2007 Issue 1 - New York City Bar Association

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
harm to the corporation, the lawyer may need to bring it to the Board’s
attention, including pursuant to the SOX reporting up rules (see pp. 70-
72, above). In those circumstances, counsel has no duty to obey the corporate
officer or director and turn a blind eye to the breach of fiduciary
duty. Counsel’s duty is to the corporation—not to the particular director
or officer—and, in those circumstances, should be unstinting in providing
the corporation’s Board his or her advice.
After the individuals who are directing the investigation are chosen,
investigative counsel must be chosen. Again, this is a choice for the client.
With few exceptions, the client has broad discretion over whom it
may choose. The law does not dictate that a corporation must hire a particular
lawyer or even a particular type of lawyer.
The more complicated question is whom it should choose. One factor
in this decision is assessing how regulators will view the independence of
prospective investigative counsel. In some circumstances, regulators have
expressed skepticism regarding the independence of an investigation and
the reliability of its results if the investigation has been conducted by
counsel who has recently defended the corporation before a regulatory agency
or as an advocate in litigation. 196 Likewise, regulators might well question the
independence of an investigation conducted by a company’s regular outside
counsel, or by any counsel that does a significant amount of work for
the client or its officers or directors. The retention of regular company outside
counsel to conduct internal investigations undermined the credibility of investigations
in two prominent scandals: Enron 197 and Global Crossing. 198
196. There has been such criticism of investigative counsel’s role in the accounting scandal in
the city government of San Diego, California. There counsel, also defending the City of San
Diego before the SEC, led two internal investigations. The first investigation was characterized
by an outside auditor as “insufficient.” The SEC told city officials that the second internal
investigation also lacked independence, since counsel had provided some information to
employees in advance of their interviews. See Deborah Solomon, Lost City: After Pension-
Fund Debacle, San Diego is Mired in Probes, Wall St. J., Oct. 10, 2005, at A1.
HealthSouth’s retention of Fulbright & Jaworski both to conduct an internal investigation of
inside trading allegations against CEO Richard Scrushy, and to represent the company in an
SEC investigation concerning these allegations, received similar criticism. See HealthSouth
Committee Hearings, n.124 above, Part 2, Nov. 5, 2003, at 55, 70-71, 77-78 (Board overruled
recommendation of Audit Committee to appoint independent counsel to investigate).
197. See Enron, 235 F. Supp. 2d at 600-01, 657-58, 665-69, 705; Timothy E. Hoeffner & Susan M.
Rabii, Maintaining the Integrity of Internal Probes, Nat’l L.J., June 23, 2003, at 19; Julie Mason,
Houston Law Firm Probed for Role in Fall of Enron, Houston Chron., Mar. 14, 2002, at A13.
198. Christopher Stern, Report Criticizes Global Crossing’s Outside Counsel, Wash. Post,
Mar. 11, 2003, at E05. The criticism in Global Crossing in part focused on the fact that the
T H E R E C O R D
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