CORPORATE LAWYERS AND CORPORATE GOVERNANCE

Transcription

1 CORPORATE LAWYERS AND CORPORATE GOVERNANCE JOAN LOUGHREY CAMBRIDGE UNIVERSITY PRESS

2 Preface page xiii Table of cases xv Table of statutes xxvi Table of statutory instruments International treaties xxxii List of abbreviations xxxiii xxxi 1 Introduction 1 The role of corporate lawyers and their firms: the issues 1 The scope of the book 7 Corporate lawyers 7 The large corporate firms 8 Smaller firms 10 In-house lawyers 10 The corporate client 12 Corporate governance 14 The organisation of the book 17 2 The international perspective 19 Introduction 19 The comparative landscape: the United States, Australia and Canada 21 The United States 21 The US Legal profession and corporate scandals 21 A profession under scrutiny 26 The ABA Model Rules 28 The Sarbanes-Oxley Act Australia 30 Canada 35 vn

3 Vlll CONTENTS Extraterritorial regulation of the corporate lawyer 38 Europe and the in-house lawyer 38 The cross-border provision of services and double deontology 41 The global role of UK (and US) corporate lawyers 45 3 The roles of the corporate lawyer 48 Introduction 48 The legal services business 49 The professional role and public service 56 A public-service role? 56 The standard conception of the lawyer's role 62 Zealous advocacy 63 Neutrality 65 Renegotiating the professional role 70 The social functions of the corporate lawyer 70 Counsellor 72 The duty to counsel on ethical issues 73 Counselling respect for the law 75 Gatekeeper 76 Whistle-blower 78 Conclusion 80 4 Identifying the corporate client 82 Introduction 82 Establishing the retainer 83 Express and implied retainers 83 Implying a retainer: relevant factors 86 Identifying the client in owner-managed companies 88 Start-ups 88 Majority shareholders and alter ego companies 89 Minority shareholders 92 Identifying the client in groups 93 The consequences of acting for more than one corporate constituent 96 Conflicts of interest 96 Informed consent 98

4 IX The reasonableness of representation representing joint owners 100 Standing to complain 102 Avoiding conflicts of interest 105 Limited retainers 105 Joint representation and information barriers 106 Confidentiality and privilege 107 Dispersed share-ownership companies 108 Identifying the client 109 Three Rivers (No. 5) and actual authority 109 Section 40 of the Companies Act 2006 and apparent authority 111 Agent acting without authority 112 The effect of the director's assertions of the client's approval 115 Agents possessing authority but acting in breach of duty to the company 117 The lawyer's response to misconduct: who is the client for up-the-line reporting? 118 Conclusion The role of the corporate lawyer in intra-corporate litigation 124 Introduction 124 The corporate governance function of the unfair prejudice remedy and the derivative claim 126 The role of the lawyer in unfair prejudice litigation in owner-managed companies 129 Section 994 litigation and the interests of the company 129 Representing the company 133 Representing the majority 134 Present clients and conflicts of interest 135 The company as a past client 137 The minority shareholder as a past client 140 Where the minority shareholder was never a client 140 Problems and possible solutions 141 Afiduciaryrelationship surviving the end of the retainer 143 The supervisory jurisdiction of the courts 146 The role of the lawyer in the derivative claim 149 Representing the company 150

5 Representing the company and the alleged wrongdoers 154 Representing the alleged wrongdoers 155 Conclusion The corporate lawyer as director 158 Introduction 158 Arguments for lawyers sitting on the board of client companies 159 It promotes the client's interests 159 It promotes the interests of lawyers and their firms 161 Arguments against lawyers sitting on the board of client companies 163 The board's composition and performance and the lawyer-director 163 Conflicts of interest 166 Loss of professional independence 170 Legal professional privilege 173 Conclusion The regulation of the corporate lawyer 179 Introduction 179 Civil liability controls: lawyers as reputational intermediaries and gatekeepers 181 Obligations to the client and resulting liabilities 181 An obligation to advise 182 An obligation to report up the line 186 An obligation to withhold assistance 190 Dishonest assistance of breach of fiduciary duty 193 The economic torts 196 Third parties' causes of action 196 Duty of care in tort 198 The economic torts 201 Lawful means conspiracy 207 Inducing breach of contract 208 Legislative controls 209 Disciplinary controls: the SRA Code 211 Refusing assistance 212 The duty to disclose and up-the-line reporting 213

6 XI Whistle-blowing 214 The common law 214 Disciplinary controls: the SRA Code 216 Legislative controls 217 Conclusion The case against reform 223 Introduction 223 Change is unnecessary 223 The present system of corporate governance is sufficiently strong 223 Reforms should focus on other groups 230 Reform would not work 232 Reputational capital 232 Structural constraints 234 Cognitive bias 236 Reform would undermine legal professional privilege 238 Reform would be too costly 244 Whistle-blowing 244 Disclosure counsel and certification 246 Conclusion Reforming the role of the corporate lawyer 249 Addressing fraud 249 Strengthening the gatekeeper role of in-house and external lawyers: up-the-line reporting 249 To whom should lawyers report? 252 Triggering the obligation 253 To whom should the obligation apply? 255 Withdrawal 255 Strengthening the gatekeeper role of in-house lawyers 256 Addressing creative compliance 258 The SRA Code of Conduct and the spirit of the law 258 The proposal is too uncertain 258 The proposal offends against the rule of law 260 The proposal requires lawyers to impose their moral views on the client 261

7 Xll CONTENTS The proposal could deter legitimate innovation and place lawyers at a competitive disadvantage 262 Lawyers will ignore it 263 Withdrawing legal advice privilege 263 Third-party rights of action 268 Strengthening the counselling role 274 Conclusion The reform of the legal profession and the role of the corporate lawyers 276 Introduction 276 Alternative business structures 277 How ABSs might strengthen the lawyer's corporate governance role 279 Privilege 279 Professional values 280 Closing the information and accountability gap 283 Practising to share price 284 How ABSs could undermine the lawyer's corporate governance role 287 Practising to share price 287 Conflicts of interest: MDPs 287 Conflicts of interest: outside-owned firms 289 Innovation 291 Entity regulation 292 Outcomes- and principles-based regulation 294 Risk-based regulation 296 Conclusion Conclusion 303 Bibliography 311 Index 336