American Corporate Counsel Association
1025 Connecticut Avenue, NW, Suite 200
Washington, DC 20036
December 18, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commissions
450 Fifth Street, NW
Washington, DC 20549-0609
Submitted Electronically: email@example.com
Re: File Number 33-8150.wp
We respectfully submit these comments of the American Corporate Counsel Association regarding the proposed regulation of attorneys by the Securities and Exchange Commission ("the Commission") pursuant to the authority granted them by Section 307 of the Sarbanes-Oxley Act of 2002.
The American Corporate Counsel Association ("ACCA") is a bar association for lawyers who are employed by corporations as in-house counsel. With over 14,000 individual members in 40 countries, ACCA members represent over 6,500 companies worldwide. ACCA members' employers include the Fortune 1000, as well as thousands of small and mid-sized businesses and non-profits engaged in every conceivable industry.
We share the Commission's and Congress' concern that the legal community should take an active role in pursuing the remedies and reforms by which lawyers can become more effective participants in preventing future corporate financial debacles in the aftermath of highly-publicized financial and ethical failures at Enron, Tyco, Global Crossing, WorldCom and a few other companies. At the same time, however, we believe that there are certain aspects of the Commission's proposed rules - found in 17 C.F.R. Part 205 -- that are either impractical or, in some cases, directly counter-productive to achieving the desired objectives of the Sarbanes-Oxley Act.
The Commission will likely be receiving comments from a number of organizations addressing a wide variety of concerns. Given ACCA's unique focus on the in-house bar and the preventive compliance concerns of our members' clients, we will limit our comments to the following issues which we believe are most significant to draw to your attention. They are:
- The Commission's proposed rules mandating disaffirmation and/or noisy withdrawal will alter the interaction between corporate lawyers and their clients, damage the trust and confidentiality that constitute a basic underpinning of the lawyer/client relationship, and greatly reduce in-house counsel's effectiveness as a pro-active compliance agent by marginalizing their role. The practical implications of the Commission's "reporting out" proposals weaken the corporate client's legal health and are a disservice to the public's interest in encouraging clients to be forthcoming in disclosing information and in communicating with their lawyers regarding questionable corporate activities.
- The breadth and ambiguity of the Commission's proposed definition of "practicing before" the Commission is ill-advised, and may create significant problems within U.S. and non-U.S.-based legal departments.
- The concept behind the Qualified Legal Compliance Committee ("QLCC") is sound, but we would suggest to the Commission that reporting to any board committee which includes independent directors - such as a currently existing audit committee -- should be a sufficient action for a lawyer to undertake.
Some terminology used by the Commission provides insufficient guidance for in-house practitioners and other corporate lawyers, and could create confusion, as well as dissimilar and unintended results under prevailing state and federal common law and regulatory standards.
There are many commendable provisions in the Commission's proposals. We suggest that the Commission redraft its proposal to fortify those provisions that require up the ladder lawyer reporting within the organization. We agree that the Commission's rule should complement the over-arching message of the Sarbanes-Oxley Act: namely, to strengthen the role of audit committees, increase the requirements for ensuring director independence, and focus on a variety of governance mechanisms that will fortify the client's understanding of and compliance with its disclosure and other affirmative duties to the public. We believe that a number of initiatives contained in the Sarbanes-Oxley Act (and the new regulations issued by NASDAQ and the NYSE) will go a long way toward accomplishing those goals, even before the issuance of the Commission's proposed rule. We are concerned, therefore, that some of the Commission's proposals to regulate lawyers, which go beyond the requirements of the Act or the new regulations of the exchanges, could discourage open and honest lawyer/client relationships, and may therefore actually do damage to the practical realization of these recently enacted reforms.
Thus, while we understand that the Commission must promulgate a rule by the statutory deadline in January, we suggest that the rule submitted should not include provisions that go further than may be necessary to address the goals of the legislation. We encourage the Commission to remove, or at the very least delay for further consideration, those portions of their proposed rule that would require lawyers to report outside of the organization. Since the "reporting out" provisions are not mandated by the Act, and since they are the cause of our (and others') concerns about unintended consequences that damage the ability of lawyers to help their clients achieve the Act's goals, the Commission should take the necessary time to consider the impact of these reporting out requirements further. We therefore encourage the Commission to adopt a rule that preserves the confidential nature of the lawyer-client relationship and thus likewise preserves the likelihood that lawyers will be allowed to play an integral and effective role as legal counselors and ethical guides for the entity.
