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St. Mary's Law Journal

Abstract

Because of corporate scandals that shook the business world, legislative, corporate, and public fingers immediately pointed at corporate attorneys for allowing such egregious conduct to occur. In 1983, the American Bar Association (ABA) passed Model Rule 1.13, which promoted the entity theory. Under the entity theory, the organization is the in-house counsel’s only client; and the in-house counsel’s primary duty is to act in the best interest of the organization. Whether the issue is deciding to make an executive compensation disclosure in a proxy statement, taking on a dual role within the organization, acting in compliance with heightened professional responsibility requirements under the Sarbanes-Oxley Act of 2002 (SOX), or preparing witnesses for corporate investigations, in-house counsel will avoid ethical hot water if they consistently act in the best interest of the organization. In an effort to protect stakeholders, the Securities and Exchange Commission (SEC) passed Rule 205. Rule 205 is designed to increase confidence in public companies by ensuring that attorneys who represent issuers report up the corporate ladder evidence of material violations by their officers and employees. The result is that Rule 205 has made corporate attorneys into “gatekeepers.” Rule 205’s permissive disclosure provision acts essentially as a whistleblower license for attorneys to use in a last-ditch effort to protect third parties when the highest authorities within the organization fail to take appropriate remedial measures. Thus, in-house counsel is expected to be the first line of defense against corporate irresponsibility and is expected to take a stand against impropriety.

Publisher

St. Mary's University School of Law

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