Minnesota Lawyer Publication
Ethical leadership in the Sarbanes-Oxley world
By Neil Hamilton and Marlon Cush | June 19, 2006
A common question in the corporate scandals that are playing out their final chapters in the Lay/Skilling guilty verdicts is "Where were the lawyers?"
It is apparent that many lawyers representing these corporations while criminal acts and fraud were occurring acted in a limited role as legal technicians. They counseled and advocated on narrow issues such as the use of special purpose entities at the outer limits of zealous advocacy in pursuit of maximum profit for the client and the lawyer.
The legal technician celebrates the craft of lawyering but divorces the skills of the craft from the profession's transcendental purpose to serve justice. The skills of the craft focus simply on serving client and lawyer self-interest. Market recognition through income becomes the benchmark of success for the technician.
Even if a legal technician's narrow technical role and outer limits of good faith advocacy are not themselves criminal or fraudulent acts, the public views this conduct as a breach of the unwritten social contract of the profession with society (where the profession promises to balance roles as a representative of clients, officer of the legal system and public citizen responsible for justice, in return for autonomy to regulate itself through peer review).
Congress, on behalf of society, reduced the autonomy of the profession to regulate itself by enacting Section 307 of the Sarbanes-Oxley Act of 2002. Section 307 instructs the Securities and Exchange Commission (SEC) to issue rules setting forth minimum standards of professional conduct for attorneys appearing and practicing before the SEC in any way in the representation of an issuer of securities. Part 205 of the consequent SEC regulations formally approved an up-the-ladder reporting requirement for lawyers who come across credible evidence of material ethical and fiduciary violations by management.
By enacting Section 307, Congress sought to focus the profession's attention on the intersection of law, legal ethics and business ethics. The consequent SEC rule sets a floor of up-the-ladder reporting, but the underlying message of Section 307 is that the profession must attend more carefully to the social contract and the lawyer's role as officer of the legal system and public citizen responsible for justice, or the legislatures will act to reduce the profession's autonomy.
The narrow legal technician role and outer limits of good faith counseling and zealous advocacy in pursuit of maximum profit do not fulfill the social contract.
Ironically, empirical evidence indicates that many senior executives want corporate counsel to play a broader role than just legal technician.
The American Corporate Counsel Association, the largest national bar association composed solely of in-house counsel, surveyed chief executive officers (CEO), chief operating officers and chief financial officers in 2001 regarding the roles corporate counsel are expected to play. The top four roles in order of importance were:
- educator regarding legal issues,
- ethics advisor,
- sounding board/confidant, and
- compliance officer.
In the Heidrick & Stuggles/Minority Corporate Counsel Association 2000 Survey of Fortune 500 Companies on General Counsel, the CEOs responded that the three most important roles of the general counsel were (1) the advisor role, (2) the legal role and (3) the management role.
Each year, the consulting company Altman Weil surveys hundreds of law departments as to the proper role of the law department. ?There has been a steady increase in the percentage of clients who state that the law department should be a provider of both legal and business operational advice, ? the survey finds.
For example, almost 83 percent of the law department respondents in the 2005 survey were implementing compliance programs for Sarbanes-Oxley. (Virginia Grant, ?General Counsel Role Redefined: Lawyer, Advisor, Strategist, and Economist.?)
Essentially, the skills of being an ethics advisor, sounding board/confidant and compliance officer and broader business operational advisor in the context of the spirit of Sarbanes-Oxley are ethical leadership skills. The social contract of the profession also calls for each lawyer to be an ethical leader exercising "independent judgment" and rendering "candid legal advice," not purely technical legal advice. (See Minnesota Rule of Professional Conduct 2.1 and its comments).
Ethical leadership skills in the client relationship ? the skills of influencing the client to think through issues (from the client's shoes) both legally and ethically ? include active listening skills and counseling skills that emphasize the appropriate questions to engage the client. The lawyer as ethical leader must understand the client?s stages of ethical sensitivity, moral reasoning, moral motivation and moral character leading to moral action.
Likewise, lawyers must understand and account for the same four components of moral action within themselves. Lawyers must know themselves in order to provide the best counsel to the client. In order to provide this type of counsel in a business context, lawyers should also understand the basics of business ethics.
Where do law students and lawyers learn these ethical leadership skills as a counselor, including some background in business ethics?
The assumption seems to be that these difficult skills will be learned by osmosis-like diffusion from veteran lawyers to junior lawyers in the day-to-day practice of law. This assumption did not produce good results in the recent corporate scandals or the savings and loan scandals that preceded the recent wave. The osmosis-like diffusion model may never have worked well to develop these skills. Unfortunately, rising billable hour pressures and the consequent time famine continue to threaten mentoring in today's practice.
In March and April 2006, we surveyed the academic catalogues of all American Bar Association accredited law schools posted online. A few law schools, including two in Minnesota, have developed courses to help students develop the aforementioned ethical leadership skills. Three schools are currently offering courses on leadership skills for lawyers: Ohio State, Santa Clara, and the University of St. Thomas. Michigan State has offered such a course in the past. A new law school opening this year, Elon University, will offer courses on leadership.
Three schools are offering a type of business ethics course: Duke, Georgetown and William Mitchell College of Law. The University of St. Thomas' ethical leadership course includes business ethics. Ten law schools offer courses on professional responsibility in corporate practice, with at least one of these courses including some business ethics. These rules-driven courses, however, are generally not focused on the skills of ethical leadership and business ethics.
We did not do a survey of continuing legal education (CLE) on ethical leadership or business ethics.
Our sense is that such courses are infrequently offered.
We recommend expanded efforts by the law schools, the CLE providers, law-firm or department in-house education, and formal mentoring programs by bar associations on the skills of ethical leadership and business ethics. They can be taught. Osmosis-like diffusion does not adequately teach them.
Moreover, fulfillment of the profession's social contract requires more effort to address the ethical leadership role of lawyers in the practice of law.
Neil Hamilton is a professor of law and director of the Center for Ethical Leadership in the Professions at the University of St. Thomas School of Law. He does not speak for the law school in this column. Marlon Cush is a third-year law student at George Washington Law School and a summer associate at Faegre & Benson.