Michael S. Greco
American Bar Association President-Elect
National Italian American Foundation
Institute for International Law
International Legal Conference
Rome, Italy - May 10, 2005
Thank you, Mr. Prezioso, for your kind introduction.
I thank the National Italian American Foundation for sponsoring this program,
and for inviting me to share a few thoughts on attorney ethics in the United States
today.
It is always a pleasure for me to come back to Italy, the country of my birth. I
treasure my Italian heritage and enjoy every opportunity to return. I am especially
pleased that my daughter is here now on a college semester abroad, studying in Rome
and traveling in Italy since January. Today is her birthday.
The subject of this morning’s panel is both timely and of great interest to me and
to the American Bar Association. Before addressing specific aspects of Section 307 of
the Sarbanes-Oxley Act, I want to discuss more generally the ABA’s position on
attorney ethics and corporate governance.
The ABA is a leader in the field of attorney ethics within the United States and
internationally. The Association examines and updates its Model Rules of Professional
Conduct regularly to ensure that lawyers are held to the highest ethical standards. The
ABA Model Rules serve as the basis for codes of ethics rules in all 50 states and the
U.S. Territories, and they have been studied by many nations.
In the three years since the emergence in the United States of the corporate
governance scandals involving Enron and other corporations, the American Bar
Association has been especially concerned with the role that attorneys play in ensuring
corporate compliance with applicable laws and regulations. Before Congress passed
the Sarbanes-Oxley Act of 2002, the ABA formed a Task Force on Corporate
Responsibility in order to determine how the framework of laws, regulations, and ethical
principles governing the US corporate system could be improved.
The recommendations of the ABA Task Force on Corporate Responsibility were
adopted by our 540-member House of Delegates as official ABA policy in August 2003,
in the form of three resolutions:
(1)
A set of twelve proposed corporate governance practices;
(2)
An amendment to ABA Model Rule of Professional Conduct 1.13
requiring attorneys to report misconduct “up the corporate ladder”
to senior management and, if necessary, boards of directors; and
(3)
An amendment to ABA Model Rule of Professional Conduct 1.6
permitting attorneys to reveal confidential client information to third
parties if necessary to prevent serious financial harm resulting from
a client’s crime or fraud.
The motivating principle behind the twelve corporate governance practices
proposed by the ABA – and the amendments to the Model Rules – is the need to
promote corporate responsibility without compromising the collaborative attorneyclient relationship that makes compliance with the law possible.
Two of the proposed corporate governance practices speak directly to the
role of attorneys in ensuring effective compliance:
The first calls for regular, executive session meetings between the
corporation’s general counsel and a committee of independent directors.
The second calls on corporations to establish a direct line of
communication between outside counsel and in-house general counsel.
Corporations are instructed that outside counsel are obliged to apprise the
corporation’s general counsel of material potential or ongoing violations of
law by the corporation, as well as breaches of fiduciary duty.
The ABA strongly believes that adoption of its proposed corporate governance
practices – particularly of the two I have just mentioned – would greatly strengthen
compliance efforts and benefit corporations, employees and suppliers, and the investing
public.
I am mindful of the different approaches to corporate governance between Italy,
the European Union more broadly, and the United States. The comparatively free rein
given corporations in Europe reflects fundamental differences in our histories – both
distant and recent – and in our legal systems.
The civil jury trial system in the United States, to cite just one example, holds
corporations directly accountable to the people for harmful conduct. And the recent
corporate scandals in the United States have generated many new laws and regulations
designed to protect investors, employees, and the public from the disastrous
consequences of massive fraud, bankruptcies, and other corporate meltdowns.
One thing is certain: as the economies of the United States and European
nations, and other countries around the world, become more integrated, US regulatory
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systems will need to adapt to keep pace. The recent conflicts between EU regulators
and their American counterparts on antitrust issues relating to corporate mergers and
acquisitions provide a strong example of this need.
I will turn now to the Sarbanes-Oxley Act of 2002, a milestone effort to improve
corporate governance and ethics in the United States. The ABA applauded many
aspects of Sarbanes-Oxley, but we have expressed concerns about those provisions in
Section 307 that have the potential to harm the attorney-client relationship.
The implementation of Sarbanes-Oxley during the past three years has provided
an opportunity for the ABA to work with members of the US Congress and the US
Securities and Exchange Commission to ensure that in-house and outside counsel are
able effectively to advise corporate clients on compliance issues.
There have been several twists and turns on the road to implementation of
Sarbanes-Oxley. Rather than recount the exhaustive history, I want to focus on where
we stand now with regard to two critical provisions: the “up the ladder” reporting
requirements, and the proposed “noisy withdrawal” rules governing attorney conduct.
The ABA was pleased that the SEC revised its initial “up the ladder” reporting
requirement in response to comments that we submitted in December 2002. We
commended the SEC for striking the right balance by requiring attorneys to report
corporate violations to company officials, and permitting – but not requiring – attorneys
to further report to the SEC if the company fails to correct violations. The ABA believes
that the final “up the ladder” reporting rule is generally consistent with the amended ABA
Model Rules 1.13 and 1.6.
