Sarbanes-Oxley Act and In-House Legal Counsel: Suggestions for Viable Compliance, The

Georgetown Journal of Legal Ethics, The, Summer 2005 by Noorishad, Kaveh

The Sarbanes-Oxley Act was designed to give the general public and, more importantly, investors, more confidence in the market.61 While the Act has many rules and regulations for general attorneys, it does not have any special provisions for in-house counsel, which is where most of the practical issues of confidentiality and fiduciary duty lie. Other than avoiding disciplinary action described in Section 205.6 of the Sarbanes-Oxley Act, what are the lawyer's incentives for breaking the attorney-client privilege? The first time a lawyer goes around management to the board of directors, it will probably also be the last. On the flipside of the coin, the disclosure of confidences by the attorney will damage the attorney's ability to counsel clients against potentially illegal actions by chilling the clients' willingness to share confidences.

Professor Bainbridge, a corporate law professor at UCLA, argues that Section 307 and the SEC's rules thereunder do "too little to address the strong incentives lawyers have to refrain from antagonizing the corporate managers who hire and fire them .... Lawyers who win the tournament develop a set of skills, attitudes, and cognitive biases that systematically skew their analysis of client conduct."62 He predicts that such lawyers "will turn a blind eye to client misconduct."63 The Sarbanes-Oxley Act and the Model Rules have not addressed the concerns raised by Professor Bainbridge. In fact, neither the Sarbanes-Oxley Act nor the Model Rules adequately discuss how lawyers should conduct themselves when faced with a situation where they must choose between their livelihood and what is ethically correct. That is not to say that the rules mentioned above do not discuss what a lawyer should "theoretically" do. What the rules do not provide for are safeguards to prevent lawyers from ever having to make that choice. It is too much to ask lawyers to choose between "doing the right thing" and putting food on the table. Part VI will discuss what other scholars have thought about doing to provide these safeguards, and what the best alternative would be.

VI. ANALYSIS AND RECOMMENDATIONS

In-house counsel often perform many different functions in a corporation. The attorney can be an advisor, advocate, negotiator, or evaluator.64 In these situations, the attorney should no longer be viewed as counsel, but as a co-worker or a team-player.65 The ability of corporate counsel to remain independent and objective has been made more problematic by the Sarbanes-Oxley Act. According to Professor Sally Weaver, a corporate law professor at the University of Montana, "the economic fate of in-house attorneys is tied directly to a single employer, whose sufferance they serve."66 Clearly, this will influence the decisions that the attorney makes when deciding whether evidence is "credible" and if it constitutes a "material violation." Although the Sarbanes-Oxley Act attempted to reconcile the risks associated with disclosing sensitive information to the SEC, the Rule enacted does not have much force.67 By instituting Section 205.3(b)(10), Congress left the fate of the attorney in the hands of the very people that probably authorized the material violation or failed to prevent the material violation from taking place. Rule 205.3(b)(10) states: