The World Bank Ex-GC Speaks
May 21, 2007 | Filed Under Investigations, Governance, In the News
Corporate Counsel’s David Hechler offers a fascinating glimpse into a GC’s view of events in the news. Mr. Hechler reports on the legal maneuverings behind Paul Wolfowitz’s fall from grace at the World Bank, with insights from Roberto Dañino, the bank’s former GC. This account provides a welcome counterpoint to some opinion pieces, such as this one from the Wall Street Journal.
Mr. Wolfowitz, as Wired GC readers undoubtedly know, resigned last week as president of the World Bank over concerns about his handling of the transfer of his girlfriend from the bank to the State Department. As the president of anything, you normally don’t want any personal ethical problem in the news, let alone one that involves your “girlfriend.”
Anyway, at various times in the review of this delicate situation, Mr. Wolfowitz reportedly consulted Mr. Dañino, utilized personal counsel, and then went to outside counsel when Mr. Dañino was “conflicted.” These actions didn’t make sense to the then-GC:
Dañino says he’s baffled by this decision. “How [could Wolfowitz] make a call about conflicting out the lawyer of the bank, who happened to have also given advice that he didn’t like?” Also, he adds, the rationale in the adviser’s memo made no sense. Not only was Wolfowitz represented by his own lawyers, “the general counsel is not the personal lawyer of the president,” Dañino says. “The general counsel is the lawyer for the institution.”
Mr. Dañino was allegedly not shown the terms of the employment contract for Mr. Wolfowitz’s girlfriend that may have contained terms more generous than those approved by the bank’s ethics committee. Experienced GCs know that outcomes can sometimes be “managed” by corporate personnel based upon the extent of disclosure of key documents and whether direct contact is allowed with key actors in real time.
My favorite remark from Mr. Dañino:
“I tell my children all the time: When you make a mistake, it’s not so much the mistake you make [that counts], but how you react to your mistake…”
General Counsel rarely speak with the press; rarer still are comments about the inside doings of events in the public spotlight. Two cheers for Mr. Dañino for allowing a look behind the veil; three cheers for Mr. Hechler for going well beneath the surface in his excellent and timely reporting.
Apple and its Options
April 23, 2007 | Filed Under Investigations, Governance
One of the clearest explanations yet of the Apple options backdating inquiry comes from the San Jose Mercury News. In a story that concludes that Apple CEO Steve Jobs is unlikely to face charges, writers Howard Mintz and Troy Wolverton explain the involvement of Apple’s legal department.
Apparently negotiations over a revised options grant to Mr. Jobs had gone on for a number of months in 2001. Although technically approved in August, other aspects of the deal were reviewed by the compensation committee in October. The legal department was notified in December that the grant was approved with an October effective date. By December the price of Apple stock had increased:
The board sent out an e-mail to the company’s legal department saying the deal was done and that Jobs’ options should carry the October grant date. At the time, Apple backdated options as a matter of course, the company revealed last December in SEC filings. Backdating Jobs’ grant wouldn’t have been seen as extraordinary, the lawyers say.
That’s where the fictitious meeting minutes come in. There is no evidence the board, or Jobs, knew that the grant would be documented through false minutes of a board meeting that didn’t occur. But that is what happened.
Wendy Howell, an in-house lawyer at Apple who typically wrote up meeting minutes related to options grants, drafted the minutes for Jobs’ grant. General Counsel Nancy Heinen signed them. Whether Howell was acting on her own or at the behest of Heinen when she falsified the minutes is a point in dispute between the former Apple employees.
But nothing points to Jobs ordering the October date, or knowing about the false meeting minutes, lawyers familiar with the matter say. A CEO would not typically review board minutes.
It is an unfortunate situation; there are ways of accurately documenting board action (such as by consent) that should not be construed later to involve a “fictitious meeting.”
We are in an era where observing corporate formality is more than just good housekeeping. It is about how things look, often many years after the fact.
Update: Bloomberg reports (as does the Mercury News) that Apple’s former GC may face SEC charges as early as this week. The New York Times notes that the former CFO may have settled with the SEC.
Another Skirmish in the Privilege Wars
March 8, 2007 | Filed Under Privilege, Criminal Liability, Investigations
There’s some action in Washington today on the corporate attorney-client privilege front.
