How In-House Counsel Calibrate Legal Risk, From a 3x GC

David Schellhase00:00
We had 5,000 lawsuits against us in Brazil of people claiming that they had gotten bad haircuts. Today, my guest is David Schellhase, the entrepreneur in residence at Ballistic Ventures and board member at Okta in Next Chapter. David spent decades as a general counsel of some of the most important companies in Silicon Valley. Salesforce for nine years, then Groupon, then my personal favorite, and where we do all our work on GCAI Slack. He also served as of counsel at Sullivan and Cromwell. And today he does lots of fun things that I'll let him get into. David has a set of views about how in-house lawyers should think about risk, prioritization, working with amazing founders. His views are a little different than what you'll typically hear. He also has great stories from Groupon, including why happy hours are apparently criminal in New York, not criminally fun in the cheesy way, and how a bad haircut in Brazil got the company sued. That's a story I want to get into. Let's go.

Cecilia Ziniti00:57
David, welcome to the show.

David Schellhase00:59
Thank you, Cecilia Decades, that makes me sound old, which I guess I am, but I'll own it.

Cecilia Ziniti01:05
all right. So before we get into it, what are you up to today?

David Schellhase01:08
So I am doing five different things, and I'll see if I can remember them all. As you mentioned, I'm an entrepreneur in residence at a venture fund called Ballistic Ventures that specializes in cybersecurity. And there I'm exploring some problems that I might want to start a company around or fund a company to solve. And so that's one of the things I'm doing. The second thing you mentioned is I'm serving on board. So I'm on the board at Okta, which is the leading identity company. I'm also on the board of a nonprofit. called Next Chapter, whose mission is to try to get formerly incarcerated people jobs in technology companies. So that's an interesting thing. Right now, I am an adjunct lecturer at Stanford co-teaching a class in the School of Management Science and Engineering. And I'm going to say the name of the class, and I hope I get it right. It's called Ethical Issues in Global Technology Product Design, which is a ton of fun. I also advise a few private companies and that's everything from giving legal advice to sometimes executive coaching and psychological counseling, although I'm not a licensed psychologist. And then I've got a new project that I'm working on that I actually can't talk about because I don't want to run afoul of any SEC solicitation rules. So I need to be very careful about that. Okay. So that's a mouthful of stuff. It all kind of comes together and they these sort of interlocking threads in my life build a fabric that's actually, I think, kind of good for me anyway.

Cecilia Ziniti02:40
Hmm. So there's a lot of, I talk with a lot of general counsel friends and they asked me about kind of moving over to the business side and now I'm a CEO. But one of the things that I think is a through line or it sounded like from there is that, you know, when you like work, you tend to get really busy. Is that the case? mean, five things in sort of you're clearly not retired. Do you just like working?

David Schellhase03:05
No, I'm not retired. Yeah, I do like to be busy. I think I would be bored if I weren't busy. And I like a portfolio of opportunities. I've sort of treated my career as a portfolio a little bit. And we can maybe get into that a little bit later. But I do like a variety of things. I'm never going to leave the law. I really enjoy legal work and legal issues. But there's a whole big world out there that doesn't involve the law that I'm also exploring. And that's been a lot of fun as well.

Cecilia Ziniti03:35
Let's start with something you believe that I haven't heard on this podcast before. Certainly we're techno optimists. You mentioned the throughline in your work being law, technology, policy. You've said before that tech has increased stress in the legal profession. So little story, I remember when I was paralegal at Yahoo, in order to get access to a Blackberry, you had to be a certain level, director and above in that case, which I was not. And I remember thinking, one day I will have email at home. And so that was kind of my like, know, clearly times have changed and I do have email, you know, a million times a day and Slack and whatever. But where did that conviction that tech has made our lives worse as lawyers come from or what have you seen?

David Schellhase04:25
I guess almost not quite from the very beginning. I'm not a digital native, right? I'm 62 years old. So technology was not part of my very, very young life. But I think the first time I realized that technology was increasing the stress of lawyers and would make their lives much worse was probably my first in-house job when I was at Oracle. And I'll never forget. one day, and it was in the, I guess, the early to mid 90s. And I was sitting in my office, and the office had a glass wall that was open to the hallways. We all did. We were sort of in a fishbowl, so to speak. And I was sitting there on the phone. OK, so I'm dealing with a client on the phone. I've got a dedicated email terminal behind me, because at the time Oracle would give you a dedicated email terminal and a computer. So I was getting email. Email was sort of stacking up behind me on this dedicated terminal. Other people were using a different email account to send me email on my laptop. There was a guy outside my office who could see that I was in my office waving at me, holding a contract that he needed to get reviewed. And my assistant was slipping a fax contract under my door. And I looked at all of this and I said, my God. You know, there are so many different vectors to get to me and there is only one me. And I don't know, like this queue is insane, right? Because I don't know, should I be looking at the terminal, the emulator behind me for my email? Should I be looking at the laptop for my email? Should I pay attention to the guy in front of me? Should I read the facts that's just come in? Should I hang up the phone? What should I do? Right. And I think we've created a world that like, and this is 1993. Okay, so the world this world has existed for quite some time. We don't really fax a lot anymore, but There are there are many other ways to get us right there's text like when did it become acceptable? For example for you to text just for example your outside lawyer and say hey, know I need to talk or hey, you know, here's here's an issue that I need you to opine on right now so

Cecilia Ziniti06:40
I mean, do you say that? Because we're interviewing insurance brokers, we're up for renewal. And I, you know, as the former GC and now, you know, guardian for the company, like your broker matters. And I said, if they don't do text, I'm not hiring them. And so I actually, literally, you're right that that is absolutely the expectation. But from my standpoint, if you want my business, I'm going to be the most important thing to you. And I pop to the top of your communication stack. So yeah, very, very, very similar.

