When business and law intersect, professional ethics get thorny

By DIANA SMITH, Staff Writer

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Learning how in-house attorneys tackle the financial and ethical dilemmas that come with working for corporations drew a crowd of 170 people to Cary last week for a crash course in the intricacies of business and law.

Dubbed a “Mini-MBA” CLE “by in-house lawyers, for in-house lawyers,” the seminar was coordinated by the Research Triangle Area chapter of the Association of Corporate Counsel.

Its purpose: to provide an entire day’s worth of programming geared toward issues unique to inside counsel, said coordinator Ken Hammer, general counsel and vice president of corporate affairs for DataFlux.

“The law is the same whether you’re in-house or in private practice, and the rules of professional conduct are the same, but there are situations that we deal with as in-house lawyers that simply don’t arise in private practice and create issues for us under the rules of professional conduct that aren’t taught in other CLEs,” Hammer explained.

For example, “No one else sells themselves as part of a transaction. No one else has to fire the person that hired them, or fire the person that may hire them again if they’ve got a long-term relationship,” he said.

The seminar covered everything from how to evaluate the health of a company during a potential M&A to the ethical duties corporate attorneys might encounter while working on a deal in which they are among the assets being sold to another corporation.

It also included a cautionary tale from Amy Fliegelman-Olli, general counsel for CA Technologies – formerly Computer Associates, Inc. – a company that underwent an SEC investigation for accounting fraud in 2006.

Such tailored content is not something that’s easy to find if you’re in-house, practitioners said.

“There are some CLEs that come kind of close, but all of the things on the agenda were relevant to things I do every day,” said Christine Mazzone, regional counsel with Arysta LifeScience in Cary. “I felt that I was with my people.”

Mazzone said a morning discussion about analyzing financial statements by Scott Spiegel, chief financial officer of the American Institute of Certified Public Accountants, was particularly valuable to her.

In the presentation, Spiegel identified five red flags for in-house counsel to consider during M&As, which included a lack of communication from senior management, if they hesitate to provide information, have no documented policies or procedures, have been involved in high-risk litigation that could lead to negative publicity or have compliance violations.

“If you find any of that, run, run,” Spiegel told the group.

Mazzone, who recently identified four of the five red flags in a deal her company was considering and ultimately did not decide to complete, said the presentation validated the reasons why she did not think it wise to proceed.

And Hampton Dellinger, a former candidate for lieutenant governor who works in Robinson Bradshaw & Hinson’s Chapel Hill office, told Lawyers Weekly that examining financial statements in the neutral setting of a CLE provided an interesting contrast from litigation, where “You’re always looking for the ‘Gotcha!'”

‘War for your soul’

Panelists noted some of the toughest ethical decisions in-house counsel face as they navigate through the intersections of business and law occur during critical points in a company’s history, such as when it is being sold.

During a sale, in-house lawyers battle with the dual feelings of how to manage their legal responsibilities to their company in an ethical way while at the same time facing the fact that they may one day sit on the other side or even learn midway through the transaction that their positions will be eliminated.

Hammer said that in-house counsel objectively know the ethical rules they must adhere to in those situations, but that attorneys still face an emotional battle that extends beyond the bounds of business and law.

“We know the ethical duty is owed to the company we work for right then, the seller, but there’s a war for your soul going on inside,” he explained. “How do you manage to ensure that you always do what you know you must do? You’re going to soon be working for people on the other side. What do you do internally to make sure you don’t dilute your effectiveness?”

Remember that your client is the one who signs your paycheck, one attendee replied.

“Deals come and deals go. As long as you keep foremost who you represent, you will know that when you are sold, you’ll be respected for being a good advocate for the seller and that you will be that good of an advocate for the company you are sold to,” she said.

And don’t burn bridges, added panelist Tim McClain of PRA International.

“You never know when you’re going to cross paths with people you worked with at your old company or when working with a totally different company, and if you don’t conduct yourself professionally, those bridges may not be there in the future,” he said.

Not just for in-house lawyers

Outside counsel also attended the CLE, noting it gave them insight about how to foster the best relationships with their in-house counterparts, particularly when it comes to communication.

For example, “external counsel has to be very aware that the communications that we’re giving to inside counsel doesn’t put them in a box,” said Smith Anderson lawyer Margaret Rosenfeld of Raleigh, who practices corporate and securities law representing both mature and start-up companies.

“We can’t be Chicken Little. It’s very easy to be extremely conservative in an email and say, ‘You must do X,’ when really the answer is, ‘Well, in the best of all worlds, it would be great if the company was doing X.'”

Other topics covered at the seminar were ethical issues that arise with the introduction of social media into company marketing campaigns, what happens when the general counsel is sued and risk analysis for in-house counsel.