10 Things In-House Counsel Need to Understand About Business Alan K. Tse, General Counsel, LG Electronics MobileComm USA Karen Wishart, Executive VP

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1 10 Things In-House Counsel Need to Understand About Business Alan K. Tse, General Counsel, LG Electronics MobileComm USA Karen Wishart, Executive VP and Chief Legal Officer, TV One Marti Wronski, VP and General Counsel, Milwaukee Brewers Baseball Club Roger H. Marks, President, International Safety Council

2 Evolving Critical Success Factors in Value-Added Role From Cost Efficiency to Client Focus 2

3 Business Acumen in Tough Economic Times Understand the story behind your company s numbers What are the impacts of economic conditions, competitive pressures, regulatory changes? Recognize the realities of the current economic situation How do these realities affect the company s ability to drive revenue and profitability? Understand that tough economic times can require that companies make difficult decisions to remain competitive and financially sound Realize why specific new initiatives are implemented and how they can help keep the company strong. Take actions in your own jobs that are supportive of the company s tough times strategies. 3

4 Business Acumen Defined Business acumen is the understanding of what it takes for a business to make money. Involves financial literacy, i.e. understanding of numbers on financial statements, and the strategies, decisions and actions that impact these numbers. Business acumen, allows one to interpret this same income statement, taking into consideration how company strategies and initiatives have impacted the numbers during specific periods of time. Simple Analogy: In baseball, it s necessary for players to know how the game is scored as well as how to play the game to change the score. In business, financial literacy is understanding the score (financial statements) Business acumen is understanding how to impact strategic actions and decisions. These are just ballpark figures 4

5 Benefits of Business Acumen In-House Counsel who engage with business acumen provide a clearer vision and an overall context within which employees can work, while creating an environment that is more likely to break down internal barriers. There is increased innovation and less waste and ambivalence. In-House Counsel are more engaged; they understand their role and its impact on business results; and they are more likely to believe that their efforts really matter. Allows In-House counsel the ability to wear two hats such as running the Legal Department and another department or allows for the transition to a business role. You get a seat at the table when you can speak the language of your business clients. 5

6 1. Think Like Your CEO To be successful, business executives must be able to helicopter above dayto-day issues and see the big picture. They must understand how the pieces of the business fit together to impact profitability and cash flow, and they must be able to assess the risks and rewards of potential decisions. To truly understand the business, executives have to understand how that business makes money in other words, how it produces sales, profit and cash. Organizationally, they know that it s about people, processes and productivity. On the internal and external customer front, it s about satisfaction, loyalty and market share. Ultimately, every action taken and every decision made in any of these areas will impact sales, profit or cash. 6

7 2. Understand the Language of Business Cash Flow: sustainability vs. profitability (burn rate) Functionality: product demand drives customer value Organization: accessibility of personnel, finances, taxes, and information for success Competition: profitability vs. barriers to entry that will outsmart competitors Prioritization: A business must know what projects are the most important and set everything else aside ROI Return on Investment Financial Statements: Income Statement vs. Balance Sheet 7

8 3. Ask the Right Questions Ask different types of questions: organizational, functional, departmental, processes, products, systems, staffing and more that can lead to necessary and innovative decisions and actions. Business acumen helps everyone understand that it s not enough to ask, How do we cut costs? or to say, We need to increase sales. Employees with higher levels of business acumen will ask questions that make the connections between performance and results. They take into consideration the far-reaching impact of potential decisions. 8

9 Above and Beyond: Questions Have production costs gone up? If so, why? Have we changed prices? If so, how has that affected our margins? Are there any competitive issues impacting our performance? Have there been any customer requirement changes? If our costs per unit produced have gone up, can we better control the efficiency of our production or service delivery? Do we have the right products or product mix? Is there a way to produce a greater product volume at the same cost? Can we raise prices, still provide value to the customer and remain competitive? When questions become more specific, the right decisions can be made. 9

10 4. Pick Your Team Carefully World-class legal best practices in: Talent management Client value creation and alignment Outside counsel relationships Processes and productivity Requires: Current state assessment Agreed future state description Gap analysis Resulting in a strategic plan resources, funding, timeliness, milestones Team responsibilities flexibility to accommodate future change How do we get there? Implement key initiatives with strong leadership and management, patience, practice and persistence 10

11 5. Understand the Reality Behind the Numbers Numbers are not magical, and they aren t sacred. They are important only as clues to the reality that produces them. To use numbers effectively, you have to strive constantly to understand that reality to move from the abstract to the specific. Many a profitable company has gone out of business because people neglected to find out the reality behind the number on the bottom line. You can t pay your creditors with money that s tied up in stale inventory or uncollectible receivables. Jack Stack, The Great Game of Business Revenue recognition: Learn the basics. Ask your accounting people what the revenue-recognition hot buttons are for your industry segment. Learn the business of the company, including gross margins of products, the technology, the position of the company in the industry, etc. Learn how the company's products are made, inventoried, distributed and sold. Spend some time on the assembly line or factory floor (if applicable). Learn how the shifts rotate, how breaks are administered, how employees get their information, and how management practices what it preaches. 11

12 6. Understand Business Issues in Negotiating Sales Contracts Never underestimate the importance of sales contracts. You may enjoy the high level legal work, but its importance pales in comparison with that of keeping revenue flowing. Try to engineer your sales-contracting processes so that sales reps don t derisively refer to Legal as the Sales Prevention Department. Time management: If you don't get a contract (or a mark-up of the other side s contract) to the sales people on time (or before), the train may well leave without you, regardless of how bad the draft was. Every customer request is a marketing opportunity. If one customer wants a particular concession, it follows that others might want the same thing and if you can figure out how to give it to them, you may achieve a competitive advantage and maybe even generate extra revenue from it. 12

13 Understand Business Issues in Negotiating Contracts Money, i.e. purchase price or interest rates. Revenue recognition, i.e, know how the sale is booked for your company and also for your customer or supplier. Risk and how it can be limited through mechanisms such as warranties and covenants. Control over the deal and its risks. Standards established through contract wording, such as "good repair" or "promptly deliver." The end game, which is how the contract ends. For example, it could be through repayment of a loan, for example. 13

14 7. Have Trust in Another s Integrity and Abilities Either you have trust or you don t. We don t have it, and there is nothing we can do about it. Technique and technology are important, but adding trust is the issue of the decade. Tom Peters "We are constantly amazed by how much people will do when they are not told what to do by management." Jack Welch 14

15 8. Understand the Trends in Your Business Attend conferences, both legal and industry specific. Get out of your office, speak with employees, partners, vendors; travel with other executives. Read the general business press, industry press, analysis, reports, etc. 15

16 9. Develop Team Work Must be a priority of the General Counsel and senior leadership. Requires: A strategic approach to diversity management A strategy for honoring multiple cultures Commitment to strengthening personal competencies Should be a company-wide initiative supported by the CEO will require investment of time and money...and in the end, while I think it is vitally important for people to build their capabilities...what will distinguish your life and your leadership as you go forward is less your capability and more your collaboration skills and your character.... Carly Fiorina 16

17 10. Simplify and Face Reality Keeping things simple is one of the keys to business. Simple messages travel faster, simpler designs reach the market faster and the elimination of clutter allows faster decision making. Face reality, then act decisively. Bad news is not like fine wine, it doesn t improve with age. Most mistakes that leaders make arise from not being willing to face reality and then acting on it. Facing reality often means saying and doing things that are not popular, but only by coming to grips with reality will your actions lead to improvement and ultimate success. 17

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