Are you prepared to confront your CEO? Are you prepared to take active measures to stop wrongdoing? Are you ready to blow the whistle? How about the prospect of losing your job? If you’re in-house counsel, you probably have no choice but to answer yes to all four.
In-house counsel are increasingly viewed as gatekeepers of corporate actions. Whether we like it or not, we’re no longer just legal advisers with some business judgment. We’re now guardians of many interests that converge in the business — employees, shareholders, consumers, the environment, taxpayers, and others and because we’re lawyers, we’re held to a higher standard.
In-house counsel are now being targeted by prosecutors, regulators, the media: Hollinger, Hewlett-Packard, Purdue Pharma, Sarbanes-Oxley, and anti-bribery laws illustrate the new reality. Consumer awareness, corporate scandals, and investigative reporting drive this trend. People are holding in-house counsel to an ethical duty more onerous than ever before, almost to the point of being quasi-independent of the corporation. We must recognize this new reality.
The traditional paradigm of our duty is process oriented and goes like this: We advise on the law. The CEO or board considers our advice as they decide a matter. The decision is theirs. If things go wrong, they wear it. As long as we advised them of the legal risks and recused ourselves, if warranted, we’re safe. I don’t want to be
self-righteous but I believe this paradigm is old school and obsolete. It’s based on the false premise that a good process will create a good result and was focused on protecting ourselves, not foreseeable victims. Legal counsel can no longer fully carry out their duties by merely advising on the risks and pushing the decision up the chain of command to the CEO, or if no good result is achieved there, to the board.
This paradigm has crashed on the rocks of bad results harming innocent people. Whenever corporate officers are implicated in a scandal, they still invariably defend their decision by saying it was fully approved by whomever, it adhered to corporate policy, and it was entirely legal. But this fails to distinguish between the process and the result. The offence is rarely one of procedure but of result. Following the correct process doesn’t sanitize the grubby result. Being legal doesn’t make it right.
We can no longer hide behind the memo. We’re not only expected to provide advice on avoiding the wrongdoing but to take active steps to prevent or stop the activity.
This may go beyond the mere alert to the board and recusal. High profile cases and statutes create a new paradigm that forces us to be a lawyer and a senior officer with a strict ethical code, empowered to stop corporate activity, with an expanded duty that now includes others.
To whom do you go if the CEO is the problem? Tradition dictates the board. But what if the board is the problem as well? To whom do you turn? A controlling shareholder? A regulator? The media? In short, we may need to blow the whistle if there is no intra-corporate remedy.
Our analysis of the contentious corporate act should now distinguish between a wrongful act: a) by or against the corporation in a private transaction; versus b) against an innocent individual or group. The former would generally fall into the traditional paradigm of advice and recusal. The latter may compel us to override our traditional duty to the corporation in order to prevent or remediate the wrongful act. If reporting up fails, then the lawyer may need to report out.
There’s a knock-on effect. Given this new reality, should legal counsel also be responsible for compliance? Both commonly reside in the legal department, but is the dual nature of being both a legal officer and compliance officer a conflict of interest? The chief legal officer is charged with defending the company but the chief compliance officer may be required to report the wrongdoing to the authorities and co-operate in an investigation.
Does this new paradigm subvert the traditional role as adviser, advocate, and defender of the corporation? Perhaps just a bit but I think it’s a healthy change. Was the old paradigm too narrow? Is the new paradigm too broad? I don’t know the answers but I do know that our actions will be judged by a panel comprised of hindsight, the media, and our conscience — and they’re hanging judges.
Mark Johnson is the general counsel for Infusion. He can be reached at:[email protected].
