The Wartime Consigliere

Richard Baer helps Qwest survive a $3 billion accounting scandal

Published in Corporate Counsel Edition® - 2009 — January 2009

For a guy who calls himself an accidental general counsel, Richard Baer has done pretty well. The self-deprecating and charismatic New York native would never take credit for having helped save Qwest Communications from the brink of bankruptcy, even though that's exactly what he did. Baer came to Qwest in 2001, as the company's stock was falling and an accounting scandal was unraveling, and took the reigns of the legal department in 2002 as it struggled under the weight of government investigations and shareholder allegations of fraud and insider trading.

"It's unusual for a first-rate trial lawyer to take on the role of general counsel," says Jim Lyons of Rothgerber, Johnson & Lyons, who represents Qwest's board of directors. "But I think it was pretty clear that at the time, the company needed a wartime consigliere and that's what they got with Rich Baer. He inherited the department and the company at a time of real crisis. The company was under investigation by the federal government. It was the subject of a number of plaintiff shareholder lawsuits around the country, and the amount of exposure the company faced was huge at a time when the telecom industry, Qwest included, was in real decline. He really took over the helm of this shop during the middle of a perfect storm and has, over the last four or five years, from a legal perspective, brought it safely to port."

 

Baer grew up on Long Island with his father, Howard, who ran a three-man paper business in lower Manhattan, his mother, Shirley, an elementary school teacher, and his brother, Donnie. He wanted to become a cop, but his mother wouldn't have it. "If you want to do something, you're gonna be a lawyer," she told him. His first job after graduating from Duke University School of Law was as an assistant district attorney in Brooklyn, a job he calls one of the best he ever had. The office hired whole classes of assistant district attorneys right out of law school every year; Baer was the first in his to be put in the homicide bureau. "I didn't know my butt from my elbow," he says with a laugh.

He learned quickly. One of his most horrific cases started on the 38th floor of a destitute tenement building. An abusive drunk husband threw his wife out a window while her three kids looked on. She managed to hold on to a metal grating, but he took a hammer and hit her fingers until she lost her grip and fell to her death.

"In these tenement buildings, people don't testify," Baer explains. "So I had to go out door-to-door with police and just talk to people and see if they'd be willing to step up and do the right thing."

Baer spent a lot of time in the building with police officers just trying to build trust.

He also spent many hours with the detectives. "I cut my teeth by working with these very experienced homicide detectives," he says. "They were some of the smartest people I have had the privilege of working with and they were just masters at questioning a witness, and that's what lawyers do. You question and elicit facts. Just watching them was training you couldn't get in law school, and frankly, you couldn't get in a law firm."

Baer put in four years at the district attorney's office before working briefly for the Securities and Exchange Commission in Washington, D.C. He returned to New York and corporate litigation at Rosenman & Colin until, in 1992, he got an offer from Sherman & Howard in Denver. They told him that if he could re-establish TCI as one of the firm's litigation clients, he would make partner in 18 months. If he couldn't, they'd fire him. 

By 1997, he was heading Sherman & Howard's litigation department and representing some of the largest companies in the region, including AT&T, Liberty Media and US West. When US West merged with Qwest in 2000, Qwest became his client. The company hired him away as a deputy general counsel in 2001, just as Qwest's problems were beginning. The stock price was falling and shareholders started filing lawsuits. In June 2002, CEO Joseph Nacchio resigned amid insider trading rumors. The SEC would eventually accuse him and six other former Qwest executives of a "massive" $3 billion financial fraud, inflating the stock price to help buy US West. (In 2007, Nacchio was convicted on 19 of 42 counts of insider trading, sentenced to six years in prison, and ordered to pay a $19 million fine and forfeit $52 million in illegal stock sales. In March 2008, an appeals court overturned the conviction because of improperly excluded defense expert witness testimony, ordering a new trial before a different judge. )

Baer was already handling the government investigations and shareholder suits when, in December 2002, new CEO Dick Notebaert asked Baer if he would take the general counsel job.

Baer wasn't sure he was up to the task.

"It was a very chaotic time," recalls Laurie Korneffel, now a vice president and deputy general counsel at Qwest. "We had a tremendous amount of work in front of us. Lawyers were working very long hours in a very stressful environment where the law department probably was not as valued and appreciated in terms of being business partners as it should have been."

Baer, enticed by the prospect of learning how to lead and manage people, decided to take the job. "Rich brought to the department, and the lawyers, a deep appreciation for the skills and value they bring to the company," Korneffel says. "He forged strong relationships with the business units, to the benefit of all the lawyers. And the best thing about Rich was he brought a sense of humor to work with him. It became a happier place to work. He's also a man of high integrity and tremendous ethics, and there's no question that's something that lawyers in the business craved during that time."

Baer hit the ground running, aggressively trying to settle the shareholder suits at the same time he sought to heal morale.

His initial strategy was simply to defend the company. He and Stefan Stein—a former colleague at Sherman & Howard he brought on to lead a special litigation department—hired some of the best outside law firms in the country. "But then I had to figure out how are we going to resolve all this, because we can defend for 10 years, but that's not going to serve us," Baer says. "Our shareholder base was very concerned about the overhang of all these cases. They were saying, ‘Was the company going to survive?' If we just let them go and continued to defend them for years, you could really question whether we would have survived or not."