Finally, we encourage the Commission to join us in focusing the greater attention of the bars not just on new rules of professional conduct, but on resources and initiatives that will enhance lawyer and client legal education, cultivate the creation of new compliance best practices, and allow lawyers to accept greater ethical leadership roles within their clients' corporate cultures.
ACCA's View of Relevant Practical and Policy Concerns
First and foremost, in-house lawyers are as outraged as other business leaders and lay persons about the corporate financial debacles of the past two years. They are especially concerned about the resulting and inaccurate presumption that all of Corporate America probably has such skeletons lurking in the closet. In-house attorneys understand and support the need for legislative and regulatory changes. However, they are also concerned that many of the recent governance and regulatory proposals need to be considered as an integrated whole, with an eye toward avoiding duplicative and potentially counter-productive results.
In specific response to the Commission's proposals, on one level, sophisticated in-house lawyers will tell you that there is not likely to be any major impact on their day-to-day practices from the issuance of these rules. Many in-house lawyers live in highly regulated worlds already, and notwithstanding public perception in the wake of recent events, the vast majority of in-house attorneys work for ethical clients with pre-existing compliance programs. The concept of reporting up the ladder is well established in their corporate culture already, and the necessity of enhanced transparency to the Board of Directors is widely accepted by these clients and their lawyers.
While clearly disturbed by the prospect of the Act's reporting requirements, most in-house counsel assume that it is unlikely that they will ever have to grapple with a situation that would give rise to reporting outside of the company. In general, chief legal officers believe that the furor over reporting outside of the company may be overblown because they cannot imagine ever having to do so: it is inconceivable to them to that a board would prefer to trigger a Commission investigation rather than respond to a CLO's legal concerns over an allegedly improper activity.
On another level, however, in-house lawyers foresee in these rules a very dangerous threat to their ability to do their jobs, serve their clients, and fulfill their professional obligations. They are concerned that these rules take an unprecedented and unnecessary step toward changing the role of a corporate lawyer from one of a trusted legal counselor to one of a whistle-blowing policeman. By mandating that corporate lawyers should be subject to new requirements to report wrongdoing outside of the company and to develop potentially discoverable files documenting their internal corporate investigations, the Commission's rules are proposing a sea change of tremendous magnitude. The result is nothing less than the transformation of lawyer regulation away from a traditional focus on keeping lawyers honest and toward a system of regulating lawyers to keep their clients honest.
Perhaps the most important difference between in-house and outside counsel is that the in-house practitioner is situated at the front end of the client's information flow, with a unique opportunity to provide advice and prevent problems before they arise. The ability to act proactively is truly the raison d'etre for the in-house lawyer, and is a lynchpin of the investment a client makes in bringing lawyers into the workplace, rather than keeping them at arm's length as outside advisors and hired guns. The value of counseling clients to avoid problems before they reach the "point of no return" will be lost if the lawyer is shut out of the loop.
The desire - and indeed, the willingness - of corporate clients to employ lawyers as full-time participants on the corporate team is very much dependent on the existence of a fundamental trust among the parties. The transformation of the in-house lawyer into a perceived mandatory whistleblower will irreparably damage this relationship. The loyalties of in-house practitioners will be questioned. Their ability to assure the client of the confidentiality of their conversations and their work will be diminished. And clients will begin to see more reasons why hiring an in-house counsel could be a liability, rather than a sound business practice. At the very least, some clients (indeed, the ones of greatest concern) will begin to parse out information in a manner that is conscious of the possible dangers to them of the lawyer's reporting responsibilities.
Our members' clients recognize the importance of this issue. They told us, pre-Enron, that they believe the two most important roles that an in-house lawyer can fulfill are as an educator on legal issues, and an ethics advisor:1 both key challenges played out at the front end of the counseling relationship. These are not the same roles that they said they expected their outside counsel to play. The CEOs, COOs, and CFOs surveyed were telling us that they employ in-house lawyers to prevent legal problems from arising, and that they retain outside counsel for other remedial roles they may perform.
