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GENERAL COUNSEL PANEL: SURVIVAL SKILLS FOR THE 21ST CENTURY IN-HOUSE COUNSEL

Moderator: MICHAEL D. NAPOLI

Dykema Cox Smith

Panelists: LYNNE M. DARROUZET

General Counsel, American Heart Association

DALE A. HEAD General Counsel, BASE Entertainment

JILL B. LOUIS

General Counsel, FleetPride

State Bar of Texas 14TH ANNUAL

ADVANCED IN-HOUSE COUNSEL COURSE August 13-14, 2015

San Antonio

CHAPTER 10

Michael D. Napoli, MemberDykema Cox Smith 1201 Elm Street, Suite 3300 Dallas, TX 75270 214 698 7837 | [email protected]

The University of Texas School of Law, J.D., with high honors; Member, Texas Law Review; Member, Order of the Coif; Member, Chancellors (Grand Chancellor, 1990-1991), 1991

Baylor University, B.A., with honors; Phi Beta Kappa, 1988

Michael Napoli protects individuals and companies facing lawsuits. He works closely with his clients to create practical, business solutions to litigation problems. Representing both plaintiffs and defendants, Michael works on a wide variety of cases including securities, commercial and products liability matters. He represents parties to private securities cases as well as defendants and court-appointed receivers in enforcement actions by the SEC and State Securities Board. Michael also has a broad commercial practice representing individuals and companies in contract, corporate governance, insurance and intellectual property disputes in a wide variety of industries. In addition, Michael defends manufacturers and engineers against claims for personal injury, including products liability claims related to medical devices.

Lynne M. Darrouzet, Esq. Executive Vice President, Corporate Secretary & General Counsel

As Executive Vice President, Corporate Secretary & General Counsel for the American Heart Association, Lynne Darrouzet provides strategic guidance, legal advice and support to the Board of Directors and senior volunteer and staff leadership on corporate governance, compliance and strategic business initiatives.

Lynne joined the American Heart Association in 1999 as an Attorney in the Legal Department, and in 2008 was promoted to Associate General Counsel. As Associate General Counsel, she was responsible for the day-to-day management of the Legal Department. In 2012, Lynne assumed responsibilities as General Counsel, and in 2013 was named Executive Vice President, Corporate Secretary & General Counsel.

Lynne has worked in the legal profession for over 30 years. She earned her undergraduate degree, Bachelor of Arts from San Jose State University, and her law degree from Lewis and Clark Law School, Portland, Oregon. Prior to joining AHA, Lynne was General Counsel and Assistant Secretary of Mothers Against Drunk Driving in Irving, Texas. Before joining MADD, she started and ran the first Legal Department at the University of Texas Medical Branch at Galveston. She began her career practicing labor and employment law in California.

Dale A. Head Executive Vice-President of Business and Legal Affairs

Dale Head has 30 years of extensive national and international experience handling corporate legal affairs, complex corporate and commercial transactions, regulatory and compliance matters, Board work, Sarbanes-Oxley matters, litigation, employment and labor issues, lobbying and public affairs, risk management, strategic planning, internal and external investigations, and crisis management. In addition to his current position with BASE, Dale is a Partner with Phillips & Reiter, PLLC. Periodically, Dale also serves as an Adjunct Professor teaching Business Law & Ethics in the HBU Graduate School of Business.

Before joining BASE and Phillips & Reiter, Dale served as General Counsel, Executive Vice President & Corporate Secretary for Clear Channel Entertainment ("CCE"), the world's largest live entertainment company, and as a member of CCE's Executive Management Committee. Dale also served as a Director of the CCE Foundation for the Arts.

Prior to joining CCE, Dale served in senior in-house legal positions with public and private companies that operated in the U.S. and internationally, Including MAXXAM, Inc., The Pacific Lumber Company, Kaiser Aluminum & Chemical Corporation, Palmas del Mar Resort & Casino, and Sam Houston Race Park. Dale started his legal career with the law firm of Baker & Botts.

Dale received his law degree (J.D.) from the UCLA School of Law, his B.S. from the University of Southern California (USC), and he attended the University of Stockholm, International Graduate School.

Outside of work, Dale is active with his family, church, community affairs, teaching, the arts, travelling, hiking and biking.

