Representing a corporation as its inside counsel is a difficult task for a myriad of reasons. One specific reason is inside counsel is hired and supervised by a corporate executive — but the true client is the corporation. Thus, inside counsel is occasionally challenged with the precarious circumstance where their executive supervisor’s interests are divergent from the company’s. The purpose of this article is to provide the reader a refresher on the ethical duty an attorney retained by a corporation has to it, and how to avoid breaching this duty when an executive supervisor has a competing interest and requests advice.
Foremost, it is important to remember that when an attorney is retained to represent a corporation, the client is the corporation, not the executives who hire the attorney. Therefore, the attorney’s duty of loyalty rests in the corporation’s fictitious hands — not the executive’s. If an agent of the corporation who happens to be the attorney’s superior requests that they do something that may breach their ethical duty to the corporation, the attorney must abstain, or risk breaching their duty to the corporation. This is an issue inside counsel is faced with often, as many corporate executives do not appreciate that inside counsel loyalty lies with the corporation.
To minimize the risk this situation may arise, inside counsel should take on the responsibility of informing and periodically refreshing the corporation’s executive board and management on this issue, whether it be either by annually circulating a memoranda explaining attorneys’ relationship with the corporation and their boundaries, or holding a brief annual meeting on legal ethics. Another step inside counsel should implement is to provide the executive board and corporate management a handbook that outlines the purpose of the internal legal department.
Lastly, it advisable to create an ethical committee comprised of both attorneys and management where both parties can turn to when an issue arises. This step is beneficial in two respects. First, individuals have an outlet available to them when faced with tough ethical issues. Second, the committee is comprised of both attorneys and management, which thereby requires non-attorney management to become familiar with attorney responsibilities.
To emphasize why inside counsel should implement these actions, it is arguably required by the ABA Model Rules. ABA Model Rule 1.13 explicitly states that it is the responsibility of an attorney to inform a non-entity constituent that an attorney represents the corporation. Therefore, by proactively implementing these actions, inside counsel alleviates the risk of conflicts arising from the representation of the corporation and executive interests before they even culminate.
In the circumstance a corporate executive approaches the legal department for advice pertaining to their personal actions, there are a few steps that should be taken before providing the individual legal advice. First, it is important to immediately explain the different interests involved. Second, advise them that they should seek independent advice. Lastly, before providing advice to the individual, inside counsel should memorialize in writing that they have informed the individual of the prior two points and that they wholly understand them. While the ABA Model Rules provide attorneys’ discretion when they should give such a warning, it is prudent to simply give such a warning in all circumstances when there is even the slightest of possibilities that a conflict of interest may arise in order to limit potential liability.
If inside counsel is aware that an agent of the corporation is about to breach a fiduciary duty owed to it, has breached an obligation owed to the corporation, is about to violate the law, or has already violated the law, ethically counsel is required to take some sort of action. The Model Rules are silent on what type of action is required in these unfortunate circumstances.
However, it is generally understood that there are a few options available: request the agent reconsider the matter; inform the agent to acquire independent legal advice; confer with an authority higher in the corporation about the matter at issue; or if none of the previous options are available or successful — counsel is permitted to resign and not face ethical repercussions. While these may not seem like great options, they beat risking your personal integrity, reputation, and career. Complying with the rules is not an option — do not let anyone lead you on to believe otherwise.