David Schellhase06:54
Right! Absolutely. you know, so let me extend off that thought for a minute, right? So here are all these vectors to get to us, right? And we're more available than ever. In fact, we're available all the time. Lawyers have kind of lost sight of something that they might have invented called time, place, and manner restrictions. And so we're very bad at saying no. It's another characteristic of lawyers. Especially if you're a billable lawyer, you constantly want to say yes. You don't want to turn down any business. You're a yes person, in essence. And embedded within that yes is the permission for people like you or me when I'm in-house to call at any hour of the day or night, regardless of circumstance, regardless of anything, right? And so that, I think, has created a lot of stress because there is the notion that you can never really tune out. My best friend works at Big Law. He's a partner at Big Law. He does insurance coverage litigation. And he feels as though he's on call 24 hours a day. And it's hard for me to picture an emergency insurance coverage matter. These things play out in the courts and take years and years and they're like brain damage when you kind of get into it. And here you are saying to your broker, your insurance broker, I need you to be available to me all the time. So you're creating stress in that person's life. And I think all lawyers feel that stress because they want to be responsive to their clients. And it's really hard, I think, for them to differentiate, especially when they're outside counsel and everything.

Cecilia Ziniti08:29
Literally, literally.

David Schellhase08:46
Every billable hour is the same as every other billable hour. They typically don't charge a premium for high value work. And so it's really hard for them to turn anything down, ever turn off, and they have more scrutiny than they've ever had. They're more subject to review. And this goes for in-house lawyers and outside lawyers as well. They're more subject to review than they ever have. Right? Like people are feeding, like clients are feeding their briefs into the AI tools and saying, improve the brief for me. Right. And if the brief gets improved by the AI tool, eventually the client is going to say, well, why am I just not using the

Cecilia Ziniti09:26
I need So is there a solution? I actually think in-house is a great, you know, I remember when I first went in-house and from the firm and I had lunch with a friend from the firm and told her what all I was working on, very exciting stuff. It was at early Amazon on Alexa and devices and I had gotten the opportunity or I had been the advisor for a variety of different devices and As I explained it to her, she said something to the effect of like, well, how do you get everything done? And the funny thing is, you know, former litigator, I'm like, assumes facts, not an evidence. Like you don't like it literally is like, okay, like that's not the goal. And I actually quite liked that the ability to, and Amazon actually very intentionally Amazon legal intentionally, basically understaffed and legal so that you were not over lawyering and you were able to take a little bit of risk of like not doing everything, but. the litigator in me of like, okay, I'm used to having like a thing on my desk and I write the brief and it is capital D done and it is capital F filed. That was not my experience. I was like, you had deadlines and launches and things, but it was always kind of that like, there was always something to be staggering prioritized. So that was my story. Was that the solution? And then I have to imagine Slack, you were there for a long time through huge growth, global stuff, partner program. know, really a cultural, you know, certainly a work cultural icon. What, how did you deal with it there? And then, and then is there a solution and what do you tell your teams?

David Schellhase10:59
I don't know if there's a solution, but I think we need to be better as a profession, and that includes in-house and outside lawyers, about saying certain things are more important than other things. And maybe that includes how we bill, how we charge for our services if we're outside lawyers. You know, there are some things that are hard and complex and usually in the past, OK, the senior partner does that and the simple things are done by a paralegal or by a junior associate or something like that. I think I think we need probably better pricing differential. And also, we probably need ways and technology can help here, by the way, ways to signal prioritization. So in like a text is a very. signaler of priority, right? Like every text, whether you're getting it from your grandma because she needs you to drop off some milk or whether you're getting it from somebody whose life is in danger, carries exactly the same weight, right? And so maybe we need better than just yes or no. Maybe when you send a text to your insurance broker, which you've required them to receive, there could be a button. that says, this is a 6 on a scale of 10. And what 6 basically means is, hey, don't drop whatever you're doing. It's Friday afternoon. Have a nice weekend. If you can get to this Monday morning and get it on my desk by Monday at like 2, that's great. Whereas a 10 is the house is on fire, get out of the house. And a 1 is we're never going to get to it anyway, to your point about being in house. And I think that's like so many of the of the lessons that I learned in-house, I learned at Oracle in the early days because I had a boss who was really good at prioritizing. And I'll get to the part about Slack in a minute. I know you want to talk about that. he was a fierce, fierce prioritizer. sometimes I would be dealing with a vexatious client with some outlandish request. And he would say to me, David, don't worry about that. That guy's getting fired next week anyway, so the whole project is going to go away. And you know what? And there's nothing more relieving to you.

Cecilia Ziniti13:09
you

David Schellhase13:14
Then, Right.

Cecilia Ziniti13:15
I think what they said is like, the pencil down, like, you know, you're good. Yeah, it is fascinating because I think there is this thing where, you know, there used to be a lot of memes of like, there was like, was like, greedy associate.com or something really dating myself. But there was like memes about like, partners, they change their mind all the time and they're so terrible to work with. And now I'm literally on the other side of it where we needed some data for some meeting with some meetings with investors. And I really did need it that day. Like the meeting was that day. The next day, it's not really relevant. And like, So the team gets it all ready and it's not quite ready. the point is that ability to absorb what's going on and prioritize not only on a day-to-day basis, but literally on a minute basis, that's business. And so I agree with you that it's a skill you got to build. But it is tough because I think a lot of the... I came from Morrison and Foerster was legendary client service. And it doesn't matter if it's Memorial Day or whatever it is, you get the job done. That's amazing. Wow, good. So many good, good story opportunities. can't wait to dive in.

