Fill the Void

Toys“R”Us’ first corporate lawyer­—David Schwartz—steps up and branches out to new roles when the company faces new challenges, expanding his ability to provide versatile strategic guidance

One of David Schwartz’s guiding business principles is that when you see a problem, don’t complain about it. Step up and do something to fix it. This approach has proven to be a successful career strategy for the executive vice president, general counsel, and corporate secretary of retail giant Toys“R”Us. It has earned him some roles and responsibilities that go well beyond his roots as a corporate lawyer. Among those are global head of safety, chief of international licensing and franchising, and interim head of corporate communications and public relations.

David Schwartz, Toys "R" Us
David Schwartz, Toys “R” Us

Schwartz is not hesitant to tackle new challenges when he sees a void that needs to be filled. Over the past decade and a half, his role has expanded steadily, from Toys“R”Us’ first corporate lawyer to varied management responsibilities, including his help with setting business strategy. Schwartz, who earned an MBA to go along with his law degree, brings legal and business know-how to every task. This blend of abilities has made him a valuable contributor across many functions of the business.

An economics major as an undergraduate at Duke University, Schwartz says he was always drawn to business issues. Duke did not offer a business major, though, and unsure about a career path, Schwartz opted for law school. His first professional job was an attorney with a major New York City law firm, Anderson Kill & Olick, but his initial assignments were unfulfilling.

“I quickly felt frustrated by the amount of time that went into tertiary points—things not related to the main topic,” Schwartz recalls. Instead of focusing on the main issue of a lawsuit, he was spending a lot of time on arcane aspects of case law. Rather than immersing himself in litigation, he gravitated toward business-oriented work such as mergers and acquisitions, private investment fund formation, securities offerings, and other types of commercial work.

“I enjoyed those things to the point that I wanted to be more than an outside adviser,” he says.

Schwartz was lucky enough to have a good job with a law firm that supported him through Columbia University’s business school. The degree beefed up his business knowledge and skills, and he says, gave him the confidence to branch out to do more business work within the firm. After a nine-year stint with the law firm, Schwartz was ready for a position that would allow him more hands-on work in managing the operations of a company.

This goal led Schwartz to Toys“R”Us in 2001, with the company’s Internet business occupying about half of his time. Back then, the company’s online business operated almost like a separate company, with its own stock plan, leadership team, and culture. That arrangement didn’t seem to suit the company at that point as well as it did in the early years of e-commerce, and upper management decided to integrate its Internet business with the rest of the company. As the top legal manager, Schwartz played a key role in harmonizing the online unit’s stock plan and human resources rules with the parent company.

In addition, Toys“R”Us’ e-commerce platform was being hosted and managed by Amazon, an arrangement that management didn’t want to continue. Toys“R”Us had arranged to have exclusive rights to supply some toys on Amazon’s site, and later it claimed that Amazon violated the partnership by letting others sell some toys on Amazon.com. Schwartz had to extricate Toys“R”Us from its agreement with Amazon, and the matter ended up in court. The toy retailer eventually prevailed and was awarded early termination, with Amazon reportedly paying $51 million to Toys“R”Us.

In 2008, the toy industry faced a crisis after news reports highlighted the potentially harmful effects of substances called phthalates used in plastic toys and baby bottles. The US Congress acted swiftly to ban phthalates from children’s products, including ones that were already in the retail pipeline. Toys“R”Us, at the time, had $2 billion worth of inventory subject to the new regulations.

“Nobody was really taking ownership of figuring out how to validate whether that inventory of toys could possibly comply,” Schwartz recalls. So, he stepped into the breach by helping to create a team dedicated to that task. The team worked with vendors, manufacturers, and even the retailer’s competitors to develop compliance protocols. This work led upper managers to ask Schwartz to take on the role of global product safety chief, a role he held, along with his other duties, for five years. In 2009, he helped prepare the company’s CEO to testify before a congressional committee investigating toy safety.

“The work that I’m most proud of, and that I enjoy the most right now, is overseeing our international licensing and franchising business.”

Schwartz has also taken on work beyond the general counsel’s traditional purview of litigation and compliance. “The work that I’m most proud of, and that I enjoy the most right now, is overseeing our international licensing and franchising business,” he says. Toys“R”Us has six partners that run almost 300 stores in seventeen countries.

“In the early days, I was involved as the lawyer helping to draft amendments to license agreements or resolve minor disputes with the partners,” Schwartz says. “Over time, I was able to fill a void in adding strategic guidance to growing the relationships and entering new markets.” The leadership team was impressed enough to entrust him with the role of international franchising chief in 2010. Today, his international-franchise focus includes initiatives like codeveloping the annual business plan with a South Korean partner. “I’m working purely on the business side at this point,” he says.

In some ways, moving between the legal and business spheres is easier than some might imagine. “The goals are the same whether you are a lawyer or a businessperson,” Schwartz says. It’s all about doing what’s best for the enterprise. In addition, many essential general counsel skills are transferable to business, including being responsive, communicating well, problem solving, and forming effective teams. Those skills have served him well since he assumed the mantle of interim head of corporate communications in 2012. Even though some of the core work of this function is outside of his wheelhouse, he says his management experience accumulated over the years is applicable to the challenge.

As Schwartz’s business responsibilities have increased, he may be spending less time day to day on legal intricacies, but his experience and judgment as a lawyer are still put to the test. For example, in 2009, he helped negotiate a deal with the private equity firm that owned the FAO Schwarz brand. That retail company was in financial trouble, and the owner was considering taking the brand through bankruptcy. Toys“R”Us negotiated deals with vendors and landlords to keep the struggling brand in business. The result was Toys“R”Us acquiring the iconic brand, and the private equity firm coming out of the transaction in better shape than if it had taken FAO Schwarz through bankruptcy. Both sides were happy, according to Schwartz.

Intellectual property issues provide further legal challenges. “In China, the government is trying to better protect trademarks, but things have gone a bit awry,” Schwartz says. “We cannot advertise that our private label products are exclusively sold in Toys“R”Us stores without providing proof,” he adds. This is despite having exclusivity contracts with Chinese manufacturers.

Schwartz also applies his legal skills to a cause that company employees hold dear: the Toys“R”Us Children’s Fund, which has raised $115 million since its inception. His legal team supports efforts to form partnerships with charitable organizations for in-store fundraising, for example. This entails extensive certification and regulatory compliance.

The next time Toys“R”Us has a challenge that requires someone to take ownership, it’s a good bet that Schwartz will have his hand up. That’s been his modus operandi for much of his career, and it has benefited him and the company. Indeed, such versatility and initiative may be the keys to business success—both personal and
organizational.