Judgment-based practice and lawyers as gate-keepers: a return to ethics?

The business pages tell us corporate leaders, perhaps cowed by reactions to executive pay and the more general desire to rebuild the legitimacy of capitalism, are increasingly interested in ethics. An interesting question is whether this change, if it is real, will permeate into the way lawyers advise their clients.

The conventional view is that commercial lawyers act zealously in their clients’ interests no matter what the impact is on third parties.  This ‘standard conception’ is that they can, and should take any step that advances their clients interest unless it is plainly unlawful or clearly in  breach of professional conduct rules.  The default position of this standard conception is that if the law in an area is grey, lawyers and clients can exploit uncertainty in their own favour.

To be sure, there are risks in the ‘if its grey, we can play’ approach.  The travails of some of News International’s former lawyers may be a timely example.  Hackgate aside, though, there are some interesting signs that the ‘client zeal’ model may come under pressure.  One is an apparent change in the approach of (some) regulators.  The FSAs fining of hedge fund boss David Einhorn for insider dealing  is being taken as a signal that the FSA is toughening up its approach.   Einhorn, told by a corporate broker acting for Punch Taverns that the company was preparing a significant equity fundraising and knowing this would depress the share price, gave instructions to sell all of his hedge fund’s holding in Punch.  They refused to accept Einhorn (who still protests his innocence) insistence that he had requested of the broker that he not be given confidential information (in the lingo, he had not been “wall-crossed” – which would make the trade an insider trade).  In essence the FSA is saying, Einhorn should have relied on his own judgment not reassurances he sought from others.

Today in the FT (£), Hector Sants (leading on the break up of the FSA into prudential and conduct regulation) says this:

“We would like firms not to just take the narrow perspective of what can they get away with within the rules and how long can their lawyers delay, but take the broad perspective. When the right way forward is clear, they should get on with it.”

Strong regulator action will be required to overcome a lawyer (or client’s tendency) to take a compliance/avoidance view of their obligations (what is the minimum I have to do to comply or how can I avoid regulations in place rather than comply) and the tactical use of delay.  It would be interesting, indeed, if Einhorn had taken legal advice on whether the trade was lawful and waived a supportive opinion under the nose of the FSA when they came to enforcement action against him.  There will be some way to go if the FSA are to encourage “proactive” and “judgment-led” regulation but it if they are even half-way successful they may have significant impact on how lawyers advise their clients.  Punish enough clients who lawyer up and employ defensive, zealous tactics and the tactics become discredited.  It would become clear, then, that regulators other than the professions’ regulators have a key role in shaping the ethics of the legal profession.  They will, likely, have to succeed in persuading the courts that in taking a proactive and judgment based approach the rights of defendants are not being fatally weakened.

Relatedly, there is a very interesting article from Whelan and Ziv on SSRN which suggests some corporate clients are beginning to seek to regulate their lawyers ethics.  Some of this covers fairly well known territory like increasing emphasis on diversity policies and broadening the range of competitor businesses who their outside law firms are conflicted out from acting for (a not uncontroversial approach).  There is also a very interesting focus by some Corporates (Walmart and Bank of America are mentioned) which include a, “prohibition on using obstructive and coercive tactics in litigation, the duty to protect the integrity of the justice system, to consider and favor negotiation and ADR over contentious adversarial strategies, and in general to act “ethically”.”  There are, of course, a range of questions about this approach: how extensive is it? Does it influence their outside lawyers’ behaviour?  What happens when business interests and ethical interests are in opposition?  It is too early to say.  In large part the ethical obligations are framed within, and seen by the drafters of these requirements, as being supportive of the business aims of the clients.  Put simply, more work is needed to assess whether this is window dressing or a substantive change but it does signal that the old paradigms of corporate legal ethics may be changing.  One very concrete example that Whelan and Ziv take from Walmart, is one which would have had a very interesting impact in the context News International’s problems:

If Outside Counsel believes that a Wal-Mart Associate (including any Legal Department personnel) has or will engage in illegal or unethical activity as a representative or agent of the Company, the most senior Outside Counsel responsible for the matter through which such activity is discovered must immediately and confidentially contact the RLDA (or a Wal-Mart Associate General Counsel or General Counsel, as appropriate). No Wal-Mart Associate has authority to instruct Outside Counsel to act in an unethical manner in connection with any Wal-Mart matter”. In other words, OC are being used as a mechanism to monitor improper behavior of the client’s agents, turning them into “lawyers – gate keepers”.

I would be very interested to hear whether such clauses are being written into instructions from General Counsel in the UK.  I would also be very interested to hear whether such policies have any impact.


3 thoughts on “Judgment-based practice and lawyers as gate-keepers: a return to ethics?