David Schellhase14:17
But therein, and I think therein lies a lot of opportunity because if you're a law firm, for example, and it's let's take this month. Okay, it was Easter Sunday earlier this month, right? Okay. Now, if you're dealing with a partner at Big Law and you've got a big project and that partner says, hey, you know what? I'm a Christian and I want to go celebrate Easter Sunday with my family and blah, blah, blah. Do you mind dealing with my partner over here who's Jewish or my partner over here who's Muslim or my partner behind me who's an atheist? Hey, they can carry the ball this weekend while I'm trying to do something that's meaningful to me. You know, I think like it's really, have you ever had a lawyer say that to you? I haven't.

Cecilia Ziniti14:57
I think so. mean, the closest thing I can come up with is actually parental leave. So I feel very strongly about parental leave. I have kids and whatever. it's one of these things where I think that's an area that it is a long-term investment in your people. coming back and seeing the team actually operate, when I had reports during one of my leaves, seeing them step up and do great, that was awesome. But you're right, that kind of like in the moment of like, and I think it's fear. Actually, I do because if you hand off to the colleague who, you know, doesn't have the, the, you know, has that weekend free, you know, are they going to become their client? And like now I see it as the client. That's, that's not the thing. Like, you know, and so I would actually much appreciate if people did that. So you've called this always be calibrating on per patient. So I love always be closing, of course, you know, and I've come into, into sales, but what does always be calibrating mean? And then if I'm an in-house lawyer, how do I?

David Schellhase15:45
Yeah.

Cecilia Ziniti15:55
How do I take that advice and what do do?

David Schellhase15:57
So I think always be calibrating, it's actually two somewhat different concepts. So one is ruthlessly prioritize everything you do and we can talk about that a bit. Always be calibrating is really understanding your client and when you're in house, you only really have one client at the end of the day, understanding your client's risk profile and risk appetite and trying to understand that as deeply as possible. And the only way you can do that is just over communicate with executives. with your colleagues and with anybody at the company who understands risk. so Because every company has a slightly different way of looking at risk and a slightly different appetite for risk. And that changes over time, you know, because I've taken three companies public and obviously the risk appetite of a private company, of a small private company is very different than the risk appetite of a public company. And the bigger a company gets, the less risk it's willing to take on. That's a cliche, but it's also very true. And so you've got to sort of, as an in-house practitioner, you've got to be flexible and you've got to move with the company. But knowing where you are at any given point in time allows you to make better decisions, right? If you say, hey, we're at the beginning of our company's life and we have almost no revenue and we're up against these massive competitors, guess what? If you don't take a ton of risk at that stage, you're never going to get anywhere as a company. That's when you're at your most risk-taking. Then, as the company matures, gets a higher profile, is more scrutinized by others, especially like around a public offering event, then you've got to understand, hey, that's where the maximum scrutiny is going to come, and that's where we're going to try to minimize our risk. And so always be calibrating is really a process of trying to talk to as many people as possible to have in your mind at any given time what the company's risk profile is. Therefore, you can make the right legal decisions because almost always the decisions we're making are in a gray zone, right? If it were clear, if things were abundantly clear about which way to go, then they wouldn't need a lawyer to opine. They wouldn't need your advice. They would just go, right? It's like this is easy. But when it comes to us in-house, that's when it's really gray. And so making a decision in a legal gray zone

Cecilia Ziniti18:15
Yes, exactly.

David Schellhase18:24
you really do have to understand the risk profile of your client deeply.

Cecilia Ziniti18:27
Yeah, I mean, so many, so much wisdom there. think on the security side, I used to be kind of product counsel for privacy security, you know, IP issues. And of course the thing is, you know, I had a CISO who's quite a good friend at this point. And it was like the most secure software does nothing. Right. And so like at some point you basically have to assess like, right, you you have to make that decision. know, even stuff like, you know, on early Alexa, was like, there was a, essentially a a bug, there's bugs, like that's just the thing, but it was recognized and it only was triggered on access to the physical device in a certain circumstance. And essentially, you know, it was a P zero, we fixed it, but the question was like, okay, if somebody has broken into your house, you you got bigger problems than them effectively hotwiring your Alexa in a certain situation. So it was like, it was very much a call of like, you know, in the abstract, like, yes, that's. bad, it's a risk, it should be fixed. But the question was like, do we pull it off the shelves kind of thing? And, you know, in that scenario, the answer was no, but maybe for, you know, further along or for iPhones or whatever, of course, it would be a different answer. But I love that. So how did you, David, be the same person through that arc? Right. So presumably you got to know Stewart Butterfield quite well. So Stewart Butterfield is one of my kind of founder role models and CEO role models. talks about this metaphor of the service of Slack being a restaurant where every area of the company has to be firing on all cylinders, not only the food, but the service, the ambiance of this or that. And I've found it an incredible kind of rallying cry for a product forward company where. Everyone in the company has something to contribute. So anyway, I love Stewart, but how did you make that adjustment of like, presumably you weren't with Slack through, you know, it got pretty big, right? So not, it didn't go public.

David Schellhase20:23
It did, yeah.

Cecilia Ziniti20:23
So give us the from to and then how did you personally keep that calibration going in that period of explosive growth?

David Schellhase20:32
Sure, mean, Stewart is a fantastic executive and one thing that he taught, which I think is crucial, but sort of undervalued maybe, especially in technology, is craft. He uses that word a lot and it has a lot of connotations. One of it is it's really care about what you do. And so when you are presenting a thing and you mentioned like a brief capital B that gets filed capital F. When you are doing a thing that is important, make sure that it includes you and that you have taken care to craft it properly, that you are a craftsperson and that's what you should do. That is a little bit sometimes the opposite of being an in-house lawyer, right? Because there are times when you need to apply craft.

Cecilia Ziniti21:24
Yes.

