In-House Counsel Discuss Ethical Issues

Sunday, April 1, 2007 - 01:00

The Editor is fortunate to report on a discussion with Lisa J. Marroni, General Counsel, Pokémon USA, Inc., and Donna R. Besteiro, Vice President, Legal Affairs and General Counsel, The Dannon Company, Inc., from the Practising Law Institute web program entitled Ethics For In-House Counsel 2006. To hear their remarks and other leading experts' commentary, visit www.pli.edu.

Editor: What are the characteristics of a good working relationship between in-house counsel and the CEO and board of directors?

Besteiro: You need to develop a relationship of trust with the company's CEO and board members. This requires maintaining your reputation for integrity and outstanding knowledge base. They must have confidence that you're acting in the best interest of the corporation.

As a member of the legal team, you'll find added value when employees are comfortable talking with you and raising concerns they have. While serving in this capacity, you need to walk a fine line between zealously representing the company and gaining the trust of employees.

This is where training becomes very important. Training is a primary preventative measure that should be provided as individuals come into the organization. It will provide the necessary tools so that all employees feel confident that they are acting within the boundaries of the law.

Marroni: While developing relationships with the individuals in the corporation, in-house counsel need to understand that they should not provide personal legal advice to employees. This becomes more difficult when a senior executive comes into your office asking for advice. By taking a casual approach to these relationships, the executives will perceive you as their attorney. When there is a serious issue and a conflict of interest arises between the company and the executive, you may not be able to fulfill your duties to the organization because of the preexisting legal relationship you developed with the executive by not clarifying your role as the organization's counsel.

Editor: Is it more difficult to train employees located outside the United States?

Besteiro: If your corporation has workers overseas, it is important to walk them through the issues that may arise in their department so they can adequately perform their duties. Training should provide them with enough information so they know what they can and cannot do while working in the U.S.

When working with foreign executives, it is important for the attorneys to inform them of the legal differences between their jurisdiction and the U.S. For instance, we had a lawsuit where a plaintiff attempted to name our CEO as a defendant because he allegedly approved an ad that the plaintiff's claim was based on. As a French national, it was difficult for him to understand how he could be sued for making a business decision. We had to explain to him that this was a possibility in the U.S.

Editor: What processes should an organization have in place to ensure that information reaches the proper authorities within the organization?

Besteiro: It is important to have a reporting system where you can report to the highest levels in the organization. There should also be an audit committee to which you can voice your concerns.

For in-house counsel representing a member of a larger organization, there should be a link to the parent corporation where you can go to express concerns when you feel that the immediate institution will not take any action. It is important to have an outlet within rather than having to go outside the organization to express concerns.

Editor: How should in-house counsel deal with situations where an official is not responsive to concerns about a particular course of action that is not in the best interest of the organization?

Marroni: In-house counsel are in a difficult position when they cannot deal with top officials. You need to find a way to communicate your concerns and have the top officials reach the right decision. If that fails, a private conversation with an influential outside counsel can help them understand that it is in the company's and their individual best interest to take a different course of action.

Editor: If an employee reports a fraudulent transaction on the company's hotline, how should in-house counsel proceed with the investigation?

Besteiro: As the chief compliance officer for Dannon, I have a duty to investigate issues raised on the company hotline. This investigation should be structured so that the attorney/client privilege is preserved. Often times that requires us to bring in outside counsel to lead the investigation.

Marroni: By working with outside counsel, it is easier to draw the line on the attorney/client privilege. The attorney leading the investigation should have a checklist of the important points that will be raised with each employee during the investigation. For instance, they should understand your role as the organization's attorney. They should understand that they are free to hire their own counsel if needed.

Besteiro: Even though employees are free to select their own counsel, there is still an issue as to whether a company that pays for that employee's legal representation will be perceived as uncooperative by government investigators. This is something that needs to be discussed by the parties involved in the investigation before making that decision.

Editor: How can the information received on a company's hotline be protected by the attorney/client privilege?

Besteiro: As an attorney, I review the report and decide how we should proceed. During that process I develop work product, which would be privileged.

Marroni: Business people who receive these tips may believe that communications surrounding the investigation should always be addressed to the CEO or another top official. A best practice in this area is to train professionals investigating the matter so they understand that these messages should always be addressed to a top member of the legal team in order to preserve the privilege. If a top official needs to see the message, they can receive a copy with the understanding that the message should not be circulated to anyone else.

Editor: Would you also recommend training programs on the attorney/client privilege for employees?

Besteiro: Yes. We have an ongoing training program that is targeted to specific employee populations. For instance, we train our marketing department on process and procedure relating to substantiation of claims and FTC regulations. We incorporate information on what they should do if they receive a message from the legal department marked "attorney/client privilege." They are taught to bring questions on these communications to our attention so that we can properly instruct them.

Marroni: We fold training into our program on "netiquette" because our employees are more responsive to that approach. You need to determine the target groups so they understand that they should not distribute communications that have been marked privileged.

Editor: Today, many in-house counsel operate with both a legal title and a business title. Does this make it more difficult to preserve the attorney/client privilege?

Besteiro: I am hesitant to sign a contract as vice-president because of the attorney/client privilege issues that would bring up. Employees should understand that any document signed by a member of the legal department with the authority of a business executive could be used during an investigation to attempt to pierce the attorney/client privilege.

Marroni: Whenever a business issue arises, I consult with management, but to help preserve the privilege there is a clear understanding of my role as the company's attorney. Establishing and maintaining in house counsel's role as advisor and reinforcing the business person's role as decision-maker also makes it easier to explain why counsel should generally not sign contracts.

Besteiro: For in-house counsel operating with more than one function, it is a good idea to separate legal advice from business advice. Any legal advice given should include language informing the recipient that it is given under your legal authority, which is critical for preserving the attorney/client privilege.

Along these lines, the legal department has to develop a working system for indicating which messages are privileged. An over-inclusive policy will be seen as routine, which will cause most courts to challenge your privilege claims.

Editor: What types of issues should in-house counsel be aware of when working with a co-defendant on a matter?

Marroni: You have to be careful in coordinating your discovery. You need to have an explanation if someone turns information over that you do not want to turn over. It is difficult when disclosure will benefit one party but not the other.

For the attorney/client privilege, all parties should be made aware of the joint defense, common interest privilege. You need to keep an open line of communications with your partner in case there is something that needs to be talked about. At this point, it may be prudent to turn to outside counsel to figure out how to handle these situations correctly, especially when you are sharing information with those outside your organization in furtherance of the common interest.