Clients operating without the full benefit of in-house legal counsel are far less likely to enact comprehensive and meaningful compliance initiatives, and will forego mainstream legal advice, hiring outside lawyers to handle litigation as it arises and to clean up messes that were created because of the absence of preventive measures. Corporate counseling will become the exception, rather than the rule. The irony in all of this is that regulations intended to make lawyers more responsible for the legal health and good behavior of their clients will have the perversely unintended effect of making clients less likely to seek counseling on the very issues that Sarbanes-Oxley was intended to address.
ACCA's Specific Concerns with the Commission's Proposed Rules
1. The Commission's proposed rules may deputize, but will also succeed in marginalizing, corporate lawyers.
ACCA is a proponent of reforming Model Rule of Professional Conduct 1.13 to make the "up-the-ladder" reporting requirements for lawyers representing an organizational client entity clearer and more practical. Suffice it to say, it is clear to us that it is an in-house lawyer's duty to work diligently with internal management and, if necessary, the board to correct corporate improprieties.
We disagree, however, with the Commission's proposals to require corporate lawyers (both in-house and outside) to report to the Commission: a) by means of documenting for future use the efforts of the lawyer and his internal investigations; and b) by means of disaffirming documents filed with the Commission and/or making a so-called "noisy withdrawal" to the Commission.
The documentation process is entirely inappropriate since it will create a separate set of files that may subsequently be used by: the lawyer against the client in the case of dismissal; the Commission in prosecuting an action against the client; or third party plaintiffs pursuing litigation against the client.
The files of an attorney documenting an internal investigation of any kind on behalf of the client should be created under the presumption that they are not discoverable, that they are either attorney-client or work-product privileged, and that they represent some of the most sensitive materials imaginable in a corporate context. The Commission's requirement of a document trail will stand on its head decades of common law evidentiary protections afforded to clients. The practical result of a documentation requirement includes unintended impacts that neither ACCA nor the Commission should support.
The very purpose of this privilege is to encourage lawyers to conduct comprehensive and detailed investigations; such investigations are aided by lawyer notes and comprehensive files which can help the lawyer unravel a complex matter and assist in the development of remedial or future preventive practices. We should not expect lawyers to work informally and "off the record" if we expect high quality results with measurable impact.
Further, the investigative process should be designed to encourage and reward clients for engaging in open and honest communication with an investigating lawyer so that meaningful legal advice can be provided and improper activities prevented or remedied. Corporate managers who know that a lawyer is documenting a file for possible future disgorgement to the Commission or others filing actions against them in the future may not be honest, forthcoming or insightful. They will learn to conduct their activities out of the sight of the lawyer and may not make the lawyer privy to necessary information or critical communications. Clients will become well aware that the lawyer's files are highly sought after by the prosecutorial and plaintiff's bar since they can be seen as a treasure trove of selectively damning evidence. Such files are quite clearly a road map for future litigants interested in suing the company or its officers or directors.
This issue is not remedied by the Commission's assurance that information divulged or statements made to counsel through these processes of documentation will not violate the privilege. Such matters will be decided by the courts as evidentiary standards are debated in each case. The common law rule in many jurisdictions is that a waiver of the privilege occurs with any form of disclosure to any party who is not the client. The Commission's proposed documentation rules thus will inevitably inhibit the in-house lawyer's ability to conduct full and effective investigations.
Even in those cases in which there is no disgorgement of files, the fact that an in-house or outside lawyer has notified the Commission of a need to disaffirm documents and to leave the representation may be enough to trigger a chain of events that will lead to the loss of confidentiality and attorney-client privileged communications and work product.
Consider, for example, the in-house counsel who finds herself at the unfortunate juncture of an unresponsive management and board who disagree with her belief that a material violation has occurred or is about to occur. She has to report her situation to the Commission in the form of a disaffirmation of documents filed with the Commission. Everyone now knows that the client has, at best, a questionable position with respect to one or more financial matters and everyone now will be interested in looking into those documented files for evidence of the lawyer's findings. The SEC investigations will begin, as will the eventual shareholder and potential other party litigations. The lawyer may not have actually divulged an attorney-client privileged document or conversation, but she arguably has breached the confidence of the relationship, which, if true, will put the privilege at risk.
