The Erosion of the Attorney-Client Privilege in the Wake of Sarbanes Oxley and Other Conflicting Duties Facing Corporate Counsel

Abstract

The Sarbanes Oxley Act of 2002; and more particularly, Section 307 creates a mandatory Chief Legal Officer (CLO) position within corporations practicing before the Securities and Exchange Commission (SEC). The new duties that have been imposed by the SEC, and which are now owed by corporate counsel, have presented ethical dilemmas and conflicting duties for in-house counsel for public companies. The CLO in a corporation now finds themselves functioning as a gatekeeper, or a watchdog for the government; and as such, these lawyers have a duty to report to the SEC certain conduct within the company they represent. However, lawyers also owe fiduciary duties to officers and directors, and to the corporation as a client. In these many, overlapping, and interwoven roles, corporate lawyers face great difficulty in complying with all aspects of both their professional and ethical duties. The attorney-client privileges in which the legal profession is so heavily grounded - such as confidentiality - are quickly eroding in the wake of Sarbanes-Oxley's new reporting requirements, and the lawyer’s ability to remain independent and objective has been fundamentally constrained. The up-the-ladder reporting requirements imposed on corporate counsel require upon a finding that there has been wrongdoing that the attorney report to the CLO or CEO, and if they do not respond adequately, counsel is then required to report to the board of directors, auditor, or other committee. Corporate counsel is traditionally hired by, and therefore loyal to, the CEO; and reporting up the ladder (and over the CEO’s head) can pose a difficult decision for the attorney, and in some cases, even conflict with a state’s code of professional conduct. And, in light of a substantial increase in SEC actions against lawyers, one must ask whether Sarbanes-Oxley provides workable guidelines, within which corporate counsel can perform their duties without fear of reprisal – either on the part of the SEC or their client.