David Schellhase21:28
And he applied so much craft to Slack, which is one of the reasons it's so popular is because he is such a student of human psychology that sort of every pixel is carefully placed to sort of get humans to respond to it in a human way. When you are in-house, you have to give perspective. And so I'll tell one story from Slack and then I can tell others if you'd like. But it was a year before GDPR was coming into effect, right? So it had been published. but the EU gave a long period of time for people to sort of get used to it and sort of understand it, right? And Stewart was on a business trip. He was visiting our subsidiary in Dublin, Ireland, and it was the middle of the night and he couldn't sleep. And so he called me because it's like I'm in San Francisco and it was, I don't know, five or six at night or something. So I'm at my desk in San Francisco. He called me. He had been reading GDPR. Okay, had been reading the regulation, the actual law. He'd been reading and he wanted to talk to me about it. And I was sitting there.

Cecilia Ziniti22:21
The actual law. Yeah, yeah.

David Schellhase22:27
And I hadn't read the damn law. mean, the law wasn't going to be wasn't going to come into effect for a year. And so I had to say to him, you know, like I could sound stupid and I could say, oh, Stewart, you know, I could try to fake it. Right. I could say, oh, Stewart, yes, you know, these things don't apply to us and blah, blah, blah. And I said, Stewart, you know, I just decided to go for it. I said, Stewart, this law doesn't even take effect for a year. You know, I haven't read it, to be totally honest, because I haven't needed to read it yet. The EU may change it. The EU may break apart. The EU may not exist in a year. so I'm fighting like there are sharks like at my feet that I'm trying to get done. are customer contracts. There's this, there's that. There's a million things, right? And so you've got to trust me enough. And this was pretty early in my time there, right? You've got to trust me enough to prioritize what's important for the company. And I will care about GDPR. I for sure will care about GDPR.

Cecilia Ziniti23:13
Yeah.

David Schellhase23:22
but I'm not gonna care for like six months. So if you're having insomnia and you just wanna talk, let's talk, but I can't talk to you about the GDPR. And he laughed, he totally accepted that because that's kind of who he is, but like every other CEO, he sometimes obsesses about things and he knew this thing was coming, he wanted us to comply, he knew it was gonna be big, and so he became obsessed with it. And so one of the skill sets that I think you've gotta have

Cecilia Ziniti23:31
What a

David Schellhase23:51
as a general counsel is the ability to convince your boss that that you are right and he is right, but you're a righter If you know what I mean.

Cecilia Ziniti24:03
Yes, no, this is so, it is just such a fascinating, I had the GDPR thing, same thing, it was like May 2016, May 25th or whatever, it was happening to the CEO's birthday that I worked for at the time. And it was like, we hadn't quite finished what we needed to finish. And let's say we got the register maybe two weeks later, and it was fine. But at the time I said exactly what you said, which is like, the EU is gonna be busy with Facebook for a couple of years. If we took three extra weeks to get our like register of processing activities, we're fine. And so yeah, that idea now on the other side of it, I've been the caller in that situation of calling our GC who's amazing. And she's like, it's fine. So it definitely is like, but that trust takes time to build. So kudos for doing that. And I love the... the graphical, could just see him at some hotel in Dublin calling you. That's awesome.

David Schellhase24:57
Yeah, I mean, these kinds of things happen. I think, you like that is a big skill set in house. It's like understanding what's important, because when you're you're a billable lawyer at a law firm, everything is important, right? Because you're billing to my point earlier, you're billing exactly the same rate. And we need to we need to get to differentiated rates over time. And we probably will because because technology now is changing. Right. So we're going from like a seat pricing. to a success pricing, where some companies are, and we'll see how that all shakes out. But I think some of the pricing around technology may drive some change in the legal, in the way legal services are priced and billed. I hope it does, because not all legal services are the same, even though they are billed identically.

Cecilia Ziniti25:44
So how are you thinking about AI? So obviously, you know, you're on the board of a company that's, you using it. You were at Slack, which has at this point now owned by Salesforce does, is doing a lot with AI. Have you tried it for legal work? Have you tried it in your practice generally? How do you, where do you see it going?

David Schellhase26:02
I'm a daily user of chatbots for sure. They're simple. If anything, it's underhyped. How's that? AI is underhyped, newsflash. Boy, people are not going to want to hear that. I haven't built much, but I'm close to a bunch of people building a bunch of stuff.

Cecilia Ziniti26:12
Good. You heard it here first.

David Schellhase26:29
And I think it's fascinating to watch. It's like, it's really hard to predict the future, but let's, let's just say that the amazing things that, that AI in general can do to extend human functionality, or that's a bad word to extend like human potential, I think are terrific. Like that, that is a terrific development. There are scary parts of it for sure. And there are parts that need to be regulated. You know, for sure. Like, I would be an advocate of a really simple law, right? And the really simple law would be all content generated by AI must be labeled as such. Like, I would vote for that law all day long because I think a very big thing in the future, it's already a very big thing, let's face it, is being able to tell the difference between what's real and what's not. Truth has always been a somewhat precious commodity in society. And I think it will become even more precious in the future. There probably won't be less truth. when the truth is contained, like right now, there's like a certain amount of truth and then there's a certain amount of falsity. The amount of falsity is going to go off the charts. The amount of truth is going to grow a little bit over time. as it has historically. Maybe it's going to grow pretty quickly, but it will be less than the amount of falsity. And the amount of falsity that can be generated is massive. And so I would love to see a law like that, which helps, I think, bring things back into balance a little bit. And there are probably plenty of other areas of AI regulation that I believe should, or that other people have good opinions about and should go do. That, to me, would be like a simple thing to address. some of the content problems that we now Okay, that might not have answered your question. I don't know.

