Academic journal article Fordham Journal of Corporate & Financial Law

The New Mandate of the Corporate Lawyer after the Fall of Enron and the Enactment of the Sarbanes-Oxley Act

Academic journal article Fordham Journal of Corporate & Financial Law

The New Mandate of the Corporate Lawyer after the Fall of Enron and the Enactment of the Sarbanes-Oxley Act

Article excerpt

"Until we see a CEO and general counsel march off together-for a long, uncomfortable and no-country club sentence-capitalism is at risk, because people are losing confidence."

INTRODUCTION

In just a brief period of time, a growing list of accounting scandals have shaken public and investor faith in corporate America, while simultaneously triggering the nose-dive of the stock market.1 In light of the string of recent corporate financial crisis events that have transpired, the collapse of the Enron Corporation, the overstatement of WorldCom's earnings by over $3.8 billion,2 and its subsequent corporate meltdown, one question remains lingering: where were the corporate lawyers? Lawyers, publicly perceived as having "deep pockets," are becoming attractive targets of accountability, in addition to accountants and business advisors, when a business runs afoul of the law.3

This Note will discuss the new mandate of corporate lawyers in light of recent corporate scandals and the enactment of the Sarbanes-Oxley Act ("Sarbanes-Oxley").4 Part I will highlight the general public dissatisfaction with the legal profession as a result of corporate lawyer involvement with, and lack of disclosure of ongoing unethical corporate behavior. Part II will compare the traditional understanding of the American corporate lawyer's role as that of the governing class, with those scholars who have made significant contributions to the field of business ethics, including Tom Dunfee, Tom Donaldson and Tim Fort.

Part III will discuss the enactment of Sarbanes-Oxley as a Congressional mechanism of expanding the scope of corporate lawyer liability when corporate lawyers fail to disclose a corporate client's unethical conduct. Part IV will discuss the newly mandated role of the corporate lawyer in light of Sarbanes-Oxley, and how Congress is beginning to redefine such role to comport with traditional American governing class notions and ideologies of business ethics. The conclusion will highlight that as a result of the enactment of Sarbanes-Oxley, there will become an inevitable resurfacing of the tension between the corporate lawyer's role as defender of common good and communal values, as evidenced by the traditional understandings of governing class and business ethics, and the presently accepted role of the corporate lawyer as that of hired-gun.

I. CORPORATE LAWYER INVOLVEMENT IN RECENT CORPORATE SCANDALS

The amount of negative publicity surrounding the role corporate lawyers played in the Enron debacle has fueled public distrust with the corporate legal profession.5 Highly publicized transaction work of blue chip law firms, such as Vinson & Elkins and Kirkland & Ellis, has forced the issue of a corporate lawyer's duty to disclose corporate wrongdoing into the spotlight.6 From 1997 through 2001, Vinson & Elkins handled transactions involving off-balance sheet Enron partnerships that are now the focus of the dispute surrounding Enron's collapse.7 Kirkland & Ellis did not represent Enron, but the firm faces lawsuits from shareholders and investors who allege that these off-sheet partnerships consisted of sham transactions and parties created to conceal Enron debt.8

While the public has a long-term documented distrust of the legal profession,9 the fallout of recent corporate entities has made, quite predictably, the public, particularly the government, more willing to hold corporate lawyers accountable for failing to disclose material information implicating corporate agents of corporate wrongdoing.10 Against this backdrop of public hostility towards lawyers, there exists a body of ethical codes, promulgated primarily to maintain public confidence in the legal profession.11 The underlying goals of these codes it to instill a mechanism of self-regulation, far removed from federal government policing, whereby disciplinary measures are instilled to ensure that the public is protected from unethical practitioners. …

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