Under the provisions of the U.S. Sentencing Guidelines, moreover, a company that is being prosecuted by the government cannot earn sentencing points in its favor (and may receive demerit points) unless the company "cooperates" fully with government investigators prosecuting the action, including waiving privilege for requested files.
Under the provisions of the so-called "Holder Memorandum" (which was issued by then-Deputy Attorney General Eric Holder in an effort to normalize standards of prosecutorial behavior), U.S. attorneys are strongly encouraged to demand a waiver of the client's privilege before beginning any settlement or other resolution processes. Pursuant to the provisions of the Commission's proposed rule, shareholder lawsuits filed as a repercussion of a lawyer's withdrawal will likely name the lawyer as a key witness and request access to and information about the content of the lawyer's files.
All of this suggests that, despite assurances to the contrary, it is unlikely that a lawyer disaffirming documents with the Commission or withdrawing from the representation under the Commission's proposed rules will be able to leave the client with any reliable expectations that the work of the lawyer will not be put at risk in future enforcement actions or lawsuits.
The Commission's reporting requirements, insofar as they entail lawyer communications outside of the client entity, are not appropriate for a number of policy reasons.
First, they fundamentally undermine the foundation of the lawyer-client relationship: confidentiality. The purpose of any regulation of lawyers by any entity - whether a state bar or a court or the Commission - should be the protection of the public. The public is best protected by a lawyer-client relationship in which clients are encouraged to discuss their activities openly with their lawyers in order to gain legal advice and ensure that corporate objectives are accomplished within the law. While there may be some short-term benefit to the public in prosecuting a guilty company by means of forcing the company's lawyer to report corporate misdeeds or disgorge confidential documents, in the long term, the detriments associated with such actions are greater.
Confidentiality and related attorney-client privileges have been misused by some clients and abused by some lawyers who are complicit in their client's wrongdoings. But such abuse takes place in an extraordinarily small number of cases, and we should not make rules and set norms for the standards of the bar based on a miniscule deviation from what otherwise is effective counseling.
We know that lawyers can be more effective in encouraging legal behavior if they enjoy the client's trust. We also know that clients who avoid their lawyers or shut them out are closeting their illegal activities to the detriment of shareholders and the public. Thus, the long-term interests of the public are not served by a lawyer-client relationship that is dysfunctional or without "teeth." Diminishing the confidentiality of a lawyer's relationship with his client - and thus marginalizing the role of the lawyers in corporate counseling - will not allow lawyers to advance the interests of the Act or the public effectively.
While ACCA firmly believes that disclosure outside of the organization is inappropriate, if it is to take place, permissive, rather than mandatory, disclosure requirements are more appropriate. Not only are permissive standards more in line with a majority of state professional rules of conduct, but they create the necessary lawyer discretion that is crucial to the proper operation of such rules. The ability to not report a violation which the client is encouraged to rectify creates an opportunity for the lawyer to encourage the client to reform; put another way, it creates a valuable "carrot" to accompany the threat of a "stick."
2. Too many lawyers and non-Commission regulated matters will be included in the scope of the proposed rules, and the effects could have serious and unintended consequences
ACCA believes that the definition of lawyers "practicing before" the Commission for purposes of regulation under this rule is overly broad. Specifically, ACCA suggests that:
The rule seems to include under its purview most any lawyer who in touches disclosure documents or their exhibits filed with the Commission, and also lawyers who supervise such attorneys. This reach subjects a large variety of non-securities lawyers to regulation by the Commission and makes them responsible for understanding the implications of client actions that may be apparent only to someone with specific securities law expertise. We believe that such a result is not appropriate and that the definition should be narrowed accordingly.
The rule also includes lawyers who are not practicing law or even formally representing the client in question, but who may hold another non-legal position in the corporation. It is inappropriate to subject these people to legal standards and regulation when they are not practicing law, and have not established and do not maintain a lawyer-client relationship with the corporate entity.
By seeking to regulate lawyers representing a corporate client who breaches a "fiduciary duty or similar violation" (as apart from a material breach of securities law), the Commission is creating for itself the role of a general regulator of professional responsibility requirements and as arbiter of improper client actions beyond the field of federal securities and financial management. Similarly, the use of the term "similar violation" is so vague as to create serious problems for the lawyer grappling with an understanding of the rule's application. While we understand that this language is drawn from the Act itself, there is much that the Act glosses over given its quick passage and that the Commission has endeavored to define in greater detail; we suggest that the Commission re-draft this language or interpret it so as to "narrow" its application.