Cecilia Ziniti28:24
I that. No, it does. mean, I think it's the having seen the evolution of law. We're talking about fax machines at the kickoff of the call through to, know, slacks got in the probably hundreds of millions of daily users. And it's it's, know, what you said almost reminded me of there's a movie, Catch Me If You Can, which is about this guy, Abignail, that basically was a fraudster, but a good one. And essentially he There's a scene in the movie where there's a classmate of his wants to get out of going to school and brings like a handwritten note from their parents saying, you know, the kid's sick or whatever. And the kid walks up to like the secretary's desk and the lead in the movie, the fraudster is like, no, no, you gotta fold it because, you know, a note would not. have made it from your home to school without that fold. so it's just like, okay, that like there is the multitude of like, okay, making something more real. Now with AI, I mean, you get, you hear stories of people, you know, putting a fake nail in their tire using, you know, Photoshop or whatever, or like, you know, just the potential is like so high. And so, but I don't know that this, what you said about there's going to be more falsity. I'm I guess more provable, less provably false things. don't know. I'm wrestling with that bit of what you said.

David Schellhase29:52
It's so easy to generate fake content, right? And that's incredibly convincing. And the ease will continue to get easier. And you'll be able to do it at scale. And one person can generate a whole fake movie or documentary that's very convincing, right? That's already possible and will get even more possible and even cheaper. in the next year, two, three, four, right? And so I think the volume of slop that you're going to have to sort through to get to the truth is going to go up. that helps some people, right? It helps branded content. Like I trust The Wall Street Journal. I trust The New York Times. I have to read both of them with a certain lens on because they have their biases. But I think they get their facts right. I decreasingly trust other content.

Cecilia Ziniti30:39
Yes. Yes. Yeah.

David Schellhase30:49
because I don't think they're putting money into reporting. think they're sort of secondhand reporters, et cetera. so branded content, think, be, it's always been important, but it will probably be even more important going forward. Just one guess.

Cecilia Ziniti31:05
Yeah, I agree. No, it's fascinating and it ties back to what you're saying about future work and kind of the, I guess, deluge of things that come to you as an in-house lawyer or as an executive in general of like, literally Twitter now is talking about how there's only four jobs in the company and one of them is slop cannon. So literally like pointing, know, directing that. And so I'm like, well, okay, I'm going to be, you know, an AI filter and know, being above AI, we talk about that a lot at GC AI, that lawyers, we are in a position because we have been kind of filters of truth for a long time to actually play that role. So I'm energized by it, but I see the risk, as you said.

David Schellhase31:48
I'm energized too. mean, just I'm a techno optimist for sure, but I see the cracks that it creates in the universe. in this course that I teach at Stanford or Coteach, one of the characteristics of technology is it just flattens every law everywhere. And so you want to talk about like a casino in your pocket, i.e. your phone as like a device to gamble with or ubiquitously use prediction markets. There are plenty of societies where gambling is against the law, right? But back to what I said about time, place and manner restrictions, like the internet and cell technology sort of eliminate all time, place and manner restrictions. Like 30 years ago, or even 20 years ago, or even 10 years ago, it was really hard to place a sports bet in this country, right? You had to fly to Las Vegas now. And that was a, you know, it was Sin City. Right. Now every city is potentially thin city.

Cecilia Ziniti32:48
So literally, what happened in Vegas, days in Vegas. And I talked with one in-house lawyer and I asked her one of the more interesting projects she worked on. And she had been at a sports betting online company and said that it was a big issue crossing the Jersey tunnel because it was like, at what point do you actually shut off the gambling? Because at that time, New York and Jersey had different laws. And it was literally like this like time, place and manner. All right, you cross the threshold under, you know, whatever the... the Hudson Bay or whatever it is. So fascinating. now we're in New York. You have a fun Groupon story. right. So Groupon was obviously had huge growth and the basic way that worked for those of you who may not be familiar was you could buy credits from local merchants for local experiences through the site. And it was sort of a little bit of like a... kind of a Yelp search type experience, but also this like, you know, for merchants, it was a way to reach a lot of users and get the word out and so on. All right, so two group on stories that you flagged. Literally I have in my notes that happy hours are criminal in New York. So what's the story and what happened?

David Schellhase34:00
So, at Groupon, we were in every business and no business because we were sort of providing coupons or group coupons that were really marketing credits, as you mentioned, for stuff everywhere. We were in 80 countries. It was insane. It was like crazy growth and it happened almost overnight. And so we ran afoul of a ton of laws that we didn't even know existed, right? And that most people probably didn't know existed. And I went to college in New York. And it was back when you could drink when you were 18. And I was 17 when I went to college, but they let me drink anyway. But I didn't know that in the state of New York, actually, it's illegal to vary the price of liquor intraday. So and happy hour, by definition, where you get like drinks one third off from four o'clock to five o'clock or whatever on a Friday, that is varying the price of liquor intraday. And it's like most laws, it came from a good place, right? The state of New York, after prohibition was repealed, did not want drunks rolling around the city starting at any time. And they thought one of the ways to regulate drinking was to make it higher priced, right? And so you can't offer discounted drugs.

Cecilia Ziniti35:16
Okay, okay. Back to your Sin City syntax type of situation. Yeah.

David Schellhase35:20
Yes, but a Groupon by definition is a discounted or was if you got it for a bar in New York was a discounted drink ticket. Right. And so a Groupon for discounted liquor was illegal. And I had to fly to Albany and appear before the New York State Liquor Board and all this other stuff, you know, to defend ourselves. And we wound up settling and we wound up sort of making the Groupon only applicable to food. And that's another interesting thing about bars in New York.

Cecilia Ziniti35:30
Hello? Yeah!

