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3 Recent Changes in In-House Practice and Why They Matter to You

By Jonathan R. Tung, Esq. on May 27, 2016 | Last updated on March 21, 2019

The law changes with the ebb and flow of legal tides, but in the world of in-house practice, the waters are especially treacherous. We're talking about recent developments that implicate how GCs do their job, for whom they do their job, and what liability they could face for doing their job.

In fact, these changes even implicate whether or not anyone would want to go in house at all, anymore.

The Yates Memorandum

When Deputy Attorney General Sally Quillan Yates released her memo in early September of 2015, she announced a general policy of cracking down on individuals involved in white-collar crimes. The Yates Memo has sparked a lot of worry within the ranks of general counsel across the country because the tone (and substance) of the memo was decidedly not amicable.

So far, the Yates Memo has been applied by the SEC against a handful of compliance officers working within the investment advisor industry as well as by the DOT against an ex-compliance officer of a financial services company for his failure to report violations. Understandably, in-house counselors want to know where they are in the whole liability spectrum.

The good news is this: apparently, Uncle Sam announced through the DOJ's Andrew Weismann that it is "not going after compliance officers for criminal liability."

Whew. That sure takes a load off. But what about the other half of liability? Personal liability and one's pockets?

Well, that's where things get more complicated -- and in-house attorneys may as well consider this to be the "bad news." Because of the government's recent tight-lipped stance on the issue, about four out of five compliance officers have reported increased worries that they might find themselves personally liable for corporate misconduct, according to a report by DLA Piper. In other words, no news is bad news.

This presents a real problem because compliance officers -- more often than not, lawyers -- are much less effective at giving honest and direct legal advice if they are constantly held in check by the fear that it come back and bite them.

The increased possibility of personal liability for actions taken in good faith is particularly insidious -- especially taking into account the in-house counselor's increasingly executive-officer-like role in today's companies. Which brings us to the next point.

The Rise of the Executive GC

Much attention has been paid to the NYSE 2016 Governance Services/BarkerGilmore Survey Report (which we recently covered in our piece "In-House Counsel: Business Person First, Lawyer Second?"). The overwhelming message of the survey report was that the role of GCs is becoming increasingly prominent. That's because GC's are "uniquely positioned" to advise the board and management team not only about the legal ramifications of company actions, but also business risk management. The respondents to the survey overwhelmingly (97 percent) agreed that GCs would be part of the executive management team by 2020.

Like anything in life, this is good for in-house attorneys and bad as well. On one hand, this means that in-house lawyers will enjoy increased influence within the company as both consigliere and underboss. On the other, it also means that in-house counsel could face the liabilities of both. Additionally -- Godfather allusions aside -- it also means that the GC is placed in the conflicting position of being an objective advisor as well as an executive who may also sit on the board. Persons in those positions have traditionally had difficulty reconciling personal gain with the needs and interests of the company, and this presents significant ethical issues for attorneys.

Reporting Up or Reporting Out

The client is the company. As such, the GC has a duty not to take any action based off of confidential communications had with the company that would be detrimental to the company's interests. In short, attorneys must take care not to injure the interests of the company.

In the context of in-house counseling, this generally takes the form of deciding whether to disclose or not disclose potentially damaging information up the chain, or out of the company entirely.

Recently, Michigan State's Attorney Grievance Commission declined to throw the book at the six lawyers who were formally part of GM's in house team when the "ignition switch" scandal unfolded. Plaintiff's in that case argued that the GM's lawyers failed to take the "extra step" in disclosing dangers to the public. But the Commission felt that the company lawyers had acted within their charge: lawyers are not required to break confidentiality with their company clients to expose potential safety risks and concerns. They kept their licenses, but also increased public enmity towards lawyers. Go figure.

The good news with this non-development is that it keeps the rules simpler for attorneys, and it looks to be the one silver-lining that truly comes with an unsharpened handle.

Three Points to Keep in Mind

As in-house practice continues to change, the grand takeaways are these:

  1. General counsel are becoming bigger and more influential at the executive level and will soon assume a more executive-like role. This will no doubt present ethical issues of first impression for courts and ethics commissions.
  2. In-house counsel so far can breathe easy following the words of the DOJ regarding to criminal liability. But since mum's the word on the topic of personal liability, there's still plenty of risk out there.
  3. Thankfully, one thing remains constant. We've seen no major changes regarding client privilege and the ethical duty to keep quiet about potentially damaging

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