Creating different classes of lawyers within a firm or law department, each with different (some more or less onerous) requirements, improperly segments the bar and confuses clients. It is difficult, if not impossible, to explain to a lawyer or a client why their securities lawyer has a super-professional regulatory reporting obligation, but that other "regular" lawyers do not carry a similar obligation if the client is involved in other potential crimes involving other federal and state laws.
If the SEC creates for itself a bar of attorneys who have "higher" requirements than other lawyers in their duties to report to the Commission, other governmental agencies regulating other areas of practice will likely also rush to create rules that "super-size" the obligations of lawyers practicing before them. The result could be a rush to deputize lawyers by virtually every government agency. After all, what agency would not want to have the counsel for the defense working on their team, too?
The Commission's proposed rules would require non-U.S. licensed lawyers to have an intimate knowledge of U.S. securities law if their clients are considered issuers under the Commission's definitions. The rules proposed by the Commission are in conflict with the confidentiality responsibilities and other regulations affecting lawyers admitted in many non-U.S. jurisdictions; unlike the shelter offered to their U.S. counterparts, there is no federal pre-emption argument to be made to a foreign lawyer's local bar when a client complains about a resulting ethical violation, and stiff penalties await these same lawyers for non-compliance in the U.S. if they ignore the Commission's rules.
The political fall-out of this rule thus has multiple dimensions. First, it will create a strong impact on foreign companies and U.S. clients with overseas interests, and thus may prompt the issuance of regulations that "retaliate" against American lawyers practicing in other jurisdictions. Second, these rules could also impact the U.S. position in negotiating the current round of GATT agreements that include the export of legal services by U.S. lawyers giving advice to foreign clients. (It is estimated that such services constitute a surprisingly large portion of the estimated worth of services traded over national boundaries.) The Commission's rule could create havoc with emerging efforts to find legal practice jurisdictional "comity" with other countries. Third, the Commission's rules will make it harder for U.S. companies to retain foreign counsel and for U.S. lawyers to establish joint relationships with lawyers in other jurisdictions; many foreign lawyers will forego American corporate retentions if the potential costs to their professional livelihood are too high (and their underwriters prohibit them from accepting such engagements). And finally, we would note to the Commission that licensed professionals working in as in-house counsel in some other jurisdictions around the world are not allowed to be members of the bar, and yet would be subject to regulation as attorneys by the Commission, creating quite a quandary for them and their clients.
3. The "QLCC" should be only one way to address the problems that Section 307 was designed to prevent
ACCA is totally supportive of the thinking underlying the Commission's creation of an alternative path to reporting in the form of a Qualified Legal Compliance Committee (or "QLCC "): that matters involving potential financial wrongdoings or securities fraud need to be vetted at the highest levels of the client, with decisions in the final instance made by independent directors. The QLCC approach as articulated by the Commission's proposal is an option that may work for some companies, but may create a challenge for other companies (and for their already over-stressed directors) that are reluctant to establish yet another board "audit-type" committee.
Corporations should be free to choose from a variety of techniques - the ones that best fit their own resources or cultures - to promote the desired result of assuring that "up the ladder" information can ultimately find its way to independent director decision-makers.2 It would be helpful if the Commission rules authorized companies to find the best fit for their board: some companies might simply designate their existing audit committee as the best vehicle for achieving this end; others may wish to require such information to go to the full board; still others may create new special permanent or ad hoc committees (such as a QLCC) to deal with these issues as they come up.
The key underlying point is that the company is the client, the directors are the final authority and decision-makers for that client, and the lawyer's role (except in the very limited circumstances already recognized under the ethics rules) should be focused on making sure that comprehensive information and a recommendation is delivered to directors to allow them to make a fully educated decision in the best interests of the client. Having served his role, the lawyer then must allow the directors to do their jobs. If the directors fail to meet their obligations, they should be held accountable. It is not the lawyer's role to mandate the client's decisions, but to inform and, hopefully, help shape them.