David Schellhase35:48
There is no such thing as a bar in New York City. There are restaurants that serve liquor. And so if you go to a bar in New York City, they have to provide you food if you ask for it. So if you go to a bar in New York and you say, hey, I'm hungry, they will like reach under the counter and there'll be like a rat encrusted menu that they will hand you and they will be forced to like order you in a pizza or a frozen burrito that they will microwave or something for you. because that's another law that comes from a good place, right? We wanna, if people are gonna drink, they ought to be able to eat and take some of the edge off the liquor. so that's,

Cecilia Ziniti36:22
Yeah. No,

David Schellhase36:24
so happy hours are crime.

Cecilia Ziniti36:24
reminds

David Schellhase36:26
so happy

Cecilia Ziniti36:25
I love that. reminds of law school girlfriends, sort of entrepreneurial as well. And she had actually looked into doing Uber, like the idea, because ideas are cheap, right? It's the execution. But she had looked into doing Uber, but she lived in Manhattan at the time. And she figured out the taxi medallion and this and that and was like, yeah, hopeless cause because of laws. And it turned out of course Uber got its start in San Francisco, which did not have a strong taxi presence the way Manhattan does. And even today there's still taxis in Manhattan. So it absolutely is like this like law and society kind of thing. So what a fun one, interesting. All right, well now I know I can get a frozen burrito at any bar in New York. I love it.

David Schellhase37:05
I, well, I have, I have, yes, exactly. have one more comment on that, which is I have a whole thesis, which I'm sort of developing. And if I had time, I'd write a book on it. That innovation is crime. And, and I think like A lot of the innovations that we enjoy that have come about over the past decade, let's say began their lives in like a deep, deep, deep legal gray zone, like almost black. like an Uber is a great example of that. These prediction markets are a fantastic example of that. And you can go as deep as you want. Airbnb is still a crime in Manhattan to rent out your apartment short term. They have not settled that yet. so a lot of things. look at legalization of marijuana. It's still a federal crime to use or possess marijuana for recreational purposes.

Cecilia Ziniti37:49
Yes.

David Schellhase38:04
And so, like a lot of the things that we think of as either innovations or movements in society start their lives as crimes. And I have a whole thesis around that, which we do not have time to go into. Maybe I will write this book, but.

Cecilia Ziniti38:18
Let's do it. mean, I read Andrew Chen has an excellent book. He was early Uber and he talks about this. I Napster, YouTube, of course, you know, and even AI with the New York Times case of, you know, the copyrighted material.

David Schellhase38:28
Right, or precisely.

Cecilia Ziniti38:33
that's honestly like why I went to law school and why I've loved being a lawyer in Silicon Valley is like, you know, and I think it also gets to, you know, to some of the stuff around the podcast of being in house where like, You gotta believe that Uber, let's just pick Uber as an example, is doing something good. And that product market fit of like being able to get a ride has obviously other societal benefits that the medallion system was not protecting. And so fascinating of this, like, how do you bring on societal change? We saw the same with Alexa, right? We looked at 50 states of wiretap laws and, know, wiretap law, can see why it exists, but, you know, blocking a voice device is probably not what it was intended for. And now I think it'll be interesting to see with the meeting recorders what's going on with that. I'm curious how those will come out. Any predictions having some?

David Schellhase39:19
I agree. I agree. Yeah, I mean, there's this concept I do have some predictions. There's this concept that's a political science concept called the Overton window. I don't know if you're familiar with that. Yeah. So. Yeah, for people who are not, the Overton window basically says it is the it's it's the window of the policy positions that a politician can take a stand on and not be deemed like crazy and unelectable. OK, so.

Cecilia Ziniti39:34
Yes, yes, Excited for our listeners.

David Schellhase39:55
So 50 years ago, if you said gay marriage should be permitted, you were crazy and you were not electable as a politician. Today, I think in many states and municipalities, if you say gay marriage should be prohibited, you are probably not elected or electable as a politician. So the Overton window has shifted dramatically on that topic. It has shifted in the past 10 years dramatically on marijuana. Right. And now it's beginning to shift on other hallucinogenic drugs. It is clearly shifting on sports betting, right? Because there's a massive sort of societal demand for that. And so things that are clearly illegal in the state of California, like sports betting, I can go do on these prediction markets because it is now not like completely beyond the pale to take for a politician to say, you know what, this is OK. And so the Overton window sort of suggests where politicians can be. And and and but it but it's it's it's like a sociological concept as well, because it's saying what what will what behaviors will society accept? Right. And technology pushes that Overton window so rapidly and without regard to state boundaries, country boundaries, religion, ethics, anything. Right. It just pushes all those boundaries away because it makes things available cheaply and easily ubiquitously.

Cecilia Ziniti41:00
Yes. Yes. Yes.

David Schellhase41:25
And so that's why technology, especially right now, and will be for the next 25 years, like a super exciting place to be and why we have to think about these issues that we talked about earlier about regulating AI and just thinking these things through. But how that, I think, devolves into like making that tactile for in-house lawyers is one of the other differences between an in-house lawyer and a law firm lawyer is the in-house lawyer has to be deeply comfortable to be in that world of gray. and to make decisions. And you're right. If you believe fundamentally that your product is helping people, you really have to have that belief. And then it almost doesn't matter what the law is because you're going to push to change that law. You're going to push to change the world. I know that's a cliche. But you are going to push to change what's acceptable to society or meet society where it is. there are dozens of examples of that. And I think your taxicab Example is a great one right there simply weren't enough medallions in the city of San Francisco plus San Francisco is a pretty distributed town and so hailing a cab in San Francisco was almost impossible unless you were right downtown in the financial district and all people wanted all Society wanted was an easy way to get from a to b right and so when uber came along Irrespective of the massive weight of laws and regulations that said you cannot do this they said hey We're just going to try to provide people a way to get from A to B very simply by calling on their phone. And you know what? Society really, really wanted that. And so the Overton window shifted immediately. Like any politician who came out and said, I'm going to ban Uber, you know, would have been blown out of the water because like people wanted to get from A to B. It's like that simple.

