Sarbanes-Oxley: will it destroy the in-house role?

Senior in-house counsel from companies in the US, Japan and Europe predict a grim picture of conflicts of interest, loss of attorney-client privilege, a confusing regulatory environment and a lot of hard work for in-house teams in a post-Enron, post Sarbanes-Oxley world.

The counsel, at the International Bar Association's (IBA) International Corporate Counsel Conference held in Barcelona last week, struggled to find answers but agreed that questions over conflicts of interest have made the dual roles of general counsel and board member difficult and possibly untenable.

“Particularly in the US, we could be facing some very difficult times for general counsels,” said executive vice-president and general counsel of Mitsubishi International Corporation James Brumm.

The panel concluded that the plethora of codes around the world are necessary to restore faith in the capital markets, but that they completely change the role of general counsel.

Laws are changing to make executives criminally liable. William Lytton, the new post-scandal general counsel at Tyco International, said: “A lot of different lawyers are being hired to represent different interests in the company. Should the audit committee, the board and the compensation committee have its own lawyers? I think a CFO and a CEO should have their own lawyers. I think for outside counsel it's a good day.”

For in-house counsel, a major issue will be when the board does not recognise a legal issue being presented to it. “What's my choice?” asked Brumm. “I think it may well be to resign.” Lytton concurred: “If a lawyer goes to the CEO or the board and says something it's about to do is illegal and they don't concur, then withdrawal from that representation should be the same as it would be if you were outside counsel.”

Which brought the discussion round to the potential of Sarbanes' noisy withdrawal rule, which recommends referring the matter to a superior authority without stating which one.

All on the panel questioned who in-house lawyers represent post-Enron: the corporation, management, employees or shareholders? Or a government regulator such as the SEC or the civil courts? This can lead to a number of internal conflicts of interest. “I'm a legal officer and I'm a director and I certainly think there can be a conflict of interest. Should a general counsel be a director or should the general counsel be independent?” asked Brumm.