When To Hire Outside Counsel – A CEOs Guide

When a board faces any type of crossroads where a big decision is required—but especially in the case of a hostile takeover attempt—hiring outside counsel can assist directors in making the best decisions for the company.

Outside counsel can explain fiduciary duties owed by directors to the company.

Clearly identifying duties and reassuring directors that they are meeting their obligations calms fears that might otherwise prevent open communication and rational decision-making. Outside counsel can also reassure directors that their personal assets are not likely to be seized in any lawsuit resulting from a hostile takeover attempt.

The acquisition of Allergan, Inc. is a useful case study to see the benefits of outside counsel. After Allergan’s board rejected Valeant’s acquisition offer, Valeant initiated a hostile takeover attempt that included lobbing personal attacks at Allergan’s directors.  Each director came into that process with different levels of experience and skill and, as such, experienced varying levels of anxiety about whether their own personal assets could be exposed. This type of anxiety about a future outcome can overwhelm the rational side of the brain, making it increasingly difficult to function as a team player, communicate openly and clearly, and focus on the best result for the company.

Outside counsel can reinforce emotional connection during times of stress.

Allergan’s leaders brought in outside counsel who were experienced in mergers and acquisitions and who were available around the clock. They explained legal protections for directors to reassure individual members that their assets were not likely to be seized. In addition to responding to specific questions from individuals, outside counsel also reminded the board as a whole of its fiduciary responsibilities during key decision-making moments.

The fear of being sued or losing their life’s savings was very real for some board members. Counsel helped manage that fear by explaining that the likelihood was very small of lawsuits against individual directors, and in which rare cases they might have to actually pay damages to a plaintiff. The board was advised that unless it did something irresponsible or reckless, it was highly unlikely individual members would be held personally liable for breach of fiduciary duty. This type of reassurance and clarity helped board members remain united in pursuing the best interests of the company, and stick to their decision to resist Valeant’s hostile takeover bid.

To learn more about hiring outside counsel and emotional connection, don’t hesitate to contact us.