The in-house bar has recently made noteworthy progress in the ongoing battle to protect the attorney-client privilege. The focus of most of the efforts to date has been on protecting privilege from attacks made by outsiders: prosecutors, enforcement officials and plaintiffs' class action lawyers, to name a few. A broad-based coalition made up of my organization, the Association of Corporate Counsel (ACC), and partner organizations--including the U.S. Chamber of Commerce, the ACLU and others--recently convinced the U.S. Sentencing Commission to revoke language in the organizational sentencing guidelines that suggested prosecutors could demand privilege waivers from companies under investigation as a condition of being deemed cooperative for charging and sentencing purposes.
Hearings before the U.S. Congress' House Judiciary Committee in March produced bipartisan support for protecting privilege. The Stein decision by Judge Lewis Kaplan, in which he lambasted the DOJ for unconstitutional practices used against KPMG partners, soon followed.
These events, among others, led the Senate Judiciary Committee to hold a hearing. Shortly before the hearing, a group of high-ranking former DOJ officials sent a letter to Alberto Gonzales suggesting that DOJ waiver demands are "undermining rather than strengthening compliance [efforts]."
The Senate hearings commenced on Sept. 12, and the Judiciary Committee brought similar sentiments directly to the new Deputy Attorney General Paul McNulty. McNulty defended the use of the Thompson Memo, arguing it was essential to the DOJ's attempts to stop corporate wrongdoing. Committee Chairman Arlen Specter and Ranking Member Patrick Leahy disagreed and warned McNulty that if the DOJ didn't change the Thompson Memo, the Senate would. Two days later, Specter announced plans to introduce legislation to curb the DOJ's coercive practices. So it seems that the courts, Congress, the legal and business community, and even past DOJ officials are lining up to protest DOJ practices.
While the DOJ continues to publicly defend its policies, the agency has begun to host offline meetings to discuss our concerns. All of this is good momentum, but we still have a long way to go, and there are more threats lurking. Attention paid to outside threats has diverted attention away from a privilege issue that--to my mind--has potentially greater long-term consequences than the challenges I note above: protecting privilege in the yearly audit process.
Every company is aware of the need to provide auditors with the information they need to conduct an effective review of the company's financial health. So when auditors request production of material that is attorney-client privileged or work product protected, what should a company and the general counsel do?
This issue is in some way more insidious than the threats discussed above, because almost every company engages in an audit process and most don't foresee this issue until they are hit with it. To refuse an information request of an auditor could lead to a qualified result, a partial finding or a refusal to certify the books, any one of which is the possible equivalent of a corporate death sentence. But to produce privileged material is likely to be considered a waiver.
Privilege waiver requests are increasing when auditors demand to see internal investigation reports, compliance/controls assessments, litigation reserve estimates, tax opinions and much more. Most ACC members report that their relationship with auditors is becoming increasingly hostile.
ACC is working with our coalition and the ABA to create an effective strategy to combat these privilege erosions. Watch our Web site for new resources to help you combat this problem now and navigate the audit document production process, as well as updates about actions we plan to take with the SEC, the PCAOB and the courts to tackle this new threat to your client's privilege protection.
Susan Hackett is senior vice president and general counsel of the Association of Corporate Counsel (ACC).