When you think about the term "governance," who first comes to mind? Likely, it is the board of directors and top management. But key advisors, like cooperative attorneys, should not be ignored when thinking about governance. After all, aren't attorneys supposed to keep their clients out of trouble? Shouldn't they be trying to rein in wayward officers and remind them of their fiduciary obligations? And don't attorneys guide directors and managers by explaining legal and compliance risks and potential liability?
Attorneys do, in fact, have an important rote in governance. Some prominent legal commentators, courts and state bar associations are encouraging attorneys to be more proactive in counseling their organizational clients to try to avoid the governance failures that seem to be occurring too often in this decade. This article explores the evolving role of attorneys in corporate governance today, particularly attorneys for electric cooperatives. It does not presume that there is a "one size fits all" type of attorney that will best serve the needs of all electric cooperatives. Instead, the goal is to call attention to the various functions that an attorney can perform in assisting cooperative boards and management as welt as describe applicable ethics rules and current expectations for attorneys.
The Fall 2003 issue of Management Quarterly featured an article by NRECA, the National Rural Utilities Cooperative Finance Corporation and Federated Rural Electric Insurance Exchange titled, "Governance & Accountability in Today's Business Climate: How Do Electric Cooperatives Measure Up." In that article, the authors noted that:
New "best practices" ... in governance are emerging. With the
prospect of more rules and regulations being applicable to all
businesses, including cooperatives, it is important that electric
cooperatives focus their attention on ensuring good governance
practices and responsible and accountable financial management.
A cooperative's chief advisors, its attorneys, auditors and
accounting firm, also are likely to be impacted by the cascade
effect. For attorneys, this means reaffirming that their duty to an
organizational client is the entity itself and not the individuals
who manage that organization or make up its board. It is likely
that attorneys will be called upon to take a more proactive role in
reporting legal concerns "up the ladder" within the organization
and more affirmative steps to see that the organization's
management and/or board appropriately investigate and respond ...
(1) (Emphasis added.)
Seven years later, it seems these predictions were correct. A crystal ball was not required because much was being written in 2003, right after the collapse of Enron, about governance. Notably, the American Bar Association had convened a Presidential Task Force on Corporate Responsibility. This task force released a report (2) describing the responsibilities that lawyers for corporations have in governance:
Lawyers are and should be important participants in corporate
governance and important contributors to corporate responsibility
... lawyers often serve as counselors to the board to assist it in
performing its oversight function ... lawyers obviously do and
should play a critical role in helping the corporation recognize,
understand and comply with applicable laws and regulations, as well
as to identify and evaluate business risks associated with legal
issues. (3) (Emphasis added.)
The ABA Task Force Report also contained several recommended changes to the ABA Model Rules of Professional Conduct, which were adopted later that same year. These model rules form the foundation of most state bar associations' professional conduct rules for attorneys, though states are free to deviate from or decline to adopt the ABA's language. …