The Sarbanes-Oxley Act of 2002 requires corporate lawyers to report evidence of misconduct to the CEO or independent directors. The new law also gives the Securities and Exchange Commission the obligation to set guidelines for company attorneys. The rules have provoked the ire of some lawyers, who fear the regulations could tread on the sacred ground of attorney-client privilege.
“The American Bar Association isn’t happy about this,” says Ted Sonde of Washington, D.C., law firm Crowell & Moring. He says there’s been a running debate between the ABA and the SEC over the role of lawyers at public firms. “The SEC has held the position that they should, in effect, be policemen,” he says. “Lawyers don’t think they should have that obligation.”
In an August speech, SEC chairman Harvey Pitt warned of the new responsibility. “Lawyers for public companies represent the company as a whole and its shareholder-owners,” he said, “not the managers who hire and fire them.”
For unscrupulous CFOs, that could be an important distinction. In the past, says Sonde, they have been able to keep things from the board. “They won’t be able to do that any longer.”