Jill B. Louis

Jill Louis joined FleetPride in August 2013 as General Counsel. FleetPride is the largest independent distributor of heavy duty aftermarket truck and trailer parts in the United States. Prior to FleetPride she was Managing Director, Commercial Transactions and Regulatory Compliance for FedEx Office and Print Services, Inc., a wholly owned operating company of FedEx Corporation. There, she led FedEx Office’s transactional, sourcing, intellectual property, regulatory and technology legal team. Prior to FedEx Office, Ms. Louis served as Vice President, General Counsel and Secretary for HQ Global Workplaces, Inc., a multinational serviced office company. She began her legal career in private law practice with corporate transactions sections of Hughes & Luce, L.L.P. (now K&L Gates) in Dallas and Hogan & Hartson (now Hogan Lovells) in Washington, D.C. Her practice included mergers and acquisitions, securities regulation, and intellectual property. Active in community affairs, she is a member of The Dallas Assembly, serves on the Cedars TIF Board, and the Executive Board of the Dallas Chapter of Jack and Jill of America. Jill is the past co-chair of Educate Dallas, the Political Action Committee for the Dallas Regional Chamber of Commerce and served eight years on Board of Trustees of Girls Incorporated of Metropolitan Dallas. She is a former member of the Junior League of Dallas and Leadership Dallas Class of 2006. She received her law degree from Harvard Law School and her B.A. in Broadcast Journalism, magna cum laude, from Howard University. She is married to Randy Bowman for 22 years and they have two children Malcolm and Rachel.

General Counsel Panel: Survival Skills for the 21st Century In-House Counsel Chapter 10

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TABLE OF CONTENTS

I. INTRODUCTION ................................................................................................................................................... 1

II. TREADING THE TIGHTROPE: BALANCING BETWEEN BEING A PARTNER TO THE BUSINESS LEADERS AND A GUARDIAN OF THE COMPANY ....................................................................................... 1 A. Defining the roles of guardian and strategic partner ....................................................................................... 1 B. Finding your balance ....................................................................................................................................... 2

1. Focus on the client: who exactly do I represent? ..................................................................................... 2 2. The lawyer’s role in the company: how broad are my ethical duties?..................................................... 3 3. Assessing legal and reputational risks ..................................................................................................... 4

C. Maintaining your balance: Steering the company away from trouble ............................................................. 4 1. Expand your knowledge .......................................................................................................................... 4 2. Develop soft skills ................................................................................................................................... 4 3. Build trust and credibility with the business team ................................................................................... 6 4. Build a compliance culture ...................................................................................................................... 6 5. Recognize and avoid common cognitive errors and biases ..................................................................... 7

III. PRACTICING LAW AT THE SPEED OF LIGHT ............................................................................................... 8

GC Panel Bibliography ................................................................................................................................................... 9


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SURVIVAL SKILLS FOR THE 21ST CENTURY IN-HOUSE COUNSEL I. INTRODUCTION

What does it mean to be a 21st Century in-house lawyer? The spectacular failures of Enron, WorldCom, Tyco and others in the early days of this century brought increased scrutiny on the role of the in-house lawyer. While in-house counsel has always been the guardian of the corporation ensuring that it complies with applicable laws and regulations, the importance of that role has increased. Yet, in-house lawyers are also expected to play a business role – to be strategic business partners helping the company achieve its fiscal goals and creating value. These roles can conflict and must be balanced. Finding and maintaining that balance is the essential survival skill for the 21st Century in-house lawyer.

Maintaining equilibrium is increasingly more difficult. We often find ourselves practicing law at the speed of light. In an increasingly globalized world tied together with smart phones, text and e-mail, business moves quickly. As business people scramble to keep up with demand for highly customized products delivered immediately, they expect their lawyers to keep up. Money is also tighter. Transactions need to happen quickly, efficiently and with a minimum of cost.

Quick and cheap has risks, however. In the rush to keep up with the business team, it may be difficult for in-house lawyers to fully analyze the challenging issues that come before them. They may also lose focus on their vital role as gatekeeper and guardian of the company. In this paper, we offer insights into these issues and practical advice to help you resolve them. II. TREADING THE TIGHTROPE:

BALANCING BETWEEN BEING A PARTNER TO THE BUSINESS LEADERS AND A GUARDIAN OF THE COMPANY The in-house lawyer occupies a unique position

among lawyers. She is not merely a lawyer but a business person as well. It is quite common for general counsels to be part of the executive leadership team and to take part in setting the company’s overall direction. At lower levels, lawyers also play a significant part in a company’s business processes working with particular sections or groups within the company on both legal and business issues.

As a lawyer, the in-house counsel is a gatekeeper and guardian of the company’s legal interests. As a business person, she is charged with creating value and advancing the company’s financial interests. These two roles are often in tension. To survive and thrive,

the 21st Century in-house lawyer must learn to balance these roles. A. Defining the roles of guardian and strategic

partner The role of guardian or gatekeeper arises out of

the historical role of lawyers as counselors and advisors. Historically, lawyers have advised clients on the state of the law and assisted them in conforming their activities to the law’s requirements. Ultimately, of course, the lawyer is merely an advisor. It is up the client to follow the lawyer’s advice and comply with the law. If the lawyer did not believe that the client’s decision was sound, the lawyer’s obligation (absent truly extraordinary circumstances) was to walk-away and withdraw from the representation.

Following the business scandals of the early-2000s, there was a growing movement to impose an additional duty upon in-house lawyers. Not merely to refuse to be part of a legally-dodgy transaction but also to stop the transaction from occurring. In other words, the in-house lawyer was not merely an advisor or counselor but a gatekeeper barring the gate to questionable conduct.

