2007 Issue 1 - New York City Bar Association

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L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E be found in the New York Stock Exchange’s (“NYSE” or “Exchange”) recent pronouncement that members will be charged if they do not comply with their twin affirmative duties to (1) cooperate with Exchange reviews and investigations, and (2) fully disclose violations of Exchange rules and the securities laws. NYSE Information Memo No. 05-77: Factors Considered in Determining Sanctions (Oct. 7, 2005). Appendix H to this report (pp. 209-225, infra) reviews in detail the DOJ, SEC, and the NYSE corporate-prosecution policies, the recently revised U.S. Sentencing Guidelines for Organizations, as well as Section 10A of the 1934 Act, which imposes reporting obligations on outside auditors. The NASD and the Commodity Futures Trading Commission (CFTC) and others also have similar guidelines. 186 Together these complimentary and competing forces shape today’s enforcement climate. But in conducting internal reviews, lawyers and clients should also appreciate that government expectations have clearly risen since their issuance. In sum, today public companies and their lawyers face a demanding regulatory and enforcement environment. Government and market regulators are serious about rooting out corporate wrongdoing, and restoring and maintaining trust in our markets. In aggressively investigating, charging, and sanctioning misconduct, they have come to expect that companies will fully cooperate with them and self-report problems. Recent enforcement trends and government statements, in fact, indicate that companies will be punished if they impede governmental investigations or otherwise do not provide the level of cooperation expected by prosecutors and regulators. Similarly, corporations are both encouraged and rewarded for installing strong corporate governance and ethics programs that can help deter and identify violations. In this climate of compliance, internal investigations are more prevalent and important than ever. 3. The ethical and legal framework The lawyer has an obligation, incident to his or her membership in the Bar, to provide unflinching legal advice, even in those circumstances where the client does not want to hear it. Under our system of justice, that function of the private bar is integral to ensuring compliance with the at 6 (“In practice, companies are finding that they have no choice but to waive these privileges whenever the government demands it.”). 186. See, e.g., NASD, Sanction Guidelines, available at http://www.nasd.com/web/groups/ enforcement/documents/enforcement/nasdw_011038.pdf; CFTC, Enforcement Advisory: Cooperation Factors in Enforcement Division Sanction Recommendations, available at http:// www.cftc.gov/files/enf/enfcooperation-advisory.pdf (“CFTC Cooperation Factors”). T H E R E C O R D 184
L A W Y E R ’ S R O L E I N C O R P O R A T E G O V E R N A N C E law. If the lawyer fails in the satisfaction of that obligation, it is not only the client who suffers, but—in many cases—the investing public as well. As set forth below, counsel conducting an investigation, and a company subject to an investigation, must seriously consider the degree to which it should cooperate with prosecutors and regulators. The wrong decision on this issue may, in certain circumstances and depending on the gravity of the underlying conduct, sound the death knell for the corporation. But, while this is an important question, we do not believe it is the proper starting point for the inquiry. Nor do we believe that this starting point is helpful either in resolving the practical problems that arise in investigations or, ultimately, in assisting corporations to abide by the best principles of corporate governance. By highlighting a number of the practical issues that arise in internal investigations other than cooperation, and by providing some of the considerations that counsel must consider in providing advice, we hope to enlist the Bar in providing advice to the client of not just what is strictly required by the law, but as to what actions are most conducive to an environment that fosters corporate compliance. That advice often will be that the client cooperate fully with governmental or regulatory investigations. Other times, however, it may not. Counsel in conducting an internal investigation into allegations of illegal conduct must be guided by basic ethical duties, including: to represent the client competently and zealously within the bounds of the law; 187 to abide by client’s decision-making authority, 188 after advising the client as to the relevant considerations; 189 and to represent the interests of 187. NYCPR, Canon 7 (“The duty of a lawyer, both to the client and to the legal system, is to represent the client zealously within the bounds of the law . . . .”); DR 7-101 (“A lawyer shall not intentionally fail to seek the lawful objectives of the client through reasonably available means permitted by law and the Disciplinary Rules . . .”); DR 7-102 (requiring zealous advocacy within the bounds of the law). 188. NYCPR EC 7-7 provides that the “authority to make decisions is exclusively that of the client and, if made within the framework of the law, such decisions are binding on the lawyer.” See also p. 91, above (Model Rule 1.2(a)). 189. The lawyer should try to ensure that the client’s decisions are made only after the client has been advised as to the potential ramifications of each legally permissible alternative course of action, including the possibility of harsh consequences that might result from the likely reactions of regulators. EC 7-5 provides that a lawyer “furthers the interest of the client by giving a professional opinion as to what he or she believes would likely be the ultimate decision of the courts on the matter at hand and by informing the client of the practical effect of each decision.” See also Canon 7. EC 7-8 allows a lawyer to “emphasize the possibility of harsh consequences that might result from assertion of legally permissible positions.” However, “the lawyer should 2 0 0 7 V O L. 6 2 , N O. 1 185
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THE RECORD OF THE ASSOCIATION OF TH
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Of Note THE NEW YORK CITY BAR PRESE
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2007 Issue 1 - New York City Bar Association

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