Cecilia Ziniti43:11
Yeah, I mean, it's fascinating. So much interesting, so many threads to pull there. And this is when I get really techno-optimist, too, of this idea of now there's almost a billion people using ChatGPT on a weekly basis. This did not exist less than three years ago. So the speed and the like, I don't know. I think this stuff is so fun. I think where it gets

David Schellhase43:19
Yeah.

Cecilia Ziniti43:35
Sometimes it outpaces, right? So I think that the kids and social media stuff is a thing. I will admit, I have teenagers and one of them, basically her soccer season was over, she had a lot of extra time and we figured out how much time she was spending on a particular form of social media. And I'm usually, I come from the industry, I'm usually pretty laissez faire about it, but I had a moment of like, wait, is this a good thing? Clearly it's not. So we set.

David Schellhase43:42
Absolutely.

Cecilia Ziniti44:02
You know, to Apple's credit, they have the parental controls and everything and we did that. But it was a great example of like, okay, it almost happened so fast that you're kind of like, don't, until it becomes tactile to your point, you don't have that experience of like, okay, how do I, how do I regulate it or stop it? And I had spent, you know, at that point, I'd been product counsel for, for companies for a long time doing the daily decisions. And I always laughed too, you mentioned like making the innovation and the sort of big societal issues, very real and tactile. Like I remember when I used to work on Alexa, I would get letters from law students all the time of like, I've written this like, you know, thesis on the theory of voice privacy or whatever. And I'm like, you know, literally I'm trying to advise if like we can do fart jokes, you know, it like, that was like the, the kind of contrast, which was funny. But anyway, so you had apparently a bad haircut got you sued in Brazil. Let's do one more group on.

David Schellhase44:54
yeah. like this is like, I didn't realize this until I got to Groupon. But but Brazil is a society much like America, where anybody can sue anybody for anything that should be like on the sign when you enter Brazil or when you enter the United States and say anybody can sue anybody for anything. so we had I think we had so we did a Groupon for a bunch of barber shops in Brazil. And people didn't want to pay. And their way to not pay was just to file a lawsuit saying that they'd gotten a bad haircut. So at one point, we had 5,000 lawsuits against us in Brazil of people claiming that they had gotten bad haircuts. And they didn't get a bad haircut. Yeah, 5,000 bad haircuts. They did not get a bad haircut. They just didn't want to pay for their haircut, which is a completely different thing. But yes, we had to settle all of those.

Cecilia Ziniti45:35
Five, bad haircut look.

David Schellhase45:49
Our charming in-house lawyer in Brazil used to call them the litigations with an S. And we had 5,000 of the litigations about bad haircuts. if you want to get cynical about the law and lawyers, just either hang out in America or in Brazil.

Cecilia Ziniti46:06
That's amazing. All right, a couple more things. So there's a two Silicon Valley phrases that you like. One is strong opinions, loosely held. The second is from an Amazon leadership principle, disagree and commit. So pick one and tell us about it.

David Schellhase46:23
OK, I think they're deeply related. So I'll just tell you about both of them. A A strong opinion loosely held is the essence of being in-house, right? Because you are going to operate in a legal gray zone. And even your entire business model might be in that legal gray zone or might be like dubiously legal, at least at first. And so you've got to have a strong opinion about a point of view about what you're doing and how to make it legal or how to legalize it or how to do it in the most legal manner possible. But because you've got executives and because you've got employees and because you've got customers, that strong opinion sometimes has to be loosely held because the market is usually going to tell you whether you're right or wrong. Society will usually tell you and you have to have kind of good instincts around that. But You have to be prepared. have to have a point of view, but you have to be prepared to give that point of view up because there are a lot of other kind of countervailing points of view out there. And so that strong opinion loosely held really is that. And it's related to disagree and commit because you have to be able to disagree with the executives, with your customers, with your employees, all of those people. And oftentimes you will disagree with them. But if you're inside the company, you're committed to that company, its mission, its products, its services, or else you're gone, right? And the way I express it is probably too crude, but almost all of us, the technology companies we work for, are neither curing cancer nor saving souls, right? So some of them are. So let's be clear about that. So if you're in the business of saving souls or curing cancer, don't listen to this part. But for those of you not saving souls and curing cancer, We're selling, we're pushing bits and bytes on people mostly. And the damages that you cause mostly are like healable or repairable with dollars. And so like the stakes are inherently a little bit lower than if you are saving souls or curing cancer, right? And so with that knowledge, coupled with the notion that you're calibrating the risk appetite of your company, cetera, et cetera. But if you know, if you sort of know all of these things in a line and they become instinctive to you, then you, you're, think you're just better able to operate and provide good advice to your one client, the company, because you sort of see the big picture and you understand the stakes are a little bit lower than they might be if you were in a different business and you can like, You understand what the priorities are and what's important. And you're prepared to compromise a little bit, which is another sort of important word for an in-house lawyer. Like you're not going to win 100 % of the time. You've got to be prepared. You've got to be flexible. You got to sort of roll with it a little bit.

Cecilia Ziniti49:26
I agree. think this idea of absorbing the bigger picture, I think it's both. It can be, to your point earlier, a little bit. It takes some adjusting. I think when lawyers move in house, where you'll do really good lawyer things, the capital B brief or whatever, and nobody cares. But I think the.

David Schellhase49:46
beyond.