In a speech last year, SEC Commissioner Kara Stein described the importance of gatekeepers:

So who is in a position, either within or outside a firm, to help? In effect, who are the gatekeepers that are able to disrupt or prevent misconduct? Certainly auditors and outside legal counsel can play this role. As most of you know, it doesn’t stop there. Executives, compliance officers, in-house counsels, and boards of directors also can help. … A recurring theme in many of the cases that I review each week is the failure of some of these important players or gatekeepers to disrupt or prevent misconduct. This troubles me greatly, and I know it troubles all of you as well.

Kara M. Stein, Keynote Address at Compliance Week 2014 (May 19, 2014) from www.sec.gov (last visited June 3, 2015). Commissioner Stein went on to wonder whether enforcement would be more effective if it targeted individual gatekeepers: “the people who could have, and should have prevented the harm.” Id. (discussing cases brought against CFOs and CCOs).

The role of strategic partner to the business leaders of the company encompasses two basic tasks. The first is to help make policy and the second is to assist the company to achieve business goals. As a policy maker, in-house lawyers are expected to use their experience, knowledge and judgment to participate in leadership discussions that define and

http://www.sec.gov/


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decide business issues. This aspect of the strategic partner role ties in nicely with the lawyer’s role as guardian. The in-house lawyer can use her role as an advisor to steer the company onto appropriate legal paths.

The second task – facilitation of business goals – can be more problematic. As a facilitator, the lawyer’s job is to get a transaction or other goal accomplished as quickly and as cheaply as possible. This inevitably creates tension with the guardian role which requires time, analysis and caution – none of which are quick or cheap.

An in-house lawyer who wants to thrive must find an appropriate balance between these roles. He does not want to be an obstacle to be surmounted so that his company can engage in some beneficial course of conduct. He also does not want to end up like the former general counsel of Tyco criminally charged with turning a blind eye while management systematically looted the company. B. Finding your balance

Every in-house lawyer has to find her balance between guardian and partner. Unfortunately, we cannot tell you what the right balance is or even how to find it.

The ethical rules are a good place to start but in the end they are largely unhelpful. Under the ethical rules, a “lawyer representing an organization must take reasonable remedial actions” whenever the lawyer “learns or knows” that (1) a “person associated with the organization has committed or intends to commit a violation of a legal obligation to organization or a violation of the law which reasonably might be imputed to the organization; (2) the violation is likely to result in substantial injury to the organization; and (3) the violation is related to a matter within the scope of the lawyer’s representation.” Tex. R. Prof. Conduct 1.12(b).

Rule 1.12(b) is quite vague. What does it mean to “know” that a company agent is acting illegally? At what point does an injury become “substantial?”

Moreover, it is a very minimal standard of conduct. At base, Rule 1.12 requires only that a lawyer who knows of illegal conduct refer the matter up the chain of command within the organization. We can and should do better. At the very least, an in-house lawyer should play an active gatekeeping role rather than the largely passive role envisioned by the ethical rules.

The right balance is a highly individualized inquiry. It depends on the company’s industry, how it is owned, and the risk-tolerance of its owners. For a closely held company in a largely unregulated industry, the balance may lean more heavily towards partnership. For a public company in a highly

regulated industry, the balance surely leans more heavily toward gatekeeping.

What we can do is to suggest a process by which you can find your own balance. • Focus on your client • Consider the lawyer’s role (your role) in the

company • Determine the legal and reputational risks facing

your company Objectively considering these factors will help you to find your balance. Be cognizant, however, that balance is not a destination but a path. You will find that you need to re-define your balance as your proceed. 1. Focus on the client: who exactly do I represent?

The starting point is to focus on the identity of the client. In theory, this is simple. Under the ethical rules, a lawyer for an organization represents the organization, not its management, not a particular business unit, not individual directors or shareholders. Tex. R. Prof. Conduct 1.12(a).

In practice, however, the lines tend to become blurred. In her leading article, The Banality of Fraud: Re-situating the Inside Counsel as Gatekeeper, 74 Fordham L. Rev. 983 (2005), Professor Sung Hui Kim writes of the tendency of in-house lawyers to over identify with management.

Formally, the client is the organization, not its “constituents,” such as the board, the entity's other employees or co-agents, or even the shareholders. Of course, the organization is entirely fictitious and can only act through the flesh and blood of its constituents. Therefore, in practice, the inside lawyer suspends this fiction and interacts with senior management (who are vested with the authority to direct her activities) as her de facto client or principal, although they are merely co-agents. Both outside and inside lawyers refer to and think of these co-agents as "clients" …

Id. at 1008. While this problem exists for both outside and in-house lawyers, it is particularly pronounced for in-house lawyers. Stephen Bainbridge, Corporate Lawyers as Gatekeepers (2012) at 4.

