Steven Eckhaus is regularly called to the table by influential executives to hammer out compensation packages and other crucial employment matters. An experienced litigator as well as an adept dealmaker, Eckhaus has set key precedents in employee discrimination laws and has successfully negotiated more than $6 billion in compensation for his clients to date. He is head of the Employee Benefits, Compensation, Labor and Employment Group in McDermott Will & Emery’s New York office.
Lawdragon: Can you describe for our readers the mix of work you do within the employment area?
Steven Eckhaus: I advise decision makers, partnerships and creatives including CEO’s, founders, partners, fund managers, technologists, general and limited partners, family office managers, traders and investment bankers on all matters related and tangential to their employment, partnership, ownership, compensation and equity. I negotiate their employment agreements, earn-outs, bonus plans, equity arrangements, carry plans, “splits,” limited partner agreements, joint venture agreements, succession plans, separation agreements, retirement agreements, and post-retirement agreements.
Within those “wrappers” there often are intellectual property matters to negotiate involving inventions, copyrights including derivative law agreements, licenses and patents. Virtually every agreement requires negotiating Change in Control including “Parachute Tax” issues; confidentiality, non-competition and non-solicitation covenants. Cause and Good Reason. Clawbacks. CEO and founder agreements often specify where their authorities end and the Board of Directors authority begins. If the agreement is with a European financial institution you will have potential limits to compensation under CRD-4, or Capital Requirements Directives. If it’s a Swiss Bank you will also need to consider Minder’s rules. If the company is a not-for-profit, you have to be able to establish that the compensation is “reasonable.”
I am somewhat unique in this era as I was trained as a trial lawyer and I handle the litigation that sometimes arises when negotiations fail. Having taken contract matters to court, I know which terms and conditions matter, and how they will be viewed in court, which helps me focus my negotiations, and is a big reason for whatever success I have as a lawyer. Most exec comp lawyers are tax lawyers. Litigation is likely to involve “squeeze outs,” non-competition and non-solicitation agreements, bonuses, confidential information, intellectual property and derivative law agreements, Cause or Good Reason terminations, and interference with contracts.
I also advise business enterprises and compensation committees on the same headline topics, and handle related litigation, but from the opposite side of the table or courtroom.
LD: What are some aspects about this work that you find professionally satisfying? What has kept you at it over the years?
SE: About twenty-five years ago, the CEO of a pharmaceutical company came to see me. The person who recommended me told the CEO not to talk with me by phone, but to sit with me in my office and talk face to face. My clients are some of the most brilliant and accomplished people in the world, and in my office, we talk. My clients respect my judgment and appreciate my advice, which is not necessarily confined to matters in the employment lawyer box. This practice never gets old. I enjoy it every day.
LD: Can you share a few of your strategies or methods for negotiating complex compensation matters with successful results?
SE: I rely on four key ingredients to successfully negotiate complex and high level compensation matters.
First. Lawyers talk too much. Listen to the client before, during and after the negotiations. And I always tell my client what I think.
Next, take the emotions and drama out of the room. These negotiations are life-cycle events. Stay centered, make sure the client knows you care. Keep everyone calm.
Third, in several hundred matters over the past 25 years I have worked with a world-class economist, Stephen O’Byrne, one of the originators of Economic Value Added, or EVA. In the early days we just did Black-Scholes modeling. Now, we go under the hood of the companies we are negotiating with or working for, and evaluate, measure and model incentive compensation outcomes, to determine values, and develop algorithms that give us a basis for determining what is truly exceptional performance. We then either import that into the contract that we are negotiating, or use it to test the compensation plan that we are being offered, or otherwise as a negotiation tool. I bring tax counsel into the mix, and other consultants as I think will be helpful.
Finally, in the private equity, IPO, and merger & acquisition contexts, the CEO’s employment agreement is held to the end and treated almost as an afterthought, something that doesn’t take much thought and anyone can review. The CEO is anxious to close and just wants to sign. The CEO’s lawyer is reduced to what I call ”checklist” negotiating – making sure the required topics are included, but not negotiating anything other than the most egregious overreaches. I insist on early participation in the transaction so the CEO agreement leads the deal. I like to say that the CEO’s influence should be apparent on every page of the Operating or Stockholder Agreement. That may be an overstatement but it sets the right tone for the negotiation.
LD: How would you describe your style as a negotiator?
SE: As a negotiator I see myself and the person across the table as partners. Our clients will be working together, so the most important goal is to get the deal right. My style is calm, focused and cooperative, but I know what is commercial, I’ve done my homework and modeled outcomes, and I know what my client will accept and why.
LD: How about as a litigator?
SE: When I was a young lawyer, learning my craft, trying criminal cases, I won my first jury trial, then lost my next twelve. I was technically proficient, but dry and dull. In my 14th trial I channeled a stand-up comedian, and everything changed. Since adding humor, and giving up criminal law, I have not lost a case – I’ve just run out of appeals.
LD: How do you think others view your style as a negotiator and litigator?
SE: As a negotiator… well, from 1998 to 2008 I had represented more than 100 Merrill Lynch executives. When Merrill was acquired by Bank of America, I was hired by the General Counsel of Merrill Lynch to represent her personally.
