Ethical Dilemmas Burt M. Fealing Executive Vice President General Counsel and Secretary Southwire Company

Ethical Dilemmas All lawyers are subject to professional responsibility rules and a fiduciary relationship with their clients. In private practice, ethical rules that deal with fees, trust accounts and advertising are clear. But the in-house counsel face different and often thorny situations not directly addressed by these rules.

Ethical Dilemmas An in-house lawyer has one client. The business, be it a corporation, partnership or sole proprietorship that hired him is his sole client. He is NOT the lawyer for the executives, management or employees other than when the interest of those parties directly aligns with the business. This means there are a lot of ethical dilemmas in-house with no clear cut answers or rules to directly turn to for guidance.

Scenario 1 - $1 for Your Representation An employee or more likely a high level manager or executive comes to you with a story “for your ears only.” When you hear something like that, a warning bell should go off in your head. These situations generally arise when you are conducting an internal investigation. For example, what if your employee is subpoenaed by the government in connection with some price fixing allegations?

GC Responsibility - $1 for Your Representation You, as the corporate attorney, have an obligation to insure the company complies with the subpoena and produces the relevant information. Your employee may see it differently and feel entitled to you representing him directly. If your employee acted within the guidelines of corporate policy, his interests align with the company’s interest. Defending the company is the same as defending the employee.

GC Responsibility- $1 for Your Representation What if the employee acted in a different manner than what the company rules proscribe? They are willing to give you $$$. You have to be able to tell that manager or executive that they can and should get their own lawyer. [Rule 1.7 Conflict of Interest.] You are in a difficult position if the most senior exec is the one asking for “your ears only” and holds the keys to your reviews, promotions or whether you are fired.

GC Responsibility- $1 for Your Representation What do you do? The best advice I’ve been given is to look at the rules of professional responsibility, apply common sense and your conscience and ask, how would your actions affect corporate value and shareholders and how would your actions appear to your Mom?

Scenario 2 – U.S. Too Litigious Another common situation is “up the ladder reporting”. Imagine a scenario where your CEO has engaged in activities that do not appear to comply with the law. In fact, imagine he has acted to further along what you suspect is a bribe of a foreign official in another country. You know the behavior in question could be a violation of the FCPA. (Foreign Corrupt Practices Act).

GC Responsibility - U.S. Too Litigious What do you do? Today in-house lawyers are viewed as gatekeepers. We are the ones who are in the cross hairs of the regulators and are implicitly as well as explicitly charged with “keeping the company honest.” We in effect are the ones who act to prevent fraud and corporate bad acts. A common way to describe this is the in-house lawyer in effect performs the whistleblower function.

GC Responsibility - U.S. Too Litigious First look to the rules. They state you cannot assist in a crime or bad acts and must take steps to prevent bodily harm. [Rule 1.16 – Terminating Representation] In this instance, you as the in-house counsel have an obligation to conduct an initial internal investigation and escalate to an audit committee if the investigation yields something that seems suspicious. Situations like this can arise from seemingly innocent circumstances and in-house counsel has to be on his game to know when to ask questions.

GC Responsibility - U.S. Too Litigious At this point, it is time to call outside counsel? YES! In particular, a white collar attorney should evaluate. And, it is time to contact the Audit Committee and inform them an investigation is going to commence and they have to conduct that investigation. You, as in-house counsel have done your part. You are no longer directly involved and you must hand the issues off to your outside counsel and the Audit Committee. You DO NOT conduct the investigation past the initial assessment.

Scenario 3 - Germany Imagine a situation where you know that an employee is embezzling funds and stealing information. They are intentionally setting up a competing company to go head-to-head with your company.

Scenario 3 - Germany Now imagine the reason you know this information is because the employee sent an by error to their boss and the contained all of the details. You have an investigation but you have come across privacy rules in Germany. Individual has conducted private activities on their work computer. Works council? International police? Criminal prosecutor?

Scenario 4 - Bribery / FCPA What if your outside counsel tells you that you can just effectively turn a blind eye because what you’ve uncovered so far fits within a “gray area.” Let me ask you. What does your gut tell you? The people I know who have gone through real situations like this knew they were being advised to close their eyes to what was going on, keep everything running smoothly as if there were no bribery allegations, and they would keep their jobs with no one the wiser.

GC Responsibility - Bribery / FCPA In this real life situation, the people I know followed their gut, fired their outside counsel, made the appropriate disclosures and eventually left the company when the issues were not resolved.

GC Responsibility - Bribery / FCPA The very real problem here for inhouse counsel is, once we know there is wrongdoing going on, we cannot turn a blind eye, no matter how outside counsel advises us. We have a fiduciary obligation to our client. It puts us in a position of having to resign from our positions if, after advising the company of wrongdoing, the company refuses to step up and work on the solution. We have no whistleblower protections. Yes, we are obligated to take action and are the only profession which has to resign in the face of these types of circumstances. The questions of ethics plagues us humans. It also is a fundamental part of who we are.

Executive Summary 1.Always remember who your client is. 2.You are there to prevent fraud and corporate bad acts. 3.Understand where your line is in the sand as far as personal ethics and what it would take for you to leave employment if there was no other solution. 4.Stay up to date on the latest in ethics training. The regulators will go after the gatekeepers and that is a practice we can already start to see happening. 5.Know there is a “target” on the back of GC’s and in-house counsel today. 6.Be smart, diligent, have common sense, and remember to behave so that your Mom/Dad would be proud of you.