Reporting Up

I once worked with a chief financial officer who used to conclude addresses to internal audiences by thanking us in advance for going over his head and referring matters to the company's CEO or board of directors if any of us believed he was not acting in the best interest of the company. The integrity animating this sincere invitation was the very reason no one ever had to take him up on it. ? Even absent an express invitation, the ABA Model Rules of Professional Conduct may require you to report up certain corporate misconduct, even if doing so requires you to subvert your career and economic interests to those of the client.

The ethical duties owed by in-house counsel when dealing with corporate malefactors are set forth in Model Rule of Professional Conduct 1.13(b):

"If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law that reasonably might be imputed to the organization, and that is likely to result in substantial injury to the organization, then the lawyer shall proceed as is reasonably necessary in the best interest of the organization. Unless the lawyer reasonably believes that it is not necessary in the best interest of the organization to do so, the lawyer shall refer the matter to higher authority in the organization."

In 2003, in the wake of the Enron scandal and other corporate governance failures, the ABA amended Rule 1.13(b) to mandate reporting up, provided certain conditions were met. This underscored that the client of in-house attorneys is the organization, not its executives. The addition of a "reporting up" requirement came in response to the perception that some in-house lawyers were giving in to fear and self-interest by not exposing misconduct to senior corporate ranks.

When we discuss this provision in the law school class I teach, the political realities of Rule 1.13(b) grow stark and the students astutely ask about the career consequences of jumping over a business partner, colleague or
supervisor's head.

The response is sobering to them: Regardless of the pain associated with this process, protecting the client is the raison d'etre of the in-house counsel. Willingness to resort to this process is part of the job description. Career stability does not justify nonfeasance, a lesson recently learned by some in-house counsel facing legal and regulatory scrutiny (see "Under Scrutiny," June 2008).

The next question usually is: "Why would anyone ever want to be a general counsel?"

At the risk of stating the obvious (something people regularly tell me that I am quite gifted at doing), the best way to avoid the discomfort associated with Rule 1.13(b) is to attach yourself to an organization that will not force you to resort to it. The CFO's invitation described above reminds us that we need not work for an organization that undervalues governance and forces us into thorny ethical dilemmas.

The heightened scrutiny of in-house counsel compels us to carry out exacting diligence when considering a potential employer. It also commands us to be prepared to terminate the affiliation if our constituents place us in ethically compromising situations.

Even in this economy, we should not compromise our ethics. Our liberty, long-term career aspirations and sleep are too important.

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