John Ellsworth embodies the 21st-century general counsel—part legal eagle, part savvy deal-maker and all-around problem solver who is up for any challenge.
Having stepped away last year, on his own terms, from the general counsel’s role at ScanSource—a South Carolina-based public company with international operations—he left things in better shape than he found them. He also kept a hypergrowth company from going off the rails, which is no small feat for even the most battle-tested attorney.
Ellsworth had passed every test for the technology solutions provider and global leader in communications, security, POS and bar-code services. That includes shepherding international mergers and recouping fortunes a lesser lawyer could have easily left on the table, amidst the ambiguities of the litigation process.
These trials have afforded Ellsworth a “unique breadth and depth of experience” and “the perfect combination of skills and background to be an executive officer and general counsel of a public company,” says Russell Richards, partner at King & Spalding LLP.
Indeed, Ellsworth’s work at ScanSource was anything but dull. While he relished the action and pace, he was shocked by the sheer variety. “Would you believe one of my last projects was to engineer the purchase of a crematorium on an adjacent lot?” Ellsworth tells Vision in May. “Or that we settled two separate multimillion dollar recoveries on a Friday, and in both cases new laws or regulations came out the following Monday that would have negated the outcomes we achieved?”
ScanSource’s former executive vice president of operations and current Raise Craze CEO Andrea Meade can attest to Ellsworth’s ability.
“We worked together for almost 15 years, and John’s business acumen was as valuable as his legal advice,” Meade says. “From multiple domestic and foreign M&A deals to real estate transactions, and from building an 800,000-square-foot warehouse to negotiating ERP agreements, John approached every issue from the business side first.”
“I’m at my best with a number of good problems to solve,” the outgoing Ellsworth says between calls for his advisory firm.
He’s also handled himself quite well solving the bad problems.
Shortly after his wife gave birth to their first son, Ellsworth recalls the phone ringing from the office one Sunday morning—never a good omen. Seems ScanSource had made front-page news about stock-option backdating.
Inquiries from the Securities and Exchange Commission and Department of Justice, an appeal hearing with the NASDAQ delisting panel and derivative lawsuits soon followed. Eleven separate law firms and a forensic accounting firm were retained after much due diligence, bringing together 20 of the best legal minds.
Of course, this range of experts brought a host of ideas about strategy and defense. Nearly every point over the next 18 months required multiple discussions and negotiation. Ellsworth corralled and led the team to the result: the SEC’s finding of no wrongdoing by ScanSource, and favorable ends to the other investigations and suits.
Although backdating stock options isn’t illegal in its own right, Ellsworth was well aware this was not only a legal and accounting issue but also a reputational one. No firm is served by negative publicity or, worse yet, a significant adjustment to its financial statements by a conservative auditor.
Ellsworth knew ScanSource had done nothing wrong. He just needed to prove it. So he and his team spent months locating documentation to verify each of the grant dates—records that may have already been in place if ScanSource’s revenues hadn’t dwarfed its administrative capacity.
Coming out unscathed, with a small reinstatement of $5.3 million for a non-cash charge, Ellsworth was promoted to vice president and quickly shored up the company on various regulatory fronts to prepare it for even further growth.
Overall, it was a win. But …
“I gave two years of my life to that ordeal,” Ellsworth says. “At a certain point, it became a matter of redemption. I felt vindicated to turn a potential disaster into something positive.”
His lawyering talent, even when tested, is not lost on his colleagues.
Said Joseph Gromacki, partner at Jenner & Block LLP, “While working with John as outside counsel, we assisted him with many challenging and serious corporate governance, risk management, regulatory and other issues, which were successfully resolved with the benefit of his wisdom, creativity and calm credibility.”
Won’t back down
Ellsworth’s expanded legal team would prove an asset in every facet of ScanSource’s operations. It was put to the test when the company expanded into Europe and South America and made multiple new investments in the U.S.
Given its growth into the billions of dollars, the company needed a new ERP system that could keep pace. In 2009, after a year of meetings with key players, ScanSource contracted a well-regarded software provider and implementation partner.
What was quoted as an 11-month, $17 million project spiraled out of control. In late 2012, almost four years after the deadline, accumulated invoices had ballooned to a mind-boggling $38 million with no go-live date imminent. In Ellsworth’s estimation, it was classic bait and switch: Selling expertise they didn’t possess.
“If you appreciate dark humor, some aspects of the litigation were actually entertaining,” Ellsworth says about being bolstered by two outside counsels, hashing out details against a team of 17 lawyers from a much larger law firm.
“There’s no replicating that environment,” he says. “You either sink or swim, and being the underdog makes success that much sweeter. From our small corner of a Manhattan conference table—frankly the longest I have ever seen—we prevailed, with a monetary recovery more than double the board’s and CEO’s expectations.”
Ellsworth’s lean team recovered $17.5 million in damages, as detailed in The Wall Street Journal. Afterward, multiple reports surfaced of other companies exploited by unethical IT contractors. Call it further vindication.
While it was the biggest recovery of his career to date, his cumulative litigation wins of $44 million tell an even greater story. While at ScanSource, Ellsworth recovered another $27 million from M&A claims to a secured trade credit recovery. In total, the recoveries exceeded ScanSource’s global legal spend, making the legal function a profit center.
But the baits and switches kept coming. And all the more challenging on foreign turf.
Lost in translation
It’s a situation many companies encounter when doing business abroad. Smack in the middle of a large transaction or renovation, a representative from an obscure and often local government office appears, citing a dubious code violation. The alleged offender is faced with a Hobson’s choice: Pay a de facto bribe or abandon the project.
