To The Readers Of The Metropolitan Corporate Counsel :
Five years ago, as the fire and smoke settled at Ground Zero, America faced another crisis as the scent of scandal emerged from several major public companies. The media soon shifted its attention from the September 11 attacks to the culture of corruption permeating such public companies as Enron, WorldCom and Adelphia. The Securities and Exchange Commission (SEC) and the Stock Exchanges rushed to investigate daily disclosures of gaping holes in the financial statements of many of the darlings of Wall Street. Congress heeded the public outcry and, within months, responded with the Sarbanes Oxley Act of 1992. The American Bar Association (ABA) created a commission to look at corporate governance, headed by James Cheek, former ABA president, who conducted hearings across the country. The Cheek Commission's recommendations went so far as to propose that the profession's ethical rules be modified to permit - indeed, require - lawyers to 'report out' instances of corporate wrongdoing where boards and officers had failed to take action. Ultimately the ABA declined to adopt that proposal; however, after an extended period of public comment, the SEC issued rules requiring lawyers to 'report up' instances of abuse and misconduct in public companies.
Sadly, a number of public charities and not-for-profit organizations also found themselves beset with problems of management misconduct or directors' neglect of their oversight roles. The attorneys general of several states have issued guidelines concerning 'best practices' and 'minimum duties' for those serving as stewards of charitable or not-for-profit enterprises. In New York, Attorney General Eliot Spitzer has proposed a domestic version of the Sarbanes Oxley Act applicable specifically to not-for-profit organizations.
A number of bar associations across the country are now looking at the importance of good corporate governance for charities, foundations and the organized bar itself. NYCLA became the first major bar association to enact a Code of Conduct requiring its own directors and officers to disclose any conflict of interest regarding matters that come within their purview for decision. Obviously, it is rare that any 'financial conflict' would arise since all of us are, generally speaking, volunteers who receive no compensation, but our Code of Conduct also requires disclosure of client conflicts in conformity with the principles of Rule 6.4 of the Model Rules of Professional Conduct that are being considered for adoption in New York.
NYCLA is one of the first major bar associations to have a written audit committee charter delineating the responsibilities of our Audit Committee to oversee financial and institutional issues involving ethical matters. (Our Code of Conduct and Audit Committee Charter appear on our website: www.nycla.org.) Recently, we adopted an anti-trust policy to address those situations where some potential anti-competitive problem might lurk. Although the organized bar no longer has 'minimum fee schedules' or actively polices 'unauthorized practice,' there are potential situations where anti-competitive matters might arise.
NYCLA's Task Force on Corporation Governance, appointed in 2002, has addressed many of the issues emerging from the corporate scandals. The Task Force dispatched formal comment letters to the SEC as it was beginning to consider the proposed rules regarding the 'report out' and 'report up' obligations of lawyers representing public companies. As New York practitioners, NYCLA's members are subject to an existing disciplinary rule that permits (but does not require) any lawyer who becomes aware of a client's intention to commit a crime to reveal that information (regardless of whether or not it is confidential) to prevent a criminal act. Many states have rules allowing such disclosure only where 'death or serious bodily harm' is threatened; however, New York's rules encompass any crime. Since most corporate malfeasance or misfeasance involves issues of financial statement disclosure (especially for contingent liabilities), it is difficult to imagine that any major wrongdoing in a public company could not be a crime under Securities Laws.
This year, we expanded the Task Force's mission to include not only for-profit enterprises but also not-for-profit organizations. This expanded Task Force includes practitioners who advise not-for-profit companies and the chairs of both of our committees that deal with corporations and not-for-profit entities and it will issue guidelines on best practices in the not-for-profit world.
I urge members of the bar to seek out opportunities where you can render public service as directors and advisors to not-for-profit corporations - both large and small. Your training, experience and mindset give you a special insight that other people simply do not have. NYCLA maintains that a lawyer's pro bono responsibilities encompass serving not only indigent individuals but also public service organizations as a member of a not-for-profit or charitable organization's board. By using our skills and abilities to serve the institutional not-for-profit corporation community on a pro bono basis, all of us can make our society a better place.
Edwin David Robertson