Both Kim and Bainbridge identify several factors that lead to confusion as to the identity of the client. First, in-house lawyers (particularly general counsels) report directly to the CEO and other senior management and work with them on a day-to-day basis. As a result, in-house lawyers tend to view the CEO as the face of the client. The same is true for


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more junior in-house counsel who support a particular business group. They tend to identify their group as the client as opposed to the company as a whole.

Second, the CEO is often the person who hires the general counsel and the person who has authority to fire him. Unlike a law firm lawyer, the in-house lawyer has only one client. Losing the client means losing a job. This creates additional pressure to side with management.

Third, in-house lawyers are often compensated with stock options and other equity in the company. Bainbridge notes that it is especially difficult for in-house counsel to remain independent of management when receiving significant equity compensation because “at that point, counsel become subject to the same pressures as any other manger to keep the stock price up, to make sure the company hits its numbers, to puff up good news and downplay bad news.” Id. at 4 n.12.

Losing focus on who the client is can lead lawyers to strike a balance that overly favors the role of business partner against that of guardian allowing the company to fall into illegality. Internal investigations of both Enron and WorldCom found that in-house lawyers had lost sight of their true client, the entities, and devoted their loyalty to the entities’ management. Id. at 3.

It is important to note that confusion about the identity of the client is not (usually) conscious. Accordingly, in-house lawyers need to consciously focus on the entity as their client. 2. The lawyer’s role in the company: how broad are

my ethical duties? It is a basic principle of our legal system that a

lawyer’s duties run to her client. But, how broad are those duties? Is the lawyer simply there to do the bidding of the client within the bounds of the law? Or, does the lawyer have some broader duty to the client to influence its behavior so that its conduct adheres to a higher standard? The answer depends, in part, on whether the lawyer is a legal technician or a policy maker.

As a policy maker, the lawyer does not merely do the client’s bidding. She has a role in determining what the client wants to do. As a policy maker for the entity, her decision making process is not limited to what is legally possible. She can and should consider broader issues.

Effective business leaders look at factors other than short-term profits in making decisions. They consider the effect of their decisions on customers, vendors, employees as well as on shareholders. They also consider how the decisions they make affect the company’s reputation and standing in the community. In-house lawyers can and should do the same.

In serving their clients, policy-making lawyers should consider three sets of ethical obligations:

1. Responsibilities to the people and organizations that their company serves (e.g., employees, customers and shareholders)

2. Responsibilities to the legal system and rule of law that are the foundation of our society

3. Responsibilities to create a safe, fair and just society so that the company and its constituents can thrive over the long-term.

B. Heinman, W. Lee, D. Wilkins, Lawyers as Professionals and as Citizens: Key Roles and Responsibilities in the 21st Century, Harvard Law School Center on the Legal Profession at 12.

Although at a surface level, these obligations appear to conflict, they actually do not. There is not an antipathy between the rule of law and the company’s self-interest. In making a decision as to a course of conduct, a company would be wise to consider the effect of that conduct on the rule of law and on society in general. After all, the company relies on the rule of law and a safe, fair and just society to conduct its business. To understand this point, simply compare doing business in the United States with doing business in a country rife with corruption.

Lawyers who have a policy-making role have an obligation to their companies to consider not only whether something can be done but also if it should be done. Id. at 9. As lawyers, we are counselors and not just advocates. Id.

Lawyers who do not have policy-making roles should also take into account how they advise their clients. Generally, lawyers who view themselves as legal technicians, see their role in one of three ways: (i) helping clients maximize profits by finding clever ways to avoid regulation and law; (ii) acting as neutral assessors of legal risk leaving it to others to determine whether a risk should be taken; and (iii) a zealous advocate who maximizes client interest within the bounds of the law. Kim, supra, at 1013-14.

The first view is overly aggressive. We are not suggesting that lawyers should not be aggressive or creative when the situation calls for it. But merely, that viewing yourself as a legal knight slaying the dragon of oppressive regulation tilts the balance too far towards facilitation. It is, bluntly, too easy to get wrapped up in being clever and inadvertently cross legal lines.

The second is too passive. It almost exchanges the gatekeeper for a doorman. In our view, in-house lawyers have an obligation to steer clients in the correct direction not merely to warn them of dangers ahead.


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The third, properly tempered, is closer to the correct balance. It is the lawyer’s job to advocate for her clients and to assist them in finding legal ways to fulfill their goals. But, even junior lawyers (in-house or otherwise) should act as counselors as well. 3. Assessing legal and reputational risks

The balance between acting as a business partner and acting as a guardian depends to a great deal on the legal, regulatory and reputational risks that the company faces. These risks vary from company to company.