Thus, ACCA's only concerns with the Commission's proposal to create an alternative vehicle - in the form of a QLCC - are: (1) that if the QLCC is the only board entity to which a lawyer may report under the Commission's proposed rule, it may not offer enough flexibility for companies with varying resources and corporate cultures; and (2), if the Commission expects a lawyer reporting to a "QLCC-type" committee to nonetheless report to the SEC if that committee does not take the actions that the lawyer considers necessary, then the creation of such an entity is not really an alternative route to avoid the lawyer's noisy withdrawal and disaffirmation at all.
ACCA is concerned about additional terminology used in the Commission's proposal, including most especially:
- "Reasonably believes": To adopt the "reasonably believes" standard is inappropriate because it essentially equates the behavior of non-securities lawyers caught under the rules' ambit to the reasonable behavior of a securities law expert; because it creates a standard of lawyer liability that will be judged in hindsight, and judged with improper harshness against the well-intentioned, but out-of-the-loop lawyer; and because it creates a standard which is at odds with the generally acceptable standards of reasonable lawyer behavior at work in every other section of the Model Rules which regulate other lawyer activities and responsibilities.
- Evidence of a "material" violation of the securities laws: ACCA is concerned about the possibility that the Commission is creating a new standard in defining this crucial term in their proposed rule. ACCA submits that is would be more appropriate for the Commission to adopt a standard defining "material" in a manner more consistent with the U.S. Supreme Court's decision in TSC Industries v. Northways, 426 U.S. 438 (1976).
- "Act in the best interest of the issuer and its shareholders": The client of the in-house lawyer is the entity, and not any one or group of its managers, executives or owners. While the in-house counsel's client is the entity, the practical reality is that the entity only works through the actions of its management and board. In-house counsel treat the management of the company as the day-to-day client so long as the management stays within the law. If management acts inappropriately and will not change course, the lawyer reminds the manager(s) in question that the client is actually the company, and the lawyer begins a climb up the ladder of authority seeking redress under Model Rule of Professional Conduct 1.13. If management is intransigent, the lawyer goes over their heads to the board. If the board does not take responsible action, then the in-house lawyer has to consult the rules in her state to understand her options and obligations. Nothing other than the Commission's proposed rules has ever suggested that the lawyer's "client" for professional definition purposes becomes the shareholders when the management and board act in an errant fashion. Indeed, the last result anyone should want is for in-house lawyers to be responding to a "client" without fiduciary duties and driven largely by the company's stock ticker performance. Consequently, the Commission's proposed terminology in this instance should be narrowed to make clear that the attorney shall act in the best interests of the issuer and the reference in Section 205.3(a) to "shareholders" should be deleted.
While we would not presume to re-write the Commission's rule, we encourage the Commission to consider revisions that accommodate the following considerations:
- The Commission's regulations should create a mandate to lawyers representing organizational entities to work through the company's law department to report potential violations and suggest appropriate resolutions up the ladder of management, including a report to and a request for action by the board, if necessary. The lawyer's professional obligation to report, however, should end at the board or at its auditing committees. The final authority to make decisions and accept the advice and recommendations of a reporting attorney should lie with the board. The confidentiality of the client's representation should not be unilaterally "waivable" by the lawyer.
- We believe the many other pending reforms calculated to increase the independence of and oversight by public company boards make it extremely likely that boards will react properly to information that is reported "up the ladder" under the new regime. The Commission's proposals should therefore not seek to go farther than the Act requires, for such an expanded foray into unnecessary regulation may unintentionally do more harm than good.
- The Commission should create standards that allow lawyers to understand exactly what is and is not their professional obligation to all entities that purport to regulate their behavior. In this regard, we suggest that the Commission's standards should be as consistent and seamless with states' licensing obligations and regulations as possible.
- The Commission should enact a rule that empowers all lawyers to report their concerns to the client's CLO where one exists, but should not create a regulatory system that allows junior lawyers (inside or outside) to replace the CLO's judgment and reporting responsibilities to the board.
- The Commission should avoid mandating an internal documentation requirement which has the impact of creating a ready-made roadmap to litigation or that places the lawyer in an inappropriately exposed position to hindsight scrutiny or unlimited liability for exercising appropriate professional judgments.
- The Commission should help facilitate and support the role of in-house lawyers who work with clients in an effort to create an ethical corporate culture and an institutionalized system of legal compliance.
