Lawyers' Ethics in a Post-Enron World
Lawry, Robert P., Phi Kappa Phi Forum
The ethical issues that shot their way to the forefront for lawyers in 2002 all came from the mouth of the huge corporate cannon, Enron. As the popular press denounced accountants, executives, and boards of directors, private litigators and the federal government added lawyers to the list of unsavory characters in this huge financial scandal and to those other scandals that followed in its wake. A lawsuit in Texas named Enron's outside lawyers as defendants in a case designed to recover investor losses. Meanwhile, Congress passed the Sarbanes-Oxley Act, legislation aimed partly at lawyers. Finally, as a result of Sarbanes-Oxley, the Securities and Exchange Commission (SEC) drafted new rules that are designed to hold lawyers to higher standards in protecting the public against corporate fraud.
Two sets of rules became the focus of the SEC's rulemaking. The first dealt with issues internal to the corporation. These rules are meant to require lawyers to bring concerns about fraud to the highest authorities within an organization. The second dealt with issues external to the corporation. These rules are designed to provide broader exceptions to the general requirement that lawyers keep information related to a client representation strictly confidential. Both sets of issues have been the subject of intense debate within the legal profession for decades. Historically, they rise to dominate ethics debates during and immediately after corporate-fraud scandals such as Enron. Since the 1970s, some of the most highly publicized scandals that have served as triggering mechanisms for such debates include the National Student Marketing case (securities fraud), the OPM matter (commercial fraud), the Lincoln Savings & Loan and allied savings and loans (S&L) failures of the 1980s, and the BCCI bank failure of th e 1990s (fraud in financial institutions). Now there is Enron, and another huge financial fraud that has wreaked havoc on the economy and caused untold harm to many innocent people.
The questions raised after each of these debacles are the same: Are the ethical rules governing the behavior of lawyers a contributing factor to these frauds? If so, should those rules be changed? We are not talking here about lawyers who are deliberately and actively involved in illegal and corrupt practices. We are talking about lawyers who are trying to do good professional jobs, even as their clients do wrong. The very idea of what it means to do a good, professional job is at the heart of the matter. Therefore, embedded within the debates about changes in rules is a profound difference in the concept of what it means to be a lawyer. Before identifying that difference, it is necessary to understand some of the history of the debates about specific rules. I will examine the internal corporate issue first; then, I will take up the more important external question of confidentiality; finally, I will conclude with a brief analysis of the underlying conceptual difference that accounts for the recurring debate s on these issues.
UP THE CORPORATE LADDER
Although the American Bar Association (ABA) passed its first code of ethics in 1908 (Canons), and completely overhauled and changed the format in 1969 (Model Code), it was not until the third substantial revision in 1983 (Model Rules) that drafters paid more than superficial attention to the special problems that lawyers face in representing an organization rather than an individual person. Rule 1.13 of the Rules provides a variety of options for lawyers who know that a person internal to the corporation "is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization." One of the options provided was to take the information to a "higher authority" in the organization, even to the "highest authority that can act on behalf of the organization. …