A Guest Post by Azish Filabi and Jim Lager
Maybe it was easier in the old days for in-house lawyers to be the de facto conscience of their client organizations. Lawyers have a keen sense for the peril and risk that lurks just past the next opportunity, and accordingly had a great influence on how their organizations exercised their discretion. Wise counsel was both sought and dispensed by general counsel for decades. Assuring corporate compliance with governing law and regulation was a natural part of a corporate lawyer’s duties.
Many corporate counsel still serve this traditional function, yet with increasing frequency, lawyers are succumbing to economic, structural and behavioral pressures to stay in an increasingly narrow lane demarcated by the law’s four corners. There is an emerging consensus that lawyers have become the “loophole finders” within organizations. The growing academic literature on the shifting landscape for lawyers is well documented (and produced) by the Center on the Legal Profession at Harvard Law School. The authors of the paper “Lawyers as Professionals and as Citizens: Key roles and responsibilities in the 21st Century” mark the various contextual challenges lawyers confront in the current marketplace. Their analysis highlights that one consequence of the increasing competition in the legal profession is the pressure on lawyers to deviate from the ethical duties of lawyering. In particular, the rise in size and prominence of in-house legal departments is at the center of the continued shift in legal practices. Initially, departments were expanded as a response to increased costs of services offered by law firms, and now they pressure those law firms to increase their own efficiencies and reduce their costs.
The pressures on lawyering are also evident in the debate about the role of the CCO (chief compliance officer) vis-a-vis the GCO (general counsel’s office). Although an understanding of the law is essential to compliance, it is not essential for compliance to be inside the general counsel’s suite. There are advantages to organizational separation of compliance from the chief legal officer’s purview, including assuring that allegations of improper behavior receive appropriate (and independent) attention, and demonstrating the corporation’s commitment to compliance by giving it a high-level status.
A separate compliance department does have its downsides. It increases the likelihood of turf wars between the two offices, and fuels the tendency to view compliance professionals as outsiders who may be kept away from the important social networks and the informal communication channels necessary to understand how decisions are actually made. Separation of compliance from legal may also increase the risk of the general counsel’s lawyers serving as mere legal technicians, responsible only for telling clients what the law permits and forbids. Based on organizational logic, separating the two functions could lead to conclusions that the responsibility for all ethics matters will reside in the CCO. For a legal department, this would further discourage lawyering from serving as wise counsel with professional responsibilities not only to the client but also to the public.
We think that good ethics makes compliance easy, and a corporation can have a good ethical culture irrespective of the company’s organizational chart. Research tells us what we all know intuitively: ethical behavior in organizations stems not from codes, the adoption of procedures or the location where “compliance” is housed, but instead from actions based on our understanding of human behavior.
Although no single “best practice” is obligatory, and certainly one size does not fit all, there are some steps behavioral science teaches us will be effective. For example, we know that good ethical modeling by those in authority has a significant effect on the behavior of others. Therefore, we believe that corporations—with the sound advice of their counsel—should carefully consider the advantages and disadvantages of each approach to compliance, and choose the approach that is more likely to foster ethical conduct. Positive role-modeling remains essential for all leaders if an ethical culture is to be maintained and, with it, a strong compliance posture.
Regardless of where compliance functions are located, general counsel are well-positioned to be ethical leaders in their organizations. To exercise ethical leadership, however, they need to be careful to avoid common behavioral pressures–in particular those that, in service to their client’s demands, may disserve their client’s long-term best interests. Pressure on lawyers to be increasingly responsive to client short-term needs can encourage ethical fading, a psychological process in which you eventually lose sight of the ethical dimensions of your decisions because you are focusing too narrowly on a single perspective. For lawyers, serving a client’s immediate need, particularly under pressure to retain future business, a job or increased compensation, narrows the frame of reference away from the broader professional duty of lawyering and providing competent advice.
Ethical fading by lawyers who see their role more as legal technician than as wise counsel has had disastrous consequences for both clients and the public, as the role of the General Motor’s lawyers in that company’s ignition switch failure debacle shows. In that case, as highlighted in the investigation report by Anton Valukas, lawyers served a narrow legal duty to the client by settling cases concerning its ignition switch for nine years without raising the matter as a safety issue. This delay not only racked-up the additional costs of vehicle recalls, regulatory fines and long-term costs associated with reputational damage, but also reportedly 90 deaths due to the ignition switch failures.
Other structural pressures on the profession can encourage unethical behavior. As Professor Langevoort of Georgetown Law School writes in his paper on behavioral compliance, increased competition between in-house and external counsel over the cost of production (i.e., legal advice), and business downturns can encourage unethical behavior because it triggers emotions (especially fear), a short-term orientation and risk-taking. For some, self-protection could lead to taking an unscrupulous stance in negotiations, or even outright deception, justified consciously or unconsciously, as vigorous representation of their client.
As professionals, lawyers must take care to assure that self-interest does not supersede client interests. Balancing these interests requires lawyers to avoid what psychologists Ann Tenbrunsel and Max Bazerman have termed, in the context of ethical decision-making, as a conflict between a person’s “should self” and their “want self”. The want self may pursue pecuniary or other short-term interests, which are sometimes also aligned with the client’s immediate goals, without questioning if the means to those ends are right. Lawyers attending to their should selves would instead consider the full breadth of their professional obligations to their clients and justice, the ethicality of the way the clients want to meet their goals and their client’s long-term interests. Lawyers listening to their should selves would be a wise counsel to their clients, and could not remain silent in the face of a potentially lethal safety issue.
It is difficult for amoral lawyers to meet their professional obligations to their client. Further, amorality risks immorality, leaving ethics to others and, in the end, neither serving the client nor the public interest. A culture of amorality in the general counsel’s office could lead to one where ethical transgressions become banal, so commonplace to a culture that it becomes infused with irresponsibility, giving little consideration to reputation or stability.
Ultimately, everyone throughout an organization is responsible for its ethical practices. An ethical systems approach recognizes the centrality of individual responsibility, but also the organizational and systemic pressures that could discourage wise counsel and the ethical behavior that comes with it.
Azish Filabi is CEO of EthicalSystems.org where she dedicates her time to developing strategies for businesses to promote ethical behavior in their organizations through research and collaboration with the leading experts in the field. She currently serves as an officer in the New York State Bar Association International Section. Previously, she was an ethics officer and bank regulatory lawyer at the Federal Reserve Bank of New York, and a corporate associate at Curtis, Mallet-Prevost, Colt & Mosle.
Jim Lager is the deputy ethics counselor at the U.S. Government Accountability Office (GAO), adjunct professor at the Robert H. Smith School of Business, University of Maryland, and an Ethical Systems collaborator. The views expressed here are not intended to reflect GAO’s institutional views.
Reprinted with permission from the “February 29, 2016” edition of the “Corporate Counsel”© 2016 ALM Media Properties, LLC. All rights reserved.