Public companies face different disclosure, compliance and reputational risks than do private companies. Industry matters as well. In-house lawyers for a company in a highly regulated area, such as pharmaceuticals, will likely want to set the balance to favor the guardian role than counsel for a privately held architecture firm. Pharmaceuticals are pervasively regulated, consumed by millions and inherently risky. C. Maintaining your balance: Steering the

company away from trouble Once he has determined the appropriate balance

between business and gatekeeping, the in-house lawyer will need to use his influence to steer the company away from trouble. There are a number of skills and techniques that can be used to help keep an eye on risks and to provide strategic value as a business partner. 1. Expand your knowledge

Most in-house lawyers come from a law firm background. At law firms, lawyers are expected to develop subject-matter expertise – to become masters of a particular area of the law. Law firms spend a great deal of time and effort teaching young litigators all the skills they will need to draft motions, take depositions and try cases. They spend no time at all teaching litigators how to put together a business deal or to draft reps and warranties. This specialization serves law firms well as they are in the business of selling specialized expertise.

This sort of specialization is not helpful in an in-house setting. In even the largest in-house legal department, lawyers do not get to specialize the way that they do in firms. Instead, lawyers are expected to assist and advise business people in situations which cross a broad variety of legal topics.

In-house lawyers need a broad general knowledge base of the legal issues that their companies are likely to face. This knowledge should be deep enough to recognize issues when they arise and to appropriately respond to them. In some cases, you can easily discount or comply with the law at issue; in others, you

will need to analyze the issue and in still others, you will need to call in an expert.

Building or even maintaining a broad legal knowledge base can be time-consuming. But, between the internet and other sources, there are numerous resources available for in-house lawyers, including: • CLE courses – CLE providers such as TexasBar

CLE and PLI have online depositories of CLE papers and recordings of CLE programs that can be consumed piecemeal over the Internet.

• Local bar associations – most local bar associations have lunch sessions covering a variety of legal topics. These are usually free.

• Legal blogs – a good blog (and there are many) features short timely articles on issues relevant to a particular field. There are blogs that cover most legal areas (e.g., tax, ERISA, employment) and industries.

• Trade groups • Outside counsel – law firms are eager to come to

an in-house counsel’s office (lunch in hand) and spend an hour educating the office on some area of the law.

• Google, Bing or your favorite search engine – there is a vast trove of legal information available on the internet – most of it from the websites of law firms.

In addition to these resources, there are various in-house counsel organizations that have educational material available.

In addition to expanding his legal knowledge, the in-house lawyer also needs to develop and maintain his business knowledge. For general business knowledge (e.g., basic accounting, finance and management), libraries and used book stores have shelves of books. We have listed some of our favorites at the end of this paper. Other resources include industry trade groups, blogs and periodicals. 2. Develop soft skills

As a guardian, it is vital that the rest of the business team listen to the in-house lawyer and to respond appropriately to what she has to say. Often times, however, lawyers find it difficult to persuade business people because their interpersonal skill set differs from that of the business team. To be successful, an in-house lawyer must learn to interact with business people on terms they find familiar.

Legal training in law school and as young associates in law firms teaches lawyers how to think like a lawyer. Lawyers learn to question, to doubt, to cross-examine and to argue. They are taught to draft elaborate papers that examine all sides of an issue and come to no real conclusion. When making a point,


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however, lawyers are skilled at gathering all of the relevant facts and arguments and using them to crush opponents under the weight of reason, logic and evidence.

This does not translate well to a business environment. Lawyers are trained to reason critically and to advocate. Business people are trained to manage and to lead.

To survive in-house (and, also, to thrive in a law firm), lawyers must learn different interpersonal skills. At base, all of the relevant interpersonal skills relate to communication. There is a lot to communication and miscommunication but for the legally trained communication flaws tend to center on two areas: Lawyers tend to communicate at people rather than with them and to think for others.

Fixing this is well beyond the scope of this paper but we offer some basic guidance:

Learn to listen. Listening is perhaps the most important communication skill. As lawyers, we cannot begin to advise our clients until we fully understand what they are concerned about. A lawyer must resist the temptation to leap ahead to his understanding of the legal issues and their solution.

Communication involves the continuous processing of information – both verbal and non-verbal. The listener observes the speaker’s non-verbal communication and hears the words spoken. She relates what has been conveyed to her to past experience and may have an emotional response to it – neither of which may be accurate or intended by the speaker. The speaker responds both verbally and non-verbally based on her perceptions and the parties exchange roles continuing the process.

Whether this process will result in actual communication or mutual frustration depends on whether the misunderstandings that have crept into each party’s thinking are resolved. An approach is to engage in what counselors call “active listening” to clarify key points in the communication. In active listening, the listener restates verbatim the words that were heard, describe the non-verbal responses and shares her thoughts on what was perceived.

Be practical. Business people are looking to solve problems, not to engage in a discourse on the finer points of legal theory. Legal risk is only one of the many risks that business leaders have to account for and the one that they likely find to be the least interesting. To be blunt, they don’t want to spend any more time on it than they absolutely must.

On a practice level, this means providing an actual answer, i.e., exercising independent judgment to make a go/no go decision on the legal risk. It also means focusing the discussion of risk on high probability or high impact risks and avoiding discussion of low probability/low impact risks.

