Corporate “Crime” and Punishment
January 22, 2007 | Filed Under Criminal Liability, Compliance
The Chicago Tribune (via the Albany Times-Union) has an interesting article about the state of corporate criminal liability. It reports that business lobbying groups have been busy:
Meanwhile, business advocates have targeted enforcement aimed at corporations rather than individuals. They tallied a victory in December when the Justice Department put new restraints on prosecutors who were demanding the legal communications of companies under threat of indictment.
The routine practice of forcing those businesses to waive attorney-client privilege as a condition of settlement violates the rights of defendants, critics say. And even the new restraints fail to go far enough in protecting companies from being indicted, they assert.
“We’ve learned something from Andersen, where thousands of innocent people were ruined,” said Hal Scott, a Harvard University law professor who heads a pro-business lobbying group. “You should only prosecute when the whole company is criminal from bottom to top.”
That DOJ “restraint” would be the McNulty memorandum updating Thompson; this WilmerHale alert notes one important feature:
The McNulty Memorandum is also a positive development for corporations and individuals confronted with government investigations. Corporations can continue to properly invoke the attorney-client privilege, the oldest privilege in the law. As a result of the privilege’s continuing vitality, the quality and accuracy of internal corporate investigations are likely to improve because individual employees are prone to be more candid when they have better reason to believe that their statements will not be turned over to the government.
And perhaps better able to detect problems and implement solutions before agents serving subpoenas knock at the door.
Tomorrow a view of how a recent court ruling fits into the corporate “criminal” puzzle.
ACC CLO Survey: The Law Firm Reality
January 18, 2007 | Filed Under Law Firm Trends, Legal Resources, Managing
After a quick snapshot last week, here’s a closer look at the Association of Corporate Counsel’s 2006 Chief Legal Officer survey.
The press release accompanying the survey noted that 25% of CLOs planned to increase their use of law firms in 2007.
Sounds good; that’s why they pay rainmakers big bucks.
But on the flip side, 54% said they would not change the number of firms they use, while 15% said they would decrease their use of law firms. 32% of respondents said they fired a firm in 2006; 20% of those firms were characterized as having a “significant relationship” with the client.
These exit percentages show the measure of the challenge law firms face in growing top-line revenues without raising rates or increasing billable-hour targets.
The law firms chasing those 25% of companies who might want to add another firm to the mix may want to consider the top three reasons for giving law firms the boot:
1. Cost management
2. Mishandling matters
3. Lack of responsiveness
While managing partners have their eye on the prize of increasing the number of clients, it’s clear they need to work hard to keep current clients happy. Given these reasons for firing firms, here’s a memo to compensation committees: throw a few dollars to partners minding active client matters. Retention is the foundation for expansion.
Grist for the legal mill is not easy to find. Or to keep.
Another GC is Sentenced
January 17, 2007 | Filed Under On The Dock, Compliance, In the News
This item from the AP says it all:
Steven Woghin, the former general counsel at Computer Associates, was sentenced to two years in prison Tuesday in connection with a scheme to artificially boost the software maker’s quarterly revenue through backdated sales contracts, prosecutors said.
Mr. Woghin had been cooperating with authorities since a guilty plea in 2004; Sanjay Kumar, ex-CEO of Computer Associates, received 12 years last November after his plea.
Here’s a rather vivid glimpse of life before the judge after a guilty plea:
Appearing before U.S. District Court Judge I. Leo Glasser, as well as about 15 friends and family members, Woghin reportedly choked back tears as he apologized for his crimes. According to Newsday, Woghin said his part in the affair was “not a legacy I would like to leave…It was not for personal gain or hubris.” Added Woghin, “I’m deeply sorry for what I have done.”
“I’m sorry you’re here,” Glasser reportedly told Woghin before passing sentence. “I would be happier if I had never seen you before.”
The crux of the offense was this:
In 1992, observed Newsday, Woghin was a 10-year veteran at the Department of Justice when he joined the software company previously known as Computer Associates. He allegedly headed up a team of CA lawyers that “routinely” drafted software licensing contracts with clients after a quarter had closed, according to the newspaper.
This was referred to as the 35-day month (artificially extending reporting months, usually the last month of a fiscal quarter).
