The whole truth?

It took 15 words to bring down accounting giant Arthur Andersen; and those fateful words, as lawyers will not need reminding, were written by one of their own. Last month, a US jury stunned commentators – not to mention US government prosecutors – by pulling out one seemingly innocuous email from the mountain of evidence at its disposal and identifying it as the “smoking gun” to seal the fate of the accountants.
The fateful words were contained in an email written by Andersen's in-house lawyer Nancy Temple to her partner David Duncan, proposing changes to a memo Duncan had prepared concerning Enron's third-quarter results. At 8.39pm on 16 October last year, Temple fired off her now notorious advice and “suggested deleting some language that might suggest we have concluded the release is misleading”. In essence, she was proffering the most common kind of advice that lawyers give on a daily basis – “Don't put it in writing”. And the rest, as they say, is history.
William Lytton, chairman of the Am-erican Corporate Counsel Association (ACCA), summed up neatly the incredulity of many lawyers. Faced with the post-Enron fallout, he wrote recently in a letter to his members: “Who amongst us has not thought: 'There but for the grace of God go I.'”
Indeed, Temple did “what lawyers do”, acknowledges ACCA president Fred Krebs. “She has been pilloried and made out to be a villain in some parts of the media, but there is not much she can do about that,” he adds.
Nor are lawyers on this side of the Atlantic quick to judge. Paul Gilbert, the Law Society Council member representing in-house lawyers and former head of legal at Cheltenham & Gloucester building society, believes that the email “almost certainly wasn't written with the interpretation that it was later given”. But that is often the lot of the in-house lawyer. “You can have a situation where, almost without any warning, your own innocuous [actions] can be construed negatively against you,” he says. “It happens with the gloriousness of 20-20 hindsight.”
Lawyers may sympathise with Temples' predicament, but the US politicians and public are likely to be in a less forgiving mood.
Earlier in the month, the Senate passed anti-fraud legislation that included a controversial provision imposing strict ethical responsibilities on lawyers for corporations. In the wake of the Andersen conviction, Senator John Edwards, a lawyer who is behind the proposal, argued that it was no use just blaming managers and accountants, because if they were operating on the wrong side of the law, what exactly were their legal advisers doing?
“Wherever executives or accountants are at work in America today, lawyers are looking over their shoulder,” Edwards told the Senate last month. “If the executives and the accountants are breaking the law, you can be sure that the lawyers aren't doing their jobs.”
The American Bar Association (ABA) has been doing its own soul-searching and for the last four months a taskforce on corporate reliance has been looking at the lessons that lawyers can learn from Enron, WorldCom and other such cases.
Professional sympathy for Temple is underscored by a growing feeling that the Andersen jury simply got it wrong. Professor Stephen Gillers, vice-dean and professor of law at the New York University School of Law, wrote a recent opinion piece in The New York Times, arguing that the Temple email was bona fide legal advice. “The case against Andersen was worth prosecuting, but the jury's flaw is giving the government a victory that is hard to accept,” he concluded. The article appeared on the day that Senator Edwards was arguing in the Senate that “[the] findings in the Andersen case only highlight the role of lawyers in American business today”.
The jury found Andersen guilty of obstructing the Securities and Exchange Commission's (SEC) investigation into the Enron collapse. But it arrived at this conclusion only after ditching the case prepared by the government: that Temple and others had instructed employees to comply with their document retention policy, which amounted to a coded signal to destroy documents. The government charged Andersen under the federal law that makes it a crime if a person 'corruptly persuades' another to alter documents.
Instead, the jurors appear to have come up with their own theory. It was the chief juror who, after the trial, told the press that the 16 October email was the crux of their case. “This memorandum was never the basis of the government claim,” says Professor Gillers. “I think it's a fairly innocuous document, but the jury pulled it out as 'the smoking gun'.”
The brief email comprises three paragraphs, in which Temple asserts that certain losses should not be described as “nonrecurring” in a forthcoming press release. In the first paragraph, the lawyer recommends deleting any reference to herself and the legal group to protect client-attorney privilege; and in the last, she says she would consult with other Andersen lawyers as to “whether we should do anything to protect ourselves more”. According to Gillers, both pieces of advice are “quite routine”.
But it was the second paragraph – in which she recommended “deleting some language that might suggest we have concluded the release is misleading” – that was key. According to the professor, the jurors focused on this passage because “it suggests Duncan takes something away from what she has written”, and they appear to conclude that such advice was tantamount to altering a document.
Gillers detects an irony in the flawed logic. “Nancy Temple was asked by client David Duncan for legal advice and she gave what she and most lawyers would recognise as a kind of legal advice. Maybe she was right or maybe she was wrong,” he says. “By virtue of giving legal advice to her client, she not only risked an obstruction charge against herself but she created the vicarious liability of the client for her conduct.” There is “a circularity” to the argument that “is really just weird, to say the least”, he adds.
But the professor also points to a provision under the US obstruction statute that says the charge “does not prohibit or punish the providing of lawful bona fide legal representation services in connection with, or anticipation of, an official proceeding”. The defence, which Gillers calls the “lawyer safe harbour”, never came up last month. It is an omission for which the academic has two possible explanations. First, he reckons that no one thought that the 16 October email was relevant and “so there was no reason to raise it”.
But there is another explanation that Gillers regards as more plausible. As he points out, Temple was one of four Andersen officials that the government identified as the “corrupt persuaders” whose behaviour caused the destruction of documents. “The government claimed for each of those four that the firm was criminally liable for their conduct,” he argues. “Only one was a lawyer; and so the defence lawyers – I'm just surmising – may have been reluctant to raise the safe harbour defence because only one of the four could enjoy it.”
Michael Flynn, a corporate partner with Salans Hertzfeld & Heilbronn's New York office, believes that Gillers' analysis in The New York Times is “100 per cent correct”. “I don't think you'd find anyone who would disagree with his conclusions,” he adds. He believes that the Andersen case goes to illustrate the difficulty of trying to pin corporate responsibility on a company, no matter how obvious its criminal intent was. “At the end of the day, the only thing they could make a charge stick on was a very attenuated obstruction of justice charge resulting from a lawyer's change to a document retention memo,” he says.
In the context of an otherwise healthy company, the lawyer does not believe that “anyone would have found the revision in the least bit objectionable”. He continues: “To my mind, that points to the extraordinary difficulty under US security laws to bring a criminal charge for even a massive fraud along the lines of Enron.”
Krebs at ACCA also “wholeheartedly” agrees with the concerns about the Andersen case. “Nancy Temple did what lawyers do,” he says. “You have the sense that the government tried a case on one theory and the jury didn't buy it. However, they wanted to do something and so they came up with their own theory.”