On a theoretical level, practicality takes into account differences in how business people and lawyers view quality. To business people, quality is descriptive (e.g., 16K gold vs. 24K gold) rather than normative (e.g., 24K gold is the best kind of gold). According to a study by McKinsey Consultants, business people tend to divide quality into three segments: (i) good enough – acceptable for most purposes most of the time; (ii) excellent – occasionally required when important to reputation or market position and (iii) superb – very rarely needed; only for bet the company issues.

Lawyers view quality as normative defining “quality work” to be “high grade, superior, excellent.” Accordingly, our default is to deliver a “superb” analysis. We want to deliver work product that discusses all of the risks, ties up all of the loose ends and completely covers the subject. Except for the most important and sensitive issues, business people neither need nor want this level of analysis.

Avoid pejorative words such as “No” or “Wrong.” People do not like being told “No” or that they are wrong. They have an instinctive, almost combative response to it. The best way to get someone to stop listening to you and to start arguing with you is to tell him “No.”

As a guardian of the company, the in-house lawyer has to prevent legally inappropriate or overly risky activities. But, it can be done without using loaded language. There are several techniques for this: • The lawyer can state the improper course of action

(“We could do X”), pause for a moment, and then politely explain the legal consequences or risks of that course of action. The pause suggests negation without actually stating it.

• The lawyer can ask what the ultimate goal is and then offer a less risky path to the goal.

• The lawyer could also express agreement with the ultimate goal (assuming it is legal) and then suggest a better path to the goal.

Each of these techniques allows the lawyer to appear receptive and agreeable while still steering the discussion towards less risky courses of conduct.

Sometimes, of course, the lawyer has to say “No.” A suggested course of conduct or goal can be so clearly illegal that any lesser expression would be insufficient. These sorts of situations should hopefully be rare. If, however, the lawyer has generally refrained from doing so, saying “No” in such a circumstance will be much more impactive.

Be respectful. All good communication derives from respect. To communicate effectively, a lawyer must fundamentally respect the people he deals with as well as their needs, goals, and the pressures that they


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face. We all strive to be respectful but in the press of business in high stress environments, we can sometimes fall into disrespectful behavior. We should, therefore, continually remind ourselves to be respectful and check our conduct and demeanor to be sure that we are being respectful.

Learning business-style interpersonal skills is not easy. Fortunately, there is help. There are numerous books available. We’ve listed a few of our favorites at the end of this paper. Also, most large companies offer management or leadership training. Alternatively, local colleges and universities may offer management courses that are available either at night or online. 3. Build trust and credibility with the business team

To be an effective guardian of the company, an in-house lawyer must have the trust of the business team with whom she works. In this context, trust has several elements. First, the business team must have confidence in the lawyer’s expertise. Second, the business team must believe that the lawyer understands the business imperative at issue. Third, the business team must perceive the lawyer to be a committed strategic partner on par with the rest of the team.

This sort of trust is built over time. A history of successful transactions will help. As will a demonstrated sensitivity to business concerns and commitment to being a member of the business team.

To move this process along, in-house lawyers should regularly report on their efforts to top management. The report should include a short summary and current status of each matter the legal department is handling. This report will inform the business team of the in-house lawyers’ efforts and successes at solving problems on the company’s behalf. It will also highlight the kinds of issues that the company regularly faces and provide an impetus to eliminate those sorts of issues. 4. Build a compliance culture

The in-house lawyer should not be the only person concerned with company’s legal and ethical compliance. It is properly the concern of all of the company’s employees from the CEO down to the most recent entry level hire. Companies that avoided serious legal trouble and have maintained a good reputation for honesty have a compliance culture.

In-house counsel, due to her legal training and experience, is uniquely suited to the task of building that culture. The specifics of a compliance culture will vary by company and industry. There are some common denominators, however.

Good compliance is top down. The CEO and senior leadership team set the tone for the entire company. If integrity is not important to upper

management, it will not be important to the rank and file.

The core task of CEOs, and top senior executives like the General Counsel, is to build a performance with integrity culture that permeates the corporation and is uniform across the globe. Such a culture entails shared principles (values, policies, and attitudes) and shared practices (norms, systems, and processes). Although this culture must include elements of deterrence and sanctions against legal, financial, and ethical wrongdoing, it must, at the end of the day, be affirmative. An underlying tenet of this culture should be that people want to do the right thing because leaders make it a company imperative and because the leaders live it themselves.

B. Heinman, W. Lee, D. Wilkins, supra, at 23.

The key principals of a top-down compliance culture include: • CEO and business leader demonstration of

commitment to compliance by aspirations expressed to the entire company, tapping respected people to carry out integrity functions and allocation of significant resources to integrity systems and resources.