While not affecting the Commission's consideration of this rule, please note that our comments to the Commission are premised on the firmly-held belief that there are alternative ways to harness the skills and unique position of lawyers in promoting governance reform. In that connection, ACCA is aggressively working on initiatives that we believe will positively impact our members' practices and their clients' compliance programs and corporate cultures through:
- Educational initiatives to train lawyers in ethical issues, compliance techniques, governance matters, client education and corporate culture leadership.
- A new array of web and written resources that provide best practices and networking opportunities for members to benchmark and improve their company's governance, compliance and disclosure practices.
- The cultivation of new thinking and accompanying proposals for the improvement of Model Rules 1.6 and 1.13 as they apply to the organizational client and in-house counsel; our goal is to offer better ethical guidance for practitioners, and to help eliminate what we all agree are abuses of the current rules (when corporate lawyers purposely turn their heads to avoid knowledge of wrongdoing, and when clients improperly hide behind the privilege in order to facilitate wrongdoing).
- The promotion of joint relationships (which will in turn develop new resources) to help lawyers and management join forces to prevent future financial scandals. Such relationships would include better coordination and cooperation with some or all of the following entities: the American Society of Corporate Secretaries, the National Association of Corporate Directors, the Business Roundtable, the U.S. Chamber of Commerce, the NYSE and NASDAQ, the Commission, and so on.
- The development of targeted law school curricula that can be adopted by any school, teaching ethical rules for corporate practice, ethical leadership traits and techniques, and guidance for achieving the highest standards of professionalism in organizational representation - areas which typically receive inadequate attention in law schools today.
- The use of ACCA's networks and bully pulpits to help mentor and train in-house and outside counsel (especially, but not only, those at entry levels) to better understand their roles vis a vis management, the board, and the public. While we advocate better ethics educational opportunities in school, every lawyer knows that her most important ethical training comes not in law school, or by reading the rules or taking the MPRE; rather it comes from "rubber meeting the road" in real life contact with clients and at the sleeves of our legal colleagues and mentors. We need to focus the CLO `s and other mentors' attentions on ethical/professionalism training, as well as substantive legal training.
We thank the Commission for the opportunity to comment on these proposed regulations. We stand ready to assist the Commission to ensure that the final new rules are both practical and useful. Please feel free to contact us to discuss these issues further.
On Behalf of the Board of Directors of the American Corporate Counsel Association:
Chairman of the Advocacy Committee of ACCA's Board of Directors
Senior Vice President and General Counsel
M. Elizabeth Wall
Chair, ACCA's Board of Directors
The European Lawyer
John H. McGuckin, Jr.
Vice Chair, ACCA's Board of Directors
Executive Vice President, General Counsel and Secretary
Union Bank of California
James R. Jenkins
Treasurer, ACCA's Board of Directors
Senior Vice President and General Counsel
Deere & Company
Anastasia D. Kelly
Secretary, ACCA's Board of Directors
Senior Vice President and General Counsel
Sears, Roebuck and Co.
ACCA Staff Contacts:
Frederick J. Krebs, President and Chief Operating Officer (firstname.lastname@example.org)
Susan Hackett, Senior Vice President and General Counsel (email@example.com)
American Corporate Counsel Association
1025 Connecticut Avenue, NW, Suite 200
Washington, DC 20036
cc: The Honorable Harvey L. Pitt
Chairman, Securities and Exchange Commission
The Honorable Paul S. Atkins
The Honorable Roel C. Campos
The Honorable Cynthia A. Glassman
The Honorable Harvey J. Goldschmid
Giovanni P. Prezioso
Alan L. Beller
Director, Division of Corporate Finance
|1|| In 2001, ACCA conducted a major survey of CEOs, COOs, and CFOs regarding the performance and their expectations of the company's in-house and outside counsel. Titled "In-House Counsel for the 21st Century," the executive summary of the full survey's results is available to the public online at www.acca.com/Surveys/CEO.html.
|2|| There are other constructs the Commission may wish to consider that serve to enhance the flow of information in the company and to ensure that it is effective and unencumbered. For example, a prescription of mandatory executive sessions between the CLO and the board committee with responsibility for legal oversight could be a positive step for some companies. This would allow for maximum internal transparency and encourage regular reporting in the form of a legal audit (and not just too-late "disaster" reports), while at the same time allowing the lawyer to remain a pro-active member of the corporate management "team."