You ask, how do others view my style as a litigator? About 10 years ago I was profiled by a newspaper and the headline called me, “the Darth Vader of Wall Street.” My wife and kids were horrified. I had to explain that, for a lawyer, that was a good thing.
LD: Are there any trends you are seeing in your practice in terms of the types of matters keeping you busy these days?
SE: We’re seeing a lot of complex projects. We were recently hired by the head of an investment bank who is stepping down to head up a new business funded by the investment bank. We see a lot of non-solicitation, raiding, and derivative law agreements.
LD: Can you describe a recent matter that you’ve handled to some agreement or resolution?
SE: One of the biggest banks in the world was raided by a would-be competitor who wanted to jumpstart a capital markets business. The bank had a new CEO and on her fifth day, twenty one managers walked out and went across the street to the would-be competitor. I happened to have a meeting with the bank’s Head of HR that same day and was pulled into a meeting with the new CEO and the remaining managers who were scrambling. From my little Benefits lawyer corner I suggested checking the emails of the twenty-one managers. That turned up evidence that shortly before resigning, six of the twenty-one managers had emailed bank confidential information to their personal email accounts. None of the managers had signed non-compete or non-solicitation agreements, and their confidentiality agreements were, for the most part, missing.
I informed the new CEO that in addition to my executive compensation practice I was an experienced employment trial lawyer. I suggested that we could bring actions against the six managers for breaching the common law duty of loyalty, and against their new employer for aiding and abetting the breaches of the duty of loyalty.
I soon found myself facing off in arbitration against one of New York’s premier litigation law firms. I made no objections during the testimonial portion of the arbitration, and explained to the associates who were supporting me that I wanted the adversary witnesses off the stand as quickly as possible and didn’t want to draw attention to any of our adversary’s witness testimony by objecting.
Just before our adversary’s closing statement they proffered a 160-page PowerPoint summary of their case, with a copy for each arbitrator to follow their closing statement and to take home as a resource when they were deciding the case. I objected to the distribution and use of the PowerPoint summary. The Arbitrators sustained my objection. Without their 160-page PowerPoint my adversary’s closing statement was like one hand clapping. The arbitrators issued an order, granting our request for a permanent injunction and awarding money damages.
About six months later, the would-be competitor closed their new capital markets business.
Our bank client rated me as its most effective outside counsel of the year.
LD: Did you know during your undergrad that you wanted to move on to a legal career?
SE: I had no idea what I would do. After college I worked for Macy’s as an assistant toy buyer. That wasn’t for me so I applied to law school. I worked my way through law school cooking for 1,200 people. All my recipes began, “bring 50 gallons of water to boil.”
LD: What led you to stay with Cornell for law school as opposed to other options you may have had?
SE: I was an undergrad at the School of Industrial and Labor Relations at Cornell for 2.5 years and loved being in Ithaca. I was offered admission by a number of great law schools including Columbia, Chicago, NYU and Penn, but I wanted to avoid the distractions of the big cities and focus on my education.
LD: What initially led you towards an employment practice?
SE: After graduating from law school I went to work for two Manhattan criminal trial lawyers, going to night court, trying cases, living the dream. In 1980 I hung up a shingle and started my own practice. By 1986 I had lost all interest in criminal law and found employment law interesting. In the late 90s I won a major employment law case in the Second Circuit, reversing then District Court Judge Michael Mukasey. A few months later I won a motion in the case that became the basis of Family Responsibility Discrimination. I had a small executive compensation practice, which was getting bigger. Then, in 2002, Leona Helmsley hired me and I tried a case for her that put me in the news every day for six weeks. I even called her as a witness. I stopped representing her in 2004 and joined a Big Law firm for the first time. I was 52.
LD: Is this the type of career you imagined for yourself when you were in law school?
SE: I don’t know what sort of practice I imagined while in law school. My philosophy was to choose classes based on the professor, not the subject. I was very fortunate to be at Cornell Law School in the mid 70s. We had the first trial techniques program in the nation, and it was led by Irving Younger, who also was my mentor.
LD: Did you have other early mentors or particularly memorable professors?
SE: Other legendary professors who made indelible impacts on my practice included Robert Summers, who taught Contracts. He used to say, “It’s a cinch by the inch. It’s hard by the yard.” Robert Blakey – who taught Criminal Procedure, and who also drafted Title III, the wiretap statute, and was Counsel to the House Committee on the Assassination of President John F. Kennedy – he used to say, “If you tear down all the laws to get to the Devil, what will protect you when the Devil turns around and goes after you.” Then there was Dean Roger Crampton, whose tag line was “the same heat that melts the butter hard boils the egg.” I also had Lawrence Palmer for “Experimentation with Human Beings” whom I assisted in defending the first homicide in Ithaca in more than a decade. Robert Martin for Property Law, Rudolph Schlesinger for International Business Transactions, and John Lee Smith for Law, Ethics and Religion and for whom I was a Teaching Assistant. And I would be remiss if I didn’t include Milton Konvitz, who is credited with coining the term “civil liberties” and whose undergraduate classes and writings on the foundations of American liberal democracy are even more important today than when I sat safely in his classes in 1970-1972, the lowest points of the Vietnam war, listening to him talk.