  1. Richard

    This is really interesting. I agree that a key way of changing transactional/corporate lawyers’ ethics is to focus on clients and other regulators and forms of regulation. Though I am not sure that SEC enforcement action and the Sarbanes-Oxley Act has altered the US profession’s ethics (I don’t know) in which case the key pressure point may be the client (ie regulators should focus on clients and clients in turn will then focus on their lawyers). I am not sure that the legal professional regulators here are going to be terribly effective in this respect. As for what the FSA would have done if Einhorn had waived supportive legal advice in front of them, the FSA Report into the collapse of RBS might provide a clue-Freshfields advised the board of RBS that they had given sufficient consideration to the ABN-Amro takeover and also advised them when the market was going really pear-shaped that they couldn’t withdraw from the deal. The FSA took this advice and the fact that it was sought into account when deciding not to pursue enforcement proceedings against Fred Goodwin etc. The substance of the advice was, of course, not disclosed in the report.


  2. Seems like the clauses that are being written into these instruction agreements refer to unlawful activity, as opposed to acting in legal grey areas.

    The ‘Client zeal’ model as you call it will not and should not end. This innovative and I must say, rather stupid, approach of lawyers taking the ‘right way forward’ as opposed to what the law allows and is in the clients’ best interests would fundamentally undermine the rule of law. For starters, who decides what the ‘right way forward’ is?

    A number of factors are balanced against each other when interpreting the law. Morality is subjective, so it’s hardly a suitable over riding factor.

    As for cleaning up or trying to return ‘ethics’ to capitalism, we don’t live in a capitalist society. Our government has no respect whatsoever for the free market. There is constant intervention. We already have a way over regulated, socialist system. This is the system that helps preserve the position of the wealthy and powerful. It does nothing to help working people. A capitalist system would not have bailed out the banks, it would not continue to debase our currency to continue funding an over inflated, unsustainable state.

    Further regulation and intervention from the government would lead to a complete slow down in the business world. It would hinder any development. It will put us another step back while Asia and South America continue to progress. Socialists do not understand business. They do not understand incentives. They do not understand competition.

    I’m not overly concerned though. I don’t really see most private enterprise adopting such a model for their legal advice. Most businessmen (or women) are by their very nature, calculated and sharp. I’m not saying appearances won’t change though and that is what the Walmart clause looks like to me. It is a clause asking a lawyer to do what he is arguably already obliged to do. I’m just sick of the lie that people are living that further intervention by the very people that caused the mess we are in is going to help.

    Sorry for the political rant. It had to be said. It wasn’t aimed at any one political party either. They all pretty much represent the same repugnant views.

  3. Lawyers as gate-keepers? I thought judges were the gate-keepers within any adversarial legal system. The zealous advocate model (or as you denote, the ‘client zeal’ model) is only one lawyer archetype: the ‘ethical professional’ or ‘knowledge technocrat’ are two alternatives.

    I remain a hardened skeptic that corporations act in any other fashion than profit maximization. The purpose of having general counsel or external counsel to advise, counsel and protect a corporation within the marketplace is self-evident: lawyers are fiduciaries to the corporation’s stakeholders: officers, directors and shareholders. Lawyers owe no duty to third parties per se. Lawyers, of course, owe a duty to the court, the legal profession and opposing counsel, but only within the strictures of legality or lawfulness. Hence, the hackneyed phrase “legal technicality”.

    That said, Law Societies and bar associations regulate the ethical and professional conduct of lawyers (whether they are barristers, solicitors, attorneys). For example, in Ontario, the Law Society of Upper Canada’s Rules of Professional Conduct clearly define the nature and scope of a lawyers’ ethical duties qua advocates. Rule 4 of the Ontario Rules of Professional Conduct-The Relationship to the Administration of Justice: Rule 4.01-The Lawyer as Advocate, LSUC website available on line at http://www.lsuc.on.ca/regulation/a/profconduct/rule4/ reads:

    4.01 (1) When acting as an advocate, a lawyer shall represent the client resolutely and honourably within the limits of the law while treating the tribunal with candour, fairness, courtesy, and respect.
    The lawyer has a duty to the client to raise fearlessly every issue, advance every argument, and ask every question, however distasteful, which the lawyer thinks will help the client’s case and to endeavour to obtain for the client the benefit of every remedy and defence authorized by law. The lawyer must discharge this duty by fair and honourable means, without illegality and in a manner that is consistent with the lawyer’s duty to treat the tribunal with candour, fairness, courtesy and respect and in a way that promotes the parties’ right to a fair hearing where justice can be done. Maintaining dignity, decorum, and courtesy in the courtroom is not an empty formality because, unless order is maintained, rights cannot be protected.
    This rule applies to the lawyer as advocate, and therefore extends not only to court proceedings but also to appearances and proceedings before boards, administrative tribunals, arbitrators, mediators, and others who resolve disputes, regardless of their function or the informality of their procedures…

    The Wal-Mart Outside Counsel example in your post belies the true purpose and rationale behind corporate marketing efforts to regulate lawyer conduct; namely, diffusion of responsibility and accountability under the guise of acting as a good corporate citizen. After all, as Republican Presidential candidate, Mitt Romney once remarked: “corporations are people too, my friend.”

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