Corporate Legal Defense Fees and “Cooperation”
April 17, 2006 | Filed Under On The Dock, In the News
Sometimes it takes an Article III judge to have the courage to read bylaws and employment agreements and take necessary action.
The New York Times reports that some judges presiding over alleged corporate crime cases are questioning why companies routinely refuse to pay the legal fees and other expenses of executives that are in the crosshairs of the feds.
The Times reports about the KPMG case:
At a hearing late in March, the judge in the KPMG tax-shelter case, Lewis A. Kaplan of the Federal District Court in Manhattan, said that the Thompson memorandum “puts the government’s thumb on the scales” and raises questions about the Sixth Amendment’s constitutional right to legal representation.
“The reality is that you are depriving people of counsel, or least interfering or impairing,” the judge said.
Much of the federal pressure placed upon companies comes from the use of the Thompson Memorandum, drafted by then Deputy AG Larry Thompson in 2003.
The article incisively notes that some of the government’s strategy may rely on a perceived lack of public sympathy for indicted corporate executives, particularly those who have been well-compensated.
But since part of the federal playbook is to lean on lower-level employees to get them to flip, the combination of potentially criminalizing corporate mistakes and pressuring companies to show “cooperation” by cutting off defense fee payments, makes the situation a rather perverse one. Consider this vignette from the KPMG case:
Take Carol Warley, 49, one of the 16 KPMG defendants in the tax-shelter case. Ms. Warley, a former junior partner at KPMG, faces at least 10 years in prison if she is convicted on charges that she and 17 others conspired to defraud the government by making and selling abusive tax shelters to wealthy investors. (All 18 defendants have pleaded not guilty; a former KPMG partner entered a guilty plea last month.)
Ms. Warley has a net worth of a little more than $1 million, including retirement funds, but her lawyers are trying to cut corners on costs at the same time they search for holes in the government’s case.
For most corporate employees facing prosecution, even eventual reimbursement is an empty gesture. The likely result is that they plead, they sing and the prosecutors’ batting average looks good over time.
Bloggers Tom Kirkendall, Larry Ribstein and Peter Henning have covered this ably; me perhaps less so.
Corporate Governance and The Big Picture
April 12, 2006 | Filed Under Compliance, Governance
It’s like the wayward uncle who just won’t stay away.
Alan Murray of the Wall Street Journal has a perceptive take ($) (temp link) on emerging standards of corporate governance. Memo to company executives: this is one trend that isn’t going away.
Mr. Murray notes a recent study by Institutional Shareholder Services that found that stakeholders like pension and mutual funds have increasing expectations for corporate governance performance at companies in which they invest.
Here’s one example:
Is all this attention to corporate governance good for business? Many corporate executives I talk with worry about the creation of a culture of compliance in their companies. Too much executive time and attention, they fear, is spent on defensive matters like governance, accounting and complying with regulations, leaving too little time and attention on the company’s growth.
But big investors clearly believe attention to governance increases the value of their investments. Fifty-nine percent said monitoring corporate governance of companies they invest in enhances investor returns.
As more institutional investors look globally for attractive returns, corporate governance will take on an increasingly international tone. Metrics will be developed to allow sophisticated investors to keep score of best practices.
And U.S. executives who remain too focused on legislation like Sarbanes-Oxley may be looking through the wrong end of the governance telescope.
Two Enron Nuggets
April 11, 2006 | Filed Under On The Dock, In the News
It’s all Enron, all the time.
Nugget One: Enron ex-GC James Derrick last week told a rather curious secret about his contact with Chairman Lay and CEO Skilling:
Mr. Derrick, 61, worked on the 50th floor of Enron’s tower, where Mr. Skilling and Mr. Lay had offices. But Mr. Derrick said he rarely met with them in their offices, communicating more often by voice mail.
Voice mail? Part of active GC listening involves looking into the eyes of senior management. A sad commentary perhaps, but convenient now if you are Mr. Derrick.
Nugget Two: Jeff Skilling’s direct testimony started like this (according to WSJ Law Blog) when Daniel Petrocelli asked:
How do you feel?
Probably a little nervous.
Why?
In some ways my life is on the line.
Are you guilty or innocent?
Absolutely innocent.
But you’re still nervous?
Yes.
Want to hazard a guess as to how many mock jury sessions were required to develop this folksy intro-to-Jeff?
Peter Lattman of WSJ Law Blog is hitting it out of the park on Enron this week. My favorite? His blogger-on-the-street account of literally going on-line for the Enron trial.
Associate Pay: One Client’s View
April 4, 2006 | Filed Under Law Firm Trends, In the News
As certain as the swallows return to Capistrano, there seems to be talk each Spring of the latest high-water-mark in starting pay for associates at large law firms in major US cities.
Commentators with more discipline have enlightened takes. Bruce MacEwen covers the firm financial side, noting the economic forces at work. Mr. MacEwen notes the recent WSJ op-ed by Cameron Stracher, who questions (temp link) whether the interests of associates and BigLaw partners are aligned. Professor Ribstein wonders why clients don’t act to lower fees.
I’d rather respond in three parts. Tomorrow, a thought about one reason for the high starting salaries; Thursday will feature a result of this unique form of bracket creep. Heck, last week I thought the high water mark was $135,000. Then Mr. Stracher calls it $145,000. $150,000? Do I hear $150,000? Anyone? Anyone?
But today I’ll end with a question. Why is this news? Why don’t we hear what new MBAs make at Fortune 50 companies? Or new residents at major research hospitals? Or new CPAs at the Big Four (or however many there are left this week)?
Do the major legal publications torture managing partners to extract this information? It’s sort of unseemly. Guess how much my new Mercedes convertible cost! Guess how much my new IWC watch cost! Guess how much my new associate cost!
(We of course know it’s not about price-fixing.)
But remember that this is the US of A, and as long as the invisible hand is working, it’s all good.
Until tomorrow…
Large Law Firm Associates Form Union
April 1, 2006 | Filed Under In the News
Informed sources tell The Wired GC that associates from major New York and LA law firms have been secretly meeting over the last few months. The purpose of the early-morning Starbucks meetings from baristas-in-the-know: to form a union to get long-overdue wage and work rule reforms in place. In addition, worker safety is a major concern as many associates cannot use their thumbs on the weekend due to excessive BlackBerry usage.
When The Wired GC contacted one of the leaders by email, it was met with a curt “no comment.” Followed by: “Do you need a new go-to law firm?”
Your editor then sent this link, noting that some firms have raised starting salaries to $135,000. This angry response ensued:
Do you have any idea what it costs to roll in the Big Apple? I mean my studio apartment runs $2,900 a month, and my law school futon won’t even fit. And my girlfriend is fond of the Cosmos at Crobar which each set me back a YFS.
“A YFS. What is that?” I asked. “You know, a $20 bill, a Yuppie Food Stamp,” the boisterous young barrister offered.
No word yet on what the managing partners of major firms plan to do if this unionizing campaign starts to take hold. However, one junior partner who was serving lunch at an equity partner meeting tells The Wired GC that he overheard this:
All we have to do is to figure out when they are meeting and then schedule associate training for the same time. During the training, we can go over current events, including outsourcing trends. Maybe we can even serve a salad with Tandoori chicken and see if they can take a hint.
When told of potential sharp practices by the ruling elite, an associate leader known by the handle of “Che” said his people are not fazed in the least. “Outsourcing, eh?” one of them remarked. “Let’s see if they’re still spunky when we start using their BMWs to keep us warm when we are manning the barricades.”
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