Cecilia Ziniti49:51
The flip side of that though, is that this like service of the higher goal of like, okay, we're bringing taxis or, you know, the ability to, you know, ride home. We've, we've got, I've got an elderly friend of the family who exclusively takes Uber now and has changed his life. Like he literally like now can, you know, do more his grocery shopping and what have you. And like the idea that like contributing to that, and maybe you get some things wrong along the way, but you're ultimately, if you're doing a good job, it's because. either the company is succeeding or you're having that impact. That's how I adjusted to that, I would say.

David Schellhase50:28
I like it.

Cecilia Ziniti50:30
Good stuff. right, lightning round. Three questions. A myth about the legal profession.

David Schellhase50:35
I guess one myth is that we need more lawyers. I think maybe we need fewer lawyers and better laws. I'm a big proponent of laws, not lawyers. And if we clearly wrote the laws and one could interpret them, a layperson could interpret them, I think that would be a huge benefit. So if we're into brute force solutions, maybe we should only hold the bar exam every three years or every four years or something like that. Anyway.

Cecilia Ziniti51:00
Let's go. stuff. No, no, I like the, I always point to the DMCA as an example of a really clear law, actually. That framework did not exist and now it does. You're operational and you it's not really a huge, like obviously an AI it is, but for your average, you know, YouTube or whatever, I would say it works pretty well. Awesome. All right. Founder, book or idea that shaped you in a couple sentences.

David Schellhase51:08
Hmm. Yep. Totally. I think I'm shaped by founders, I think. so, and there've been sort of three influential founders for me, Marc Benioff at Salesforce, Andrew Mason at Groupon and Stewart Butterfield at Slack. And each of them taught me a different thing. Like with Marc, it was like the importance of repetition, marketing, and also stamina. That guy, you know, no email unreturned, call me anytime in the middle of the night, it doesn't matter. From Andrew, I learned like the importance of humor and play and giving human beings like a sense of accomplishment, which, you know, he's like a couple decades younger than I am, but it took him to teach me that, which was great. And then we talked a lot about Stewart already, but from Stewart really sort of understanding that you need to care about what you do and you should be a craftsperson in what you do, in what matters, right? In like the capital B brief or whatever the thing is that matters, you need to care.

Cecilia Ziniti52:21
I love that. A piece of advice you'd give your younger self.

David Schellhase52:26
think probably relax a little bit. You're too uptight.

Cecilia Ziniti52:30
I love that. No, it's always funny because I might be the lawyer personality and might have been told in my life to relax. And I'm like, in the history of relaxation, has anybody ever relaxed being told to relax? It's like, yeah, no, anyways, I try it. I see some of the same in my, I've got a daughter going to college and I was like, you know, maybe you should do the fun thing and, you know, not take the 17 units or whatever your first semester. So we'll see. All right, last one.

David Schellhase52:42
You

Cecilia Ziniti52:58
You have a contrarian view that is, I guess, little fiery here. So you think in-house lawyers should try to work for productive narcissists. So I'm like, gosh, I don't know. Am I that? But anyways, let's make the case for that. What did you mean when you said that? And what is the advice?

David Schellhase53:14
Yeah. I so I just mentioned three great founder CEOs, right? And and I don't think they would be insulted if they heard me say this. I don't know, but I don't think so. They're all highly productive narcissists. Right. And I think in order to like founders, CEOs are that way. And so in order to make something out of nothing, you have to be a narcissist a bit. Right. You have to really believe in yourself. because so many people are going to tell you no every step of the way. They're going to say, that's never been done before. You can't do it. You're inadequate. It won't happen in the world. The world's all against you. Blah, blah. There's a million dog ate my homework excuses for why you're not going to succeed. And so you've got to make something new in the world. You've got to have enough self-love to resist all of the naysayers. So all of these CEO founders are narcissists. But you have to balance them. You can't be a complete narcissist, right? You have to balance that with high, high amounts of productivity. And that's also a common thread with Marc, with Andrew, with Stewart. Like they are incredibly productive. You know, they're, they don't, they, they rest, but they get a lot done when they're not resting. And, and, and the combination of productivity and narcissism, I think really is kind of what drives the world forward. especially in tech, especially in the era in which we live. And so I can't, you know, I wasn't there for other eras, but I'm here for this one. I've been in Silicon Valley for 35 years, and that's what I deeply believe. And so if you're a lawyer or anybody else, you want to find the product, you want to find your flavor of the productive narcissist and go work for her because she's going to drive the world forward.

Cecilia Ziniti54:53
Bye. Yeah, no, it's a fascinating, obviously, you know, I guess in some ways on the other side of it and then, you know, I have a founder's coach and the WooWoo founder therapy and everything. And this like that necessity of the like, just, I mean, as narcissism way to describe it, but the just like people tell you know, every day in every form and you know, on LinkedIn, people see that, you know, the success and the funding rounds and 1500 customers and the, you know, the pod and everything, but it definitely is like, you have to have screw a little bit loose to be able to deal with that. I 100 % agree. But also it's amazing. I worked for Amjad who says that people, Amjad Masad, founder of Replit, but who's a great founder, all the lessons that you described. But he says that people had been telling him he had delusions of grandeur since the seventh grade. But he incredibly productive, reaching hundreds of millions of people. This is amazing, David. This was such a great conversation. Glad you came on.

David Schellhase55:42
total. Thanks, Cecilia I'm happy to do it. I really enjoyed our talk today.

Cecilia Ziniti56:09
Super fun. That was David Schellhase Entrepreneur in Residence at Ballistic Ventures and former General Counsel of Salesforce and Slack. To see how in-house little teams are using AI to do better work, to have more fun, to advise on capital B briefs, head over to gc.ai and follow CZ and Friends wherever you get your podcasts. See you next time. Thank you.