000 and $500,000. And Gula does more than just collect. He is part of a rock and roll band, made up of other Bay Street types, and they play for charity events in the business community. The various incarnations of his musical group are the Insecurities, Capital Noise and, more recently, the Bay Street Rollers.

A corporate lawyer who plays in a rock and roll band? "It's a rush, getting up there in front of 600 people," says Gula, adding that his pastime shouldn't be that surprising. "Law does have a creative side even in business. How do you move past the bumps in the road? How do you help a company move from point A to point B" It's that strategic thinking that has given lawyers their newfound heightened status.