As reported in the New Tork Times, the House Judiciary Committee will hold a hearing on the subject (further info is here).
Two former prosecutors, now in private practice, provided written testimony and will testify that the McNulty Memoradum may not go far enough:
But Andrew Weissmann, who oversaw the prosecution of Enron and is now a partner at Jenner & Block, wrote the panel that the McNulty memorandum “leaves completely intact the government’s ability to penalize a company that does not take punitive action against employees for asserting a constitutional right to remain silent, and reward those companies that do take such action.”
Another former federal prosecutor, William M. Sullivan Jr., who is now a criminal defense lawyer at Winston & Strawn, said in a statement to the committee that “rather than eliminating waiver requests, the McNulty memorandum provides a multitiered procedure for requesting business entities to disclose protected materials.”
We covered the other side of this issue last month.
The full witness list:
– Karen J. Mathis
President, American Bar Association– Barry M. Sabin
Deputy Assistant Attorney General
United States Department of Justice– William M. Sullivan Jr.
Partner Winston & Strawn, LLP Washington, DC– Andrew Weissmann
Partner Jenner and Block, NY, NY– Richard White
Senior Vice President and General Counsel
The Auto Club Group, Dearborn, Michigan
Mr. White is also Chairman of the Association of Corporate Counsel.
Corporate Attorney-Client Privilege: A Prof Strikes Back
February 26, 2007 | Filed Under Criminal Liability, Investigations
It’s a privilege to be a tenured professor. No, not that kind of privilege.
University of Florida law professor and ex-federal prosecutor Michael Seigel writes an op-ed in today’s Washington Post.
The good professor has been watching the actions of business to control the erosion of corporate attorney-client privilege and his view can be summed up in three words: he no likey. I took a look at these efforts last month.
Professor Siegel makes a few good points on the nature of the corporate attorney-client privilege (it’s not absolute and waiver can be a necessary prosecutorial tool). Heck, he even works the Upjohn case into the mass media!
However, he then goes Hemingway:
But big business smells blood. Its reaction to the McNulty memo has been negative, and its goal continues to be the outright prohibition of waiver requests. Through reintroduction of the Specter bill, it is pressing its legislative “fix” in the new Congress, and the newly empowered Democrats — eager for lobbyists’ money — are likely to be as responsive as their Republican predecessors. The result of a waiver prohibition, of course, would be a significant slowdown of white-collar criminal prosecutions — exactly what the business lobby wants. And the losers, once again, would be the victims of white-collar crime: the American people.
What Professor Siegel fails to note is that some prosecutors have essentially abused waiver and used it to fashion paper-thin criminal cases out of what is really civil wrongdoing (if any). Prosecutors have demanded almost real-time production of all attorney-client communications, sitting back and seeing what they can reel in. For many companies, “cooperation” is tantamount to capitulation.
The professor should also recognize the tremendous pressure public companies face when a cloud of alleged criminality hangs over the boardroom. The need to cut a deal–any deal–is there, and prosecutors know it. And we won’t event comment on the government’s pressure for corporations to withhold funding the defense of targeted executives.
If all prosecutors were measured in their requests for waivers, these organized business efforts probably wouldn’t be necessary. But business, for all of its faults, operates in the real world.
Gatekeepers at a Premium
February 22, 2007 | Filed Under GC Liability, Investigations
Quick, what’s your employed lawyer’s policy deductible?
Susan Friedman of Marsh writes in the New York Law Journal about the increasing liability risks faced by GCs and other managing corporate counsel in their potential role as “gatekeeper.”
Of note, according to Ms. Marsh, are these issues:
In 2006 in-house attorneys were confronted with a myriad of potential exposures, many of which will continue through 2007 and beyond. The highlights of 2006 included: §307 of SOX, backdating stock options, new rules of federal civil procedure regarding electronically stored information, the McNulty Memorandum, Federal Rule of Evidence 502, liability to outside third parties, investigating boardroom leaks, and multi-jurisdictional practice and licensing.
The entire article is worth reading for GCs; it is also instructive for outside counsel who want to understand their clients’ situation better.
Even the footnotes are good (number 6 being a personal favorite).
Watch your step!
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