Inside Counsel Can Provide Essential Ethics Leadership
Published on: 4/24/2006
In house counsel are peculiarly well-positioned to act as their company's ethical gatekeepers. The quickest and the surest route to legal difficulties is where the company is careless about its ethics. Still, many ethical missteps lead to serious problems even if liability, criminal prosecution or even the costs of litigation (win or lose) are avoided. In house counsel's job is not complete, therefore, merely if the company stays out of legal trouble. In house counsel can materially secure their companies' well-being by getting involved in all dimensions of ethics.
How can a company, or an executive or any employee get into trouble if they stay far enough away from the line where a plaintiffs' lawyer, or a prosecutor, can haul them into court? There are three key ways. First, if a company acquires a reputation for dishonesty or discrimination, that reputation will linger in the marketplace. Second, if a company tolerates abusive management behavior, the company will find it increasingly difficult to hire, or to keep, quality employees. Third, at the individual level, there is no surer way to derail a high-trajectory career than to get caught in minor (or not so minor) misdeeds - the most frequent of which involve money or sexual harassment.
Most people believe that there are ethical standards that people, or companies, ought to follow, even where those standards are not, or are not yet, embodied in the law. In house counsel add value to their companies by recognizing their skill and competence - and "authority" because of their legal training - and working proactively to institute and maintain ethical standards. No one else in the company is as well trained in understanding how rules and principles of conduct work. Georges Clemenceau, the French Premier during the First World War, said that war was too serious a business to be left to the generals. Ethics is too serious a business to be left to company executives.
There are four principal goals that in house counsel can adopt.
First and foremost, working with senior management, lawyers must foster a culture of trust and honesty within the company. Reputation in the community and morale in the company are likely to suffer body blows where management tolerates and "anything-goes-so-long-as-you-don't-get-caught" attitude toward integrity. Business is pre-eminently a co-operative venture. Whether focusing on the relations between employees or with customers, vendors or government officials, success depends on people working with each other. This is a commonplace, but it has a particular ethical dimension. Where trust is lacking, the system squeaks rather than purrs. An economist would say that mistrust creates costs which hinder efficiency. Sometimes this understanding runs against the mindset of lawyers. We are trained, after all, to take "bad facts," put them in the best possible light, and show why liability shouldn't be the result. Sometimes, however, the lawyer's ability to defend can make bad practices seem not so bad. Yet nothing poisons the well more quickly than condoning company practices which a lawyer can defend as not contrary to law, but which leaves behind a residue of distrust. For example, if a contract's language is squishy, but everybody really knows what it means, make sure your company adheres to that understanding. A reputation for playing straight with a vendor or a customer has a positive impact that far exceeds what can be gained by a technically correct invocation of the parol evidence rule that will cause that vendor or customer in the future to doubt the company's word.
Second, in house counsel need to make sure that company hiring and promotion practices not only adhere to applicable legal standards. They must emphasize that there is no substitute for hiring and promoting people who reject the idea that it's ok to tread close to the line to make a buck, so long as the lawyer can get them out of trouble. I mentioned earlier that most people have standards about how they and their companies should act. But not all people. There are people who seem to be genetically deprived of what the rest of us have. I call them EIP's, short for Ethically Indifferent People. I once heard about a major midwestern bank that used to send its top executives to the business schools where it was interviewing job candidates. The paper resumes told the story of the students' technical qualifications. What the executives aimed to glean about their potential management trainees was if these students were people who would adhere to the banks's high ethical standards. Lawyers can help their companies to understand that compliance with anti-discrimination statutes is part of the process, but only part. Where lawyers have had to do their "defense thing" in order to bail a rising executive out of trouble for financial misdeeds, that person ought not to be promoted.
Third, lawyers need to take the lead in making banning self-dealing a cornerstone of a company's creed. Self-dealing involves seeking personal benefits such as promotion, increased competition, enhanced status, financial perks or even access to sexual favors (what the HR world sometimes calls "paramour preference"). A company that fails to make clear that self-dealing is out of bounds invites damage to employee morale and its reputation in the community. I once worked for a large firm where it was widely known that two associates were falsifying their hours - in a big way. The resentment among those who knew of the practice, while management was blind to the practices and even gave them large raises, was huge. "Nod-nod, wink-wink" bargains about false billing, or falsified expenses, send a clear signal that company credos about integrity are bogus.
Fourth, where the law has embodied ethical standards, in house counsel need to make sure that employees, from top to bottom, are aware of the kinds of activities that lead to legal trouble. In doing so, lawyers need to emphasize not just how bad the conduct has to be to get sued, but the kind of conduct that damages reputation and can, if not checked, lead the company down the slippery slope. Tolerating innuendo from male executives, for example can lead to the assumption that the company gives tacit permission to engage in more egregious improper behavior. A couple of years ago, the press reported stories about a major law firm where a few senior male partners engaged in what, in defending themselves, the called "non-sexual" touching of young female employees. The story appeared widely in the press where the firm operated. The damage to reputation was done even where legal liability was avoided.
By training and inclination, lawyers are accustomed to working with standards of conduct. They instinctively know how rules and principles work. In house counsel should contribute their knowledge and expertise to help mould their company's ethical environment. They should not forget that, in so doing, they will be performing one of their key legal jobs - keeping the company out of trouble.