So they adopted a more proactive approach. "Instead of having outside lawyers handle all of the negotiations as you would normally do with a big lawsuit, I thought because we were being painted with the same brush as these other companies—the Enrons of the world—why not try to show there are human beings at this company who care very much for its survival and aren't horrible people with horns coming out of their heads."

Baer and Stein spent hours upon hours with plaintiffs' lawyers, often with no outside lawyers present, until eventually a level of trust had been established. "Frankly, that's the only way you're going to resolve a big dispute. We just kept working at it."  His persistence paid off. In 2005, the class action was settled for $400 million, significantly less than the $40 billion the lawsuit had sought.

That was hardly the end of negotiations. There were several cases, at one time as many as 21, that went along separately, filed by institutional shareholders like large pension and mutual funds. For the "opt out" cases, as Baer called them, he didn't have the luxury of dealing with one law firm as he did for the class action. Instead, he was dealing with six, spread out across the country, some of which wouldn't even return his phone calls. So he got creative—flying all the way to California, figuring out when a lawyer had to appear in court, waiting through his hearing and following him to the cafeteria. Once Baer had the lawyers talking, he tried to get them into one room to negotiate with a mediator. They refused. He proposed they get together in one building then, but with separate mediators in separate conference rooms. When they wouldn't do that either, he asked if the firms would at least agree to do all the meetings in one city so he didn't have to fly around the country. They said no. So for 60 days, Baer flew back and forth between San Francisco, New York and Philadelphia for constant negotiations. "It wasn't until right at the end, late September, that I knew we had gotten all of the opt-outs lined up together, but it could have easily fallen apart."

The suits were resolved for another $410 million in 2007.

Attorney Joe Cotchett in San Francisco was the lead counsel representing the California State Teachers' Retirement System in its suit against Qwest. "I battled him for four or five years on this case," Cotchett says of Baer. "He's one of the straightest guys I ever met. His word is his bond. And you can battle by day and have a very good drink with him after court. He's an absolute professional. He's also a tough, tough general counsel. He gives nothing away. You have to scrape for everything."

In the midst of all that defending and negotiating, Baer was also remaking his legal department. "He had an open-door policy," Stein says. "From day one, he has encouraged every member of the department to come see him, talk to him, e-mail him to discuss whatever issues they might have. Over time, people have gotten very comfortable with him. That open communication creates a lot of trust, and I think it's very beneficial for morale."

To address workloads, he found ways to reallocate. Other solutions were as simple as replacing outdated computers. "I tell my lawyers the one thing that ticks me off is when you're sitting in your office grousing about a problem and not raising it with someone who can help you," Baer says. "I've learned you've got to promise employees two things: you got to promise them that if they raise a problem that you will either fix it or sit down with them and tell them why you can't fix it, but you can't ignore it."

Baer often relied on upper management—Notebaert, former CFO Oren Shaffer, former executive VP of operations Barry Allen, and more recently CEO Ed Mueller—to be his coaches. "Lawyers aren't trained to be leaders. We're trained to be lawyers," Baer says. "There's no focus in law school on how to be a good manager, so why not pick the brains of good people? And I would say to them, ‘You guys got me into this. You wanted me to take this job. You've got to help me be successful here.' And they did."

He allowed the department's 100 lawyers, the majority of whom are based in Denver, to work when and where they wanted. He encouraged young parents to work part time if they wanted to, rather than quit or be unhappy. He's increased diversity and encouraged the legal staff to participate in pro bono work.

While dramatically improving employee satisfaction, Baer was also saving the company money. "Over the years that Rich has been here," Korneffel says, "we've been effective at moving about 60 percent of our litigation work in-house. It's certainly more cost-effective. We've been able to recruit top lawyers from around the country, and the idea is to optimize our use of these really talented lawyers."

Lyons says Baer is one of the best general counsels he's dealt with during the last 25 years. "He's well-prepared, smart, strategic, has great judgment. His experience is unusual in that he's a trial lawyer, and a damn good one. He has a real feel for not only the litigation issues, but how it will affect the best interest of the company and shareholders. It's hard to keep up with him because he works so hard and runs so fast, but he's a delight to work with."

Whenever he's not working, Baer—who proudly says that he does not golf—spends time with his wife, Anne, an Alabama native who worked on Wall Street for nine years, and his two daughters, Jane, 14, and Carson, 12. He watches the kids play sports or takes the family on trips to the mountains.

When asked if he's glad he became a lawyer and not a cop all those years ago, Baer is quiet for a moment, contemplating.

"Have you ever seen The Wire?" he asks.

The HBO series, about homicide detectives in Baltimore, reminds him of the work he used to do in Brooklyn. "That's righteous work. That's real work. I don't know. I think so. I think I'm glad I made the decision."

Reminded of how he nearly saved Qwest from collapse, Baer rolls his eyes. "It's not just me. There are a lot of people who worked really hard to save the company. I'm proud we're doing well. I just like watching the department because they do great work. To know you helped create that and watch them do such terrific work, it's rewarding. I keep telling my senior team, I like nothing better than when they come in my office because they're such great lawyers and they're also good people."

Just recently, Baer's responsibilities at Qwest were expanded beyond his general counsel role. In August Mueller promoted him to chief administrative officer, which means he also now oversees public policy, federal relations, human resources, labor relations, corporate communications, the Qwest Foundation, corporate social responsibility, and sponsorships and events.

Once again, he's enthusiastic about the new challenge. "My plans for the future are to work night and day to meet the additional responsibilities," he says. "As long as I continue to grow as a leader and a lawyer, I'm happy."

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