Newspaper article International Herald Tribune

Legal Ethics Losing out to Bottom Line

Newspaper article International Herald Tribune

Legal Ethics Losing out to Bottom Line

Article excerpt

Too often, big firms focus on resolving conflicts of interest when they advise companies on their purchases, rather than simply avoiding them altogether.

"We are all totally conflicted -- get used to it."

That's what Robert A. Kindler, vice chairman of Morgan Stanley, boldly acknowledged here five years ago at an annual conference of the top corporate lawyers in the United States, who converge on the city every March to discuss the current state of deal making and, yes, frequent double-dealing inside the boardrooms and executive suites of the Fortune 500.

It was a remarkably candid admission -- and one that sadly, five years later, remains too true.

As I listened to dozens of the biggest-name legal consiglieri last week discuss several ripped-from-the-headlines case studies about outrageous behavior by chief executives, directors and Wall Street investment banks caught up in self-dealing, blatant conflict of interests and other chicanery, a question occurred to me: Why do we so rarely blame the supposedly holier-than-thou lawyers?

Chief executives and bankers may make easy punching bags these days, but for every bad decision they make, there is often a lawyer who approves it -- and most likely charges more than $1,000 an hour for that brilliant advice.

Indeed, it increasingly seems the lawyers aid and abet the bad behavior of corporations, providing them with the cover of legal advice -- sometimes knowingly, sometimes not.

"I never thought to ask whether the lead banker owned shares in the other company," Victor I. Lewkow, a longtime lawyer and partner at Cleary Gottlieb Steen & Hamilton, acknowledged to a packed room last Thursday, demonstrating the utter lack of checkpoints in place during a typical merger negotiation by an often seven-figure legal team.

His somewhat shocking acknowledgment came amid a discussion about a top Goldman Sachs banker who was advising the target of a takeover, El Paso. The banker owned about $340,000 worth of stock in the buyer, Kinder Morgan -- an absolute no-no to anyone with a modicum of thought. It is also a violation of Goldman's own rules, which the firm acknowledged.

(I wrote a column about this and other conflicts in that transaction last week.)

I have known Mr. Lewkow, a skilled and thoughtful lawyer, for many years. Neither Mr. Lewkow nor his firm was involved in the El Paso deal, and he was speaking hypothetically to the crowd as if he had been involved with the deal. It may be unfair to single him out for being so honest, but the idea that one of top lawyers in the United States had not contemplated this issue before was disquieting -- and a quick straw poll among his peers showed he was hardly alone.

Lawyers -- even Wall Street lawyers -- are supposed to be a different breed from their clients and banker counterparts. They sign an oath when they are admitted to the bar. Their ethical standards are supposed to be beyond reproach. Yet that seems to be shifting. For many years, if a lawyer was called "commercial," that was considered a pejorative. Today, it is increasingly a badge of honor.

Indeed, much of the conversation among the top lawyers in New Orleans was not about the rules, but about how far you could push them. …

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