While the ABA remains supportive of the “up the ladder” rules, we strongly
oppose the SEC’s so-called “noisy withdrawal” rules on several grounds:
First, we believe that the “noisy withdrawal” proposals exceed the
Congressional mandate contained in Sarbanes-Oxley.
Second, the ABA strongly believes that attorneys should be regulated
primarily by state courts, and not by the federal government.
The regulation of attorneys by the judicial branch has worked very well
over time, allowing for strict ethical rules and enforceable sanctions.
New federal standards for attorney conduct are unnecessary and would
result in conflict with existing state court ethical rules.
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Under the SEC’s original “noisy withdrawal” proposals, if a corporate client fails
to take appropriate remedial steps after being informed by the lawyer of illegal activity,
the lawyer would be required to withdraw from representation, disaffirm any tainted
documents, and notify the SEC of the withdrawal.
In the ABA’s view, the “noisy withdrawal” proposals, though well-intentioned,
have the potential to destroy companies’ trust and confidence in their lawyers. The
proposals would encourage companies to avoid consulting their lawyers on close
issues, or withhold necessary facts when they do consult lawyers. By reducing the
ability of lawyers to counsel compliance with the law, the proposals would inadvertently
hurt not just the corporate client, but the investing public as well.
The ABA has also expressed concerns about the SEC’s alternate “noisy
withdrawal” proposal, which still requires attorneys to withdraw if the company fails to
take remedial action but does not require attorneys to directly report their withdrawal to
the SEC. Such a rule would encourage lawyers to withdraw from representation
prematurely rather than continuing to advise clients on difficult compliance issues – just
when companies most need legal advice.
The ABA believes that the permissive disclosure rule already adopted by the
SEC in Section 205.3(d)(2) of its final rule would ameliorate most of the disruptive
aspects of mandating noisy withdrawal. The permissive disclosure rule is less intrusive
on the attorney-client relationship because it allows lawyers to exercise their own
professional judgment, free from concerns about violating a mandatory federal rule of
professional conduct.
Permissive disclosure makes it less likely that clients will view their attorneys as
potential adversaries and keep them out of critical discussions in which they would have
been able to counsel legal compliance. Furthermore, existing state court rules
governing attorney conduct largely rely on the permissive approach.
The ABA is encouraged that the SEC is taking a second look at its noisy
withdrawal rules. In his speech to the ABA Business Law Section earlier this year, Mr.
Prezioso said that although the Commission has not yet decided whether to proceed
with noisy withdrawal, it is closely monitoring lawyer compliance with the new “up the
ladder” rule as well as the bar’s efforts to address the concerns raised by Congress in
enacting Section 307.
We look forward to working with Mr. Prezioso and the SEC to strike the right
balance in all areas of Sarbanes-Oxley that impact the attorney-client relationship and
the ability of lawyers effectively to counsel corporations on compliance.
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Finally, I want to discuss briefly an important ABA initiative that bears directly on
our discussion today. In response to several challenges to the confidential nature of the
attorney-client relationship, the ABA has formed the Task Force on the Attorney-Client
Privilege.
The Task Force, chaired by Bill Ide, former ABA President and former general
counsel for Monsanto Corporation, has a mandate to examine:
•
the historical purposes behind the attorney-client privilege and its exceptions;
•
the circumstances in which competing objectives are currently being asserted by
governmental agencies and others to override or undermine the privilege; and
•
the extent to which the correct balance is being struck between these competing
objectives and the important policies that underly the privilege.
The ABA believes that protection of communications between client and lawyer
is a bedrock principle of the American justice system. It is vitally important that federal
regulators and policymakers strike the right balance between compliance with the law
and protection of the public.
It is not merely a matter of good business, but of serving the public’s interest.
Even more important, the ABA strongly believes that it is about protecting the
independence of the legal profession in the United States.
We believe firmly that any effort to undermine the lawyer’s role in society, to
marginalize or diminish the lawyer’s role as problem solver and respected counselor, to
interfere with the traditional confidential relationship between lawyer and client, will
harm not only the legal profession, but ultimately all Americans, and in the end, will
harm democracy in the United States and elsewhere throughout the world.
The ABA Task Force on the Attorney-Client Privilege has held two public
hearings, at which numerous witnesses have described serious concerns about the
impact of governmental actions that threaten to erode the privilege.
Among them was James Conrad, Assistant General Counsel for the American
Chemistry Council, who observed:
“When people can't be assured that their communications are protected, they
stop writing things down.”
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This lack of protected communications presents tremendous obstacles to lawyers
and clients working on effective internal compliance programs in corporations and other
organizations. It hinders efforts to ensure thorough documentation of compliance with
laws and regulations that are designed to protect all Americans.
Through its Task Force, the ABA will address policy makers and the public about
the importance of maintaining the attorney-client privilege against unreasonable
governmental efforts to erode its effectiveness. The Task Force will present policy
proposals to the ABA House of Delegates for its consideration.
I look forward to discussing these important issues further with my distinguished
fellow panelists.
Thank you for your kind attention.
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