“Often, these are actual government representatives, but so-called ‘facilitation payments’ can amount to FCPA violations,” Ellsworth says, referring to the Foreign Corrupt Practices Act. “It creates a tough environment when operating abroad, especially in certain jurisdictions.”
ScanSource’s vendors—including Fortune 500 companies—became targets of such inquiries due to their size and scope. At these times, John would seek the counsel of BDO Global. Based in New York, its teams in the U.S., Belgium, Columbia, Mexico and Brazil included experts Ellsworth came to know and respect. The sentiment was mutual.
“These investigative matters are incredibly high-pressure and time-sensitive. They bring out the best or worst in people,” says Glenn Pomerantz, consulting partner for BDO’s global forensics practice. “It brought out the best in John. When you have someone capable of taking charge like he did—who can marshal the right resources at the right time—that can make all the difference.”
When he wasn’t busy with regulators and deal-making, Ellsworth was accelerating contracting processes and cultivating relationships with partners and customers. A broad panel of outside counsel with flexible staffing, flat fees and volume-based pricing kept a lid on expenses.
Above all, Ellsworth says his greatest impact may have been creating attorney-embedded roles for each of the nine business units. This gave a legal face to each president and allowed greater focus on each unit’s strategic plan.
“The best legal teams are prized not only as lawyers but as business partners,” Ellsworth says. “During my 14 years at ScanSource, not only were we business-focused, we turned the department into a profit center.”
“Even better, three members of my team became general counsels at other companies and a fourth became worldwide head of human resources. Their hard work and personal development were rewarded. I am extremely proud to have been a part of it.”
The feeling is mutual.
Says Louis Apker, a former team member who’s now general counsel Americas of Barco Inc.: “John’s keen intellect and passion make him an effective partner to senior management and other key stakeholders. Through his example and mentoring, he taught the importance of being an entrepreneurial, results-driven attorney who never loses sight of the big picture.”
Another former team member, Justin Grow, now general counsel of a publicly traded company, recalls: “John not only ensured I gained expertise in a variety of areas, he also took the time to discuss the overall direction of the department and how we could grow with the company. His holistic approach and transparency, and the significant responsibility he provided me at a relatively early stage, are unique in my view and have served me well in my current role.”
Wearing it well
Ellsworth came to ScanSource after cutting his teeth as assistant general counsel of One Price Clothing Stores Inc., following a clerkship with Minnesota 10th District Judge Bruce R. Douglas. This was the role that brought him to South Carolina—an enticing offer to be in-house counsel directly out of law school.
Then a national retailer, One Price would face its biggest challenge from its 5,000-employee base with a California wage and hour class-action lawsuit. As he says, “I had already handled all charges filed with the EEOC and related state regulators, but this was at another level altogether. This class action, and the variety of matters at One Price—from real estate to intellectual property—set me on course for a general counsel role.”
Yet, while the companies had issues in common, ScanSource presented new territory. With a modest 3.5 percent net profit margin, it continued to show double-digit annual growth, “straight up and to the right,” in Ellsworth’s terms. Much of this growth—400 percent in revenues (from $500 million to $3.7 billion) and 250 percent in market capitalization—came through strategic acquisitions.
“We learned to be overly scrupulous on transactional due diligence,” Ellsworth says. “A whole deal could be turned upside down if a particular accounting practice, undisclosed liability or claim was high enough. Thin margins compel you to be extremely thorough.”
Subsequent to ScanSource, Ellsworth has been anything but idle. He launched his own M&A advisory to source and evaluate deals for an Atlanta-based investment banking firm, business owners and private equity firms. But he’s ready for a new and bigger challenge, one that will relocate him and his family far away from South Carolina, for a reason that transcends cultural differences and economics.
“One of our sons has a learning difference, and it’s become clear that only a major city will provide him the right school environment,” the father of three boisterous boys explains. “We are ready for a new adventure.”
Wherever the family lands—Chicago, Minneapolis, Denver, Boston, Dallas, Atlanta and San Francisco are among the sought-after locations—Ellsworth stands to be an asset to his next employer. Especially if it’s a global public company, a stage on which Ellsworth has already distinguished himself.
“Minneapolis is a draw as the home of my law school (University of Minnesota). It’s also where I grew up and still have an attorney license. But my sons have yet to see that kind of snow! Most importantly, I am looking for the right career fit, as long the city supports our needs.”
On the horizon
“Evolving business models excite me,” Ellsworth says. “I would love to join another company in growth mode. There is more to be done in a tighter time frame, but the kinetic energy makes the hours fly by.”
Open-minded about next steps, Ellsworth has proven his value as both legal counsel and senior executive. One morning he could be overseeing a heavy volume of contracts, closing an M&A deal or negotiating a SaaS agreement. That afternoon he might help the CEO set global expansion strategy or launch the search for a new executive officer. And while the hard knocks of responding to federal regulators were never the highlight of his day, the learning curve was invaluable.
“I am an executive first and global general counsel second,” he says.”
Until he locks up that next role, Ellsworth has quite enough to keep him busy, and not just his M&A work. He’s also exploring innovative, disruptive ideas with startup teams that require his expertise to get to the finish line.
With a deep and varied resume and savings wisely invested, Ellsworth can afford to wait for the right opportunity. But he prefers not to wait too long. Not one to sit on the sidelines, he’s ready to hit the ground running.
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