Corporate Legal Ethics/The Corporate Gatekeeper in Ethical Perspective

Corporate Legal Ethics/The Corporate Gatekeeper in Ethical Perspective
Christopher T. Hines National Business Law Scholars Conference University of Cincinnati College of Law June 28, 2012

I. Introduction The Corporate Gatekeeper in Ethical Perspective– Second article in a series that explores the intersection of corporate law and legal ethics, 77 Mo. L. Rev. __ (2012) (forthcoming) First article – Returning to First Principles of Privilege Law: Focusing on the Facts in Internal Corporate Investigations, 60 U. Kan. L. Rev. 33 (2011) (“facts-communication” model for the corporate attorney-client privilege in selective waiver cases)

I. Introduction Third article (work-in-progress) – Corporate Legal Ethics; normative questions as to the corporate form are increasingly concerning questions of legal ethics. Economic Approach, as enunciated in L&E scholarship. Social Approach, as elaborated by CSR writings. Ethical Approach, an additional approach that accounts for economic and social approaches to corporate law. Economic Pluralism (work-in-progress) – exploration of differences in values that may obtain in political economies and argue in favor of a pluralistic approach as to market economies. Further discussion of comparative corporate governance (e.g., convergence and path dependence theories).

I. Introduction Framework for conflicts of interest scenarios Activity Rules Liability Rules Disclosure Rules Ethical Rules Thesis: cases involving conflicts of interest in the corporate and securities law space may be viewed as primarily calling into question the ethical rules of the corporate gatekeeper.

II. Categories of Conflicts Rules Activity Rules Definition: rules of law that prescribe the permitted activity that the corporate gatekeeper may engage in as part of her professional representation of her chosen client Primarily negative rules that prohibit identified activity that the corporate gatekeeper may undertake Sarbanes Oxley § 201 (Services Outside the Scope of Practice of Auditors) Glass-Steagall (separation of commercial and investment banking) Volcker rule (limitations on proprietary trading)

II. Categories of Conflicts Rules Liability Rules Definition: rules of law that attach liability to the actions (or lack thereof) of the corporate gatekeeper A method of compensating an aggrieved party for the damages caused by another Secondary liability under Section 10(b) of the Securities Act Central Bank v. First Interstate Bank of Denver, 511 U.S. 164 (1994) (no implied private cause of action) Stoneridge Investment Partners v. Scientific Atlanta, 552 U.S. 148 (2008) (no “scheme liability” due to lack of reliance)

II. Categories of Conflicts Rules Disclosure Rules Definition: rules of law concerning the registration and reporting process for publicly traded companies under federal securities law and regulation Justice Brandeis – “sunlight is said to be the best of disinfectants” and the federal securities law system Sarbanes-Oxley § 406: Code of Ethics for Senior Financial Officers Dodd-Frank § 952: Compensation Committee Independence Standards

II. Categories of Conflicts Rules Ethical Rules Distinction between first-order and second-order ethical rules First-Order Ethical Rule: a rule of ethics as may be prescribed by the relevant profession 1908 Canons of Professional Ethics 1969 Model Code of Professional Responsibility 1983 Model Rules of Professional Conduct Second-Order Ethical Rule: a rule of ethics as may be prescribed by the competent authority Attorney Conduct Rules as mandated by Sarbanes-Oxley § 307; “up the ladder” reporting process

III. The Primacy of Ethical Rules of the Corporate Gatekeeper Comparing the Categories of Conflicts Rules Gatekeeper Positive Interest: matters that fall within the self interest of such gatekeeper as a member of her chosen profession Negative interest as logical opposite Corporation Positive Interest: matters that fall within the self interest of the corporate enterprise, broadly considered Again, negative interest as logical opposite

Corporation Negative Interest Positive Interest Gatekeeper Gatekeeper Negative / Corporation Negative Gatekeeper Negative / Corporation Positive Negative Interest Gatekeeper Positive/ Corporation Negative Gatekeeper Positive/ Corporation Positive Positive Interest

Corporation Negative Interest Positive Interest Gatekeeper Activity Rules Gatekeeper Negative / Corporation Negative Liability Rules Gatekeeper Negative / Corporation Positive Negative Interest Disclosure Rules Gatekeeper Positive/ Corporation Negative Ethical Rules Gatekeeper Positive/ Corporation Positive Positive Interest

Corporation Negative Interest Positive Interest Gatekeeper Activity Rules Liability Rules Negative Interest Disclosure Rules Ethical Rules Positive Interest

III. The Primacy of Ethical Rules of the Corporate Gatekeeper Dodd-Frank § 952 – Compensation Committee Independence Standards SEC Final Rule on Listing Standards for Compensation Committees (June 20, 2012) Potential benefits of additional focus on ethical rules Relevant profession more proactively addresses matters of conflict of interest Gatekeeper reminded of the importance of preserving her reputational capital Collective action problem addressed through additional focus on the gatekeepers in question Normative ends of justice may be more fully achieved

Corporate Legal Ethics/The Corporate Gatekeeper in Ethical Perspective