The company is now known as CA; there’s something about crimes of former executives that tends to dilute a brand.
James Baker and the BP Safety Review
January 16, 2007 | Filed Under Investigations, Crisis Planning, Compliance, Governance
Fresh off chairing the Iraq Study Group, former Secretary of State James Baker has delivered a report to BP regarding the March 2005 accident at its Texas City refinery. Fifteen people died, 170 were injured.
The complete report is here (374 pages…). BP has committed to follow its 10 recommendations (summarized here by the Wall Street Journal).
The first one is rather stark from a compliance and governance perspective:
1: The Board of Directors of BP, BP’s executive management (including its Group Chief Executive), and other members of BP’s corporate management must provide effective leadership on process safety. Those individuals must demonstrate their commitment to process safety by articulating a clear message on the importance of process safety and matching that message both with the policies they adopt and the actions they take.
And this item will haunt BP’s board and senior management for at least five more years:
9: BP’s Board should monitor the implementation of the recommendations of the panel (including the related commentary) and the ongoing process safety performance of BP’s U.S. refineries. The Board should, for a period of at least five calendar years, engage an independent monitor to report annually to the Board on BP’s progress in implementing the panel’s recommendations (including the related commentary). The Board should also report publicly on the progress of such implementation and on BP’s ongoing process safety performance.
I wrote about the BP legal response previously.
The recent announcement that BP CEO John Browne would be stepping down later this year doesn’t seem entirely unrelated. Further management changes are ruled out for the time being.
The energy business is ferociously intolerant of operating mistakes, given the volatile nature of the materials being handled. This reality drives most industry companies to obsess about safety. Better having engineers on the site sooner rather than lawyers drafting a report later.
Sun’s CEO on Lawyers
January 15, 2007 | Filed Under The Client Speaks, Managing
Rarely do CEOs speak directly about their in-house lawyers. Rarer still is when they talk about their impact on the business.
But rare is a good description for Sun CEO (and blogger) Jonathan Schwartz. He was interviewed this weekend in the New York Times. Mr. Schwartz was asked about how many companies went astray in the options-dating imbroglio:
Q. Did the Valley get bad legal advice regarding options practices?
A. I’ll give you my view on legal advice. Lawyers are the very core of Sun Microsystems. I mean in essence we’re a company that monetizes intellectual property. There’s a lot of lawyers involved in helping us think through open source licensing arrangements, you know, customer indemnity. These are not simple things. But at the end of the day, when folks inside of Sun come to me and say, a lawyer wouldn’t let me do X or Y or Z, my response is, well, then why don’t I move headcount under the lawyer, because who’s making the decision here — the lawyer or the businessperson? So legal advice is just that, it’s advice.
Wow. That’s refreshing on three fronts. First, Mr. Schwartz gives a nod to the IP underpinnings of the modern tech-driven company. Score one for the lawyers. Next, Mr. Schwartz apparently doesn’t like line executives who impassively act like the lawyers are running things. (This is known in the trade as blame ‘em when things go wrong and ignore ‘em when things go right). Finally, Mr. Schwartz flips the subject over and also notes that legal advice (in general, presumably) is advisory, not mandatory.
Sun GC Mike Dillon apparently has an enlightened (and demanding) client. That’s about all you can ask for.
(Update 17 Jan 07): Carolyn Elefant, writing yesterday at Legal Blog Watch, has a slightly different view:
So while lawyers can add value, at the end of the day, it’s the business folks who run things. And if business doesn’t want to listen to the lawyers, they don’t have to — because legal advice is merely advisory. With that kind of attitude from clients, being a GC can’t be easy …
I actually inferred Mr. Schwartz’s comment this way: in the context of business decisions, legal advice is just that. The business person is paid to be responsible and accountable.
For purely legal matters, I’d bet the GC is similarly responsible, perhaps relying on advice from other lawyers (inside or outside).
The reality for the GC is that many business matters have law mixed in for good measure. It makes the job challenging (and interesting). But, as Ms. Elefant points out correctly, definitely not easy.
But if a company wants a lawyer running the show, make him or her CEO. Hmmm…, sounds familiar.
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