• Managing performance with integrity as a business process so that integrity is the responsibility of all business leaders and fully integrated with commercial practices

• Adopting global ethical standards that are more strict than what formal rules require

• Fostering employee awareness through education and training

• Giving employees voice so that they can lodge concerns

• Including integrity functions in compensation standards

Id. at 23-24.

In-house counsel can support a compliance culture by providing training, education and leadership.

Training is provided. Proper training is necessary to good compliance. If employees are not given the tools they need to comply, then they will not comply. Most employees are ethical and want to comply with the law. The law’s requirements, however, are not always intuitive. Business practices which seem moral, proper and reasonable may not be legal. Education is, therefore, needed.

Compliance education should encompass three goals. It should teach employees the rules. It should


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explain the purpose of the rules. It should provide methods to employees for identifying and reporting improper behavior.

Whistleblowers are encouraged and protected. In order for business leaders to prevent or limit the damage associated with unethical behavior, they need to know when it occurs. While audits and compliance systems identify some issues, reports of misconduct by employees are the key to compliance. Without these reports, effective compliance is difficult.

The federal government has made whistle-blowing and the protection of whistleblowers a priority in recent years. The SEC has brought many enforcement actions against companies based on reports from whistleblowers. It has also brought enforcement actions against companies that have retaliated against whistleblowers. Most recently, the SEC brought an action against KBR, Inc. to force it to change its confidentiality agreements so that it is clear that employees are allowed to report misconduct to authorities. Federal authorities have also stated that punishment for companies will be lower if the company self-reports violations of the law.

An effective whistleblower program is therefore crucial. Getting employees to “blow the whistle” is difficult, however. There are intense social pressures, dating back to childhood, against “tattling.” Employees are hesitant to report a co-worker because they don’t want to cause someone to lose his job. They are also fearful that they will be punished if they report on a superior or someone favored by a superior.

It is not enough to forbid retaliation against whistleblowers, companies must affirmatively protect them. Among other things, companies should provide an easy and confidential method for making reports. It should also zealously guard the identity of whistleblowers.

A compliance culture will ease the tension between the in-house lawyer’s dual roles because it co-opt other business leaders into the gatekeeper role as well. At base, gatekeeping is good business. Fines, litigation settlements and the legal fees associated with them are costs sunk with no possible return on their investment. 5. Recognize and avoid common cognitive errors

and biases Business people who cross legal and ethical lines

and the lawyers who advise them are generally not bad people. Very few made a conscious decision to violate the law in order to get a larger bonus. Instead, they became so fixated on their short-term goals that they lost sight of their legal and ethical duties.

This is not to say that there are not truly bad people out there violating the law and committing

fraud. There are. Most bad actors, however, fall rather than leap into misconduct.

Why is this? Lawyers are rarely presented with stark moral choices. It is a rare occurrence for an in-house lawyer to be offered a large bonus to do some blatantly illegal act. When these sorts of situations do occur they are easy to identify and simple to resolve.

Instead, the choices that in-house lawyers generally face are much harder. They are rarely black and white but a multitude of gray. And, they almost always arise in a high pressure environment – a very important project with a short time fuse. In these sorts of situations, it is easy to lose sight of risks in the effort to resolve the immediate problem.

In the Banality of Fraud, Professor Kim describes the pressures that can cause otherwise bright, ethical people to fail to notice that they are crossing legal and ethical boundaries. She notes that in-house lawyers are particularly susceptible to falling into this sort of error due to the unique nature of their jobs. People in general have a strong bias to obey authority figures. A boss, particularly a powerful one such as a CEO, is such an authority figure. As a result, employees have a tendency to defer to their bosses even when asked to do things they find morally questionable. Kim, supra, at 995-97, 1001-04. In addition, employees tend to identify with their bosses and to adopt their perceptions and world views. Id. at 1010.

In-house lawyers are a particular kind of employee. As lawyers, we are trained to defer to our clients. Moreover, the modern view of legal ethics is that lawyers are not to make moral judgments about their clients’ goals and conduct so long as those goals and conduct comply with the law. Thus, more so than most employees, in-house lawyers have a greater inclination to defer to management. Our lawyers’ tendency to deference is a cognitive bias that we must be aware of and temper. Id. at 1008-15.

In-house lawyers, like most people, are also susceptible to conformity or peer pressure. There is a famous social science experiment in which the test subject is asked whether one of several lines is longer than the other. The test subject was placed in a room with others who unknown to him were not test subjects but part of the test. In one version of the experiment, each person was asked to answer out load with the test subject being one of the last to answer. Although one line was substantially longer than the other, the false test subjects one by one stated that the lines were the same length until it was the actual subject’s turn to answer. In a substantial number of instances, the test subject agreed with the demonstrably and objectively false statements of the others. Id. at 1019-21. If peer pressure caused people to accept a easily demonstrably false statement as true, it is easy to see that peer


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pressure will cause people to accept facts or propositions that are less clearly false. Id. at 1022.

