Reviewed by John L. Howard"Where were the lawyers?" - this phrase, both an indictment and a lament, is at the heart of the Sarbanes-Oxley Section 307 mandate for greater accountability by lawyers representing public companies. A more vexing, but ultimately more appropriate question is: Where should the lawyers be?
The Center's recent publication, Representing the Public Company: A Post-Sarbanes-Oxley Governance Paradigm for In-House Lawyers and Outside Counsel, attempts to answer the query by explaining "up the ladder" reporting under Sarbanes-Oxley Section 307. The booklet includes a very detailed, and very useful, set of schematic diagrams of the new rules and how they apply to both in-house and outside counsel. These new rules are placed in context by highlighting both the historical background to the federal provisions and how they relate to the ethical rules governing lawyer conduct. The monograph provides practical guidance on how these rules interrelate with attorney-client privilege protections and work product doctrine, and addresses the controversial "noisy withdrawal" proposal and the efforts by the organized bar to adjust to the underlying "organization as client" principles.
The authors, Rod Rodriguez and Bob Knuts, partners in Day, Berry & Howard LLP's New York office admirably bring together the worlds of the business and trial lawyer. Mr. Knuts spent more than nine years at the SEC's Division of Enforcement in Manhattan, most recently as Senior Trial Counsel and Assistant Regional Director. His practice now focuses on representing clients in connection with SEC, NYSE and NASD investigations and proceedings and federal litigation. Mr. Rodriguez is a business lawyer focused on strategic combinations, executive compensation and corporate governance matters. The combination of their talents and experience produces a balanced account that should be of special importance for any public company's lawyers, particularly in setting forth the "best practices" in maintaining compliance.
The authors' starting point is what constitutes an "attorney-client" relationship under the new rules applicable to a public company. They point out that not all lawyers providing services to an issuer are necessarily providing legal services or in an attorney-client relationship with the issuer. The authors create a series of charts to diagram the scope of the new rules. Because not all lawyers are potential reporting attorneys, the authors' first diagram walks the reader through a process that answers the question, "Are you a potential Reporting Attorney?" Each step cites the related provision of the new rule and directs the reader to explanatory text. As a result, the reader can quickly establish if a particular relationship could impose obligations under the new rules. This section also includes an explanation of the rules applicable to foreign lawyers.
Once the status of the Reporting Attorney is established, the authors' second diagram helps answer the question, "Is there Evidence of a Material Violation to report?" Here, "Material Violation" as well as what would constitute "credible evidence" of such a violation are defined. The authors explore the use of the term "reasonable" as it is used in various places in the new rules and make sense of the statute's occasional use of double negatives.
The rules dealing with attorney reporting obligations are summarized in the final diagram, which addresses the obligations of both the outside counsel and those of the issuer's Chief Legal Officer (CLO). This material includes a discussion of Qualified Legal Compliance Committees (QLCC) and why other issuers have not created a QLCC. Here the monograph provides guidance on what is "Appropriate Response" to a report of a violation as well as the process the issuer and the CLO should follow.
Some of the most interesting discussion involves the so-called "noisy withdrawal" proposals, which in certain circumstances require a reporting attorney to withdraw from the representation of the issuer if appropriate remedial action is not taken. The authors discuss the final rules, as well as proposed rules that continue to be a matter of significant controversy. The historic background of the actions by the American Bar Association in adopting changes to its Model Rules of Professional Conduct dealing with issues of "client confidences" and the "organization as client" puts the new rules in context, as does the review of questions of overlapping jurisdiction and federal preemption.
This Briefly... is an important resource to all attorneys who represent public companies. Representing the Public Company is true to the National Legal Center's mission to bring to the public a series of publications intended to educate and to advance the debate on important issues, fostering knowledge about law and the administration of justice.
Sabino (Rod) Rodriguez III is a Partner in the law firm of Day, Berry & Howard LLP, and Robert Knuts is a Partner in the Government Investigations practice group of Day, Berry & Howard LLP. John L. Howard is Senior Vice President and General Counsel of W.W. Grainger, Inc., a $5 billion industrial distribution company. From 1990 to 1993, Mr. Howard served in the White House as Counsel to the Vice President and as Counsel to the President's Council on Competitiveness.
Rodriguez and Knuts, Representing the Public Company: A Post-Sarbanes-Oxley Governance Paradigm for In-house Lawyers and Outside Counsel, Briefly...Perspectives on Legislation, Regulation, and Litigation, Volume 8, No. 1, is 78 pages. Copies are available from the National Legal Center for the Public Interest at firstname.lastname@example.org or by phone at (202) 466-9360 or from Day, Berry & Howard LLP as set forth below.