Corporate responsibility: what the American Bar Association does next

“Lawyers sometimes forget that they owe their loyalty to the corporation and to shareholders, not the CEO [chief executive officer] they play golf with,” Senator John Edwards said last month. “One of the problems we see in this crisis in corporate misconduct, is that some lawyers have forgotten their responsibility.”
He was speaking as the Senate passed anti-fraud legislation that included his own amendment imposing strict ethical responsibilities on lawyers for corporations. It makes lawyers notify company directors of management misconduct that top officers refuse to rectify, and requires the Securities and Exchange Commission (SEC) to issue rules of professional conduct for lawyers. If managers fail to correct a legal problem, lawyers would then be required to inform the company board of directors. A lawyer who violates the ethical duties to report corporate wrongdoing could be censured or disbarred from practising before the SEC.
The senator has also hit out at the American Bar Association (ABA) for failing to take a “leadership role” on these issues. Michael Flynn, a corporate partner with Salans Hertzfeld & Heilbronn's office in New York, believes that the senator's criticism of the ABA is unwarranted, as for the last two years the association has been conducting “an engaging, vibrant, well-attended and highly controversial” debate on the propriety of informing regulators and the police about fraud.
Flynn reckons that a consensus has been achieved in the profession that all states should now allow for an attorney with credible information of a client's intention to commit economic fraud to tell the authorities. “I don't think anyone has advanced a serious proposition that this should be mandatory,” he comments. “But at the same time, there are probably a great many people in the business community in the US – and probably a great many Americans – who would support that notion: that attorneys should be required to affirmatively report any acts of fraud.”
Professor Stephen Gillers, vice-dean and professor of law at New York University School of Law, was one of 40 law professors who recently wrote to SEC chairman Harvey Pitt, urging the commission to adopt a rule requiring the general counsel of regulated corporations to report to the board of directors any violation of securities law.
“The current rule says lawyers should weigh up many factors in deciding whether or not to report decisions by officers of companies up the chain of command,” he says. “[When] it comes to securities law violations, we think that going to the board should be mandatory.”
Perhaps not surprisingly, the American Corporate Counsel Association (ACCA) is against the Edwards initiative. As the association's president Fred Krebs explains, traditionally, the regulation of lawyers has not been policed at state level nor by federal government. “The question you have to look at is: who is best suited to regulate the conduct? Traditionally, it's been the states through bar admission and the disciplinary process,” he says. ACCA argues that “existing professional rules of conduct obligate attorneys not to take questionable corporate conduct up the chain of command, ultimately to the board of directors if necessary”.
Stanley Keller, chair for the ABA Committee on Federal Regulation of Securities and a partner at Boston firm Palmer & Dodge, is troubled by recommendations that the SEC regulate lawyers, given that lawyers will be advising their clients in their relations with the body. “The analogy is: what would we think if we gave district attorneys the authority to regulate lawyers who defend persons charged and prosecuted by the district attorneys?” he says. “I certainly feel that would interfere with the right to counsel.”
According to Flynn, the ABA has two major policy issues on its agenda post-Enron – the taskforce on corporate responsibility and multidisciplinary partnerships (MDPs). The corporate disasters have sounded the “death-knell for the MDP movement for at least the next five or 10 years”, he reckons.
But he rightly believes that they are not rushing into changing their rules of conduct. “You're going after one of the most important elements of Anglo-American jurisprudence,” he says. “The easiest unintended consequence would be that, if people didn't think lawyers were going to keep quiet, people would stop consulting lawyers even where they've done something wrong.”