Client Conflict

The comments you've sent since I started writing this column confirm a common misperception among many senior corporate executives: that we act as their personal attorneys.

Our outside counsel brethren face the same challenge, and a recent Los Angeles Daily Journal story serves as a good illustration. According to the article, a federal judge in Santa Ana criticized California-based law firm Irell & Manella for "ethical failures" because it didn't explain to the chief financial officer of one of its corporate clients that a sensitive conversation it had with him would be reported to outside auditors.

Computer chip maker Broadcom's former CFO William Ruehle, one of two executives a federal grand jury indicted on securities fraud and conspiracy charges for backdating stock options, apparently thought he was speaking under attorney-client privilege because lawyers from Irell & Manella didn't tell him that they represented Broadcom as a corporate entity but not its individual executives. Ruehle had mistakenly believed that the company's external counsel, whose obligation was to Broadcom's corporate interests, was gathering information to defend him personally against shareholder lawsuits.

Irell & Manella's attorneys, whom prosecutors called to testify as witnesses against their former clients, argued that Ruehle was well aware that anything he said could be disclosed to outside parties at Broadcom's discretion. In the conclusion of a suppression hearing, a judge found that statements Ruehle made to the external lawyer could not be used by the FBI since the law firm failed to obtain informed written consent from clients with potentially adverse interests.

We need not stretch these facts too much to grasp from them the important lesson for in-house counsel who are placed in this predicament on a regular basis. Every time a constituent brings us a problem, there is a potential that we may find ourselves in the same situation as the Irell & Manella lawyers. If we do not carefully explain whose interests we represent, the executives with whom we work may mistakenly believe we are their personal attorneys, freely sharing with us information that they otherwise would not. This could interfere with managing the information in the best interests of the real client, the organization.

To avoid this situation, in-house counsel must take care to clarify their role when confronting situations where potential conflicts of interest may arise. One of the most basic tools is use of the so-called "Corporate Miranda" warnings. As investigations become formal, however, we would be well served to obtain written confirmations from the executives being interviewed. This may seem awkward at first, but it assures that you will steer clear of the very situation Irell & Menella faced.

The client identity issue has dogged many of you in different forms. For example, some readers have detailed how they have struggled in dealing with senior executives who try to enlist them to champion their own individual agendas to other groups or departments in their companies. This also reflects a basic misunderstanding of the role of the corporate counsel.

In dealing with this sticky issue, I have always believed that in-house counsel should leverage the support of their legal departments. The legal team is your affinity group, and it can serve as a "clearing house" for advice on handling complex and political situations. Perhaps your GC can manage this or you can adopt successful tactics employed by others. There is no need to handle this alone.

There are my thoughts. I invite you to share yours with me.

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