General counsel's role as counsel to the corporation is now front and center. She is in the spotlight - and, in a personal liability sense - on the spot. In the old days, at those times when the CEO felt good about you, you were his lawyer. And, if you made a problem go away, you were his "can do" lawyer. Now, ethical principles and Sarbanes-Oxley converge to make it clear to everyone that the general counsel and the entire corporate legal staff are the corporation's lawyers - most immediately the lawyers for the independent directors.
Delaware's Chief Justice Veasey suggested in his interview in our November 2003 issue, that the general counsel who is denied the tools to truly be "general counsel" should consider resignation. In view of this, general counsel should seriously reflect on whether they have the necessary resources (in terms of staff, access to outside counsel and other tools). As Tom Baxter, president of New York AAC-A and general counsel and executive vice president of the New York Fed, stated in his letter on page 56 of our February issue, general counsel should also have the necessary status (in terms of membership in key committees, reporting relationships, and visibility and access to the board) to meet the challenge of being the corporation's lawyer. Tom's most recent letter on page 64 of this issue points out that the lawyer has very real control functions which she cannot shirk.
There are troubling indications that general counsel are not yet sufficiently concerned about their new responsibilities to ask for needed resources and appropriate status. A Survey of CLOs by Altman Weil, Inc. described in Dan DiLucchio's article on page 54 of this issue states, based on data collected during the October 2003 ACC Annual Meeting, that only 15.8% planned to increase their use of outside counsel during the next 12 months while at least 50% had no plans for in-house growth. CLOs surveyed said that the budget constraints they are under mean that they "are being held to state-of-the-art standards on a shoestring budget. They are working with headcount reductions, restrictions and in some cases freezes."
Selling CEOs on the need to strengthen the legal function will not be an easy job at best. When I suggested to a highly sophisticated, recently retired CEO of a Fortune 500 company that corporate counsel had a more important role to play in the post Enron era, his response was that I was kidding myself. He said that, in his experience, lawyers were not up to such a big job and that the best control was going to come from the internal auditors.
The Altman Weil Survey supports the proposition that some general counsel have not yet come to terms with the serious dilemma they face. Many may still have to perform the onerous task of delivering to the CEO a message that she may not want to hear or recognize that they are failing in their ethical and legal responsibilities to their real client, the corporation. Interestingly, the Survey reveals that 36.3% of the CLOs surveyed are more concerned than in the past about their personal liability relating to corporate misconduct.
A number of prominent law firms have given much thought to points that general counsel can use to strengthen their appeal to skeptical CEOs. See our website at "Meeting Post Enron Challenges" for articles and interviews. Our September 2004 issue will contain a Special Report providing further ammunition.
Published May 1, 2004.