As people, in-house lawyers are as susceptible to conformity pressure as anyone else. In-house lawyers face an additional pressure as well. At some level, the in-house lawyer is an outsider on the business team. By nature of his role as gatekeeper, the lawyer is perceived as different from the rest of the team. There is also the perception that rules, laws and regulations (and, hence, lawyers) are impediments to the company’s goals. Bainbridge, supra, at 5. Because the in-house lawyer wants to be part of the team, he may lose his objectivity and defer too much to the team’s goals.

There is also pride and ego. As lawyers, we take pride in our work and want to present solutions rather than obstacles. We also want to show how clever we are. So, there is a tendency to try to solve unsolvable problems and to take overly aggressive positions on legal issues.

There are other biases at play as well. Many lawyers and others fall prey to overconfidence, which is the belief that there is a better than average chance that good things will happen and a less than average chance that bad things will happen. Kim, supra, at 1027 (referencing a survey in which 94% of professors stated that they are better than average teachers). Overconfidence causes us to inappropriately discount known risks.

People in general are susceptible to a self-serving bias that causes them to conflate what is fair with what benefits them or the group they identify with. Id. at 1028. Not surprisingly, people are more likely to make self-serving assessments of fairness in morally ambiguous situations, which is the norm for the types of issues that lawyers face. Id. This bias can be particularly difficult to deal with because people seldom believe that it applies to them. Id. at 1029.

Confirmation bias is another risk. It is the tendency to overemphasize evidence that supports one’s views and to discount evidence that contradicts those views. Like overconfidence, it is another form of wishful thinking.

So what to do? First, don’t ignore your gut. Your gut or intuition is training and experience telling you that something is wrong.

Second, take a moment to make a list of what could go wrong and of all of the information that does not support your position. Consciously thinking about risks and bad facts will help overcome your confirmation bias and other forms of wishful thinking.

Third, place yourself in the other side’s position. Try to discern what they need and why they may be concerned by your conduct. Consciously thinking as someone else will help to eliminate self-interest bias.

It will also provide insight into the other side which can be a valuable aid in negotiation.

Fourth, find someone who is not part of the working group to use as a sounding board. Another more objective perspective can provide insight into your thought process. Also, the mere act of explaining what you are thinking to another person can cause you to reflect on what you are doing. III. PRACTICING LAW AT THE SPEED OF

LIGHT The practice of law, particularly for in-house

lawyers, has become more difficult in the 21st Century. The rise of the Internet and the proliferation of smart phones have fundamentally changed how businesses operate. Businesses can now have global reach. Customers expect immediate service. Everyone is reachable and on call constantly.

Yet, we are doing more with less. As we climb out of the Great Recession, businesses have become leaner. Legal budgets for outside lawyers have been cut and in-house lawyers are expected to take up the slack.

As a result, in-house lawyers are practicing law at fervent pace. We are called upon to analyze and advise on legal risks on short notice and with little time for reflection. Transactions need to be documented and closed as quickly as possible with as little cost as possible.

The speed at which in-house lawyers are required to work creates risks that require greater vigilance. We have less and less time to reflect upon increasingly complicated issues. These are the survival skills of the 21st Century in-house lawyer: • Preventing misconduct • Creating strategic value • Doing more with less • And, doing it all at the speed of light.

Survival Skills for the 21st Century In-House Counsel Chapter 10.1

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GC Panel Bibliography

Books: The Servant: A Simple Story about the True Essence of Leadership by James C. Hunter. Silos, Politics and Turf Wars by Patrick Lencion Legal Writing for the Rewired Brain: Persuading Readers in a Paperless World by Robert Dubose Stand Out by Marcus Buckingham The New Reality: Turning Risk into Opportunity through the DuPont Legal Model by DuPont Legal (available on www.dupontlegalmodel.com) The Dollars and $ense of Paralegal Utilization by DuPont Legal (available on www.dupontlegalmodel.com) The Speed of Trust by Stephen M. R. Covey Business at the Speed of Now: Fire Up Your People, Thrill Your Customers, and Crush Your Competitors by John M. Bernard How to Win Friends & Influence People by Dale Carnegie Think and Grow Rich by Napoleon Hill Articles: Stephen M. Bainbridge, Corporate Lawyers as Gatekeepers (excerpted from Corporate Governance After the Financial Crisis) Ben W. Heineman, Jr., William F. Lee, David B. Wilkins, Lawyers as Professionals and as Citizens: Key Roles and Responsibilities in the 21st Century, Harvard Law School, Center on the Legal Profession Sung Hui Kim, The Banality of Fraud: Re-Situating the Inside Counsel as Gatekeeper, 74 Fordham L. Rev. 983

http://www.dupontlegalmodel.com/

http://www.dupontlegalmodel.com/

GENERAL COUNSEL PANEL - Dykema Counsel Panel - Survival... · General Counsel Panel: Survival Skills for the 21 st Century In-House Counsel Chapter 10 2 decide business issuesThis

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