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Painter beats the ABA While Richard Painter lost some battles along the way, he’s finally won the war. The University of Illinois law professor has argued for a decade that corporate lawyers should be required to report securities law violations to a company’s board of directors. Four years ago Painter tried to get the American Bar Association to change its model rules to include such a requirement, but he was defeated. Earlier this year he wrote a letter to SEC chairman Harvey Pittco-signed by 39 other law professorsthat also urged a reporting requirement. Again, Painter was ignored. But the 40-year-old scholar finally triumphed this summer, when Congress mandated a lawyer reporting rule in the Sarbanes-Oxley Act, the new corporate governance law. Though he’s gracious in victory, Painter isn’t giving up his efforts to prod the ABA and the legal profession into adopting further reforms. The small group of dishonest corporate lawyers is “enough of a minority to do some substantial damage,” he says. Painter spoke with Corporate Counsel editorial intern Allison Fashek about his ten-year crusade and the future of securities reform. Corporate Counsel: Did you feel vindicated when Congress passed Sarbanes-Oxley? Richard Painter: Congress did the right thing. I would have preferred to have seen the ABA lead a responsible effort of self-regulation in the profession. The rule that Congress enacted is substantially broader than anything that I ever suggested. … I think the ABA would have been a lot better off having made the proposed changes to its own rules, rather than having fought reasonable suggestions for reform. CC: How have lawyers reacted to your arguments for a reporting requirement? RP: Legal academics and business people I’ve talked toincluding corporate directorsare very strongly in agreement with the positions I’ve taken. Among practicing lawyers, I find a split. Some are of the view that this ought to be required[that attorneys should] report [wrongdoing] to the board of directors. The majority of practicing lawyers that I know in major firms are of the view that it’s good practice, whether or not it should be required. A relatively small but vocal minority of practicing lawyers are taking the position that it should not be required, and that mandatory reporting will interfere with the quality of legal representation. I think they’re wrong. CC: Why should it be a lawyer’s responsibility to report? Isn’t the lawyer’s first responsibility to the clientthe person who hired him? RP: It’s to the client. [But when] the client is the corporation, the corporation, under state laws, is run by the board of directors. So, the fundamental proposition I’ve been making all along is that the board of directors is entitled to know when the client organization is breaking the law. They’re the ones who are going to get sued when the violation is discovered, and they’re the ones who are responsible for correcting it. And the lawyer, who is an agent of the corporation, has an obligation to tell them, not simply to tell individual officers who are not fixing the problem. CC: Some have speculated that the new reporting requirement will erode attorney-client privilege, and that as a result inside counsel will be less likely to confide in outside counsel. RP: Inside counsel are bound to report to the full board of directors as well. So, unless [in-house attorneys] intend to breach their legal obligation to the corporationwhich they had anyway under state lawI believe that most lawyers would be held liable to the corporation for failing to tell the board in the circumstances outlined in the statute. CC: Aside from the lawyer-reporting requirement, the SEC must also write a code of conduct for lawyers who practice before the commission. If you were working on that code, what would you put into it? RP: Right now I’m working on a letter to the SEC with some suggestions [on issues that arise out of] section 307 of the Sarbanes-Oxley Act: What constitutes evidence of a securities law violation? What types of fiduciary duties are included under the reporting obligation? The statute … includes an obligation to report breaches of fiduciary duty, which include a lot of state law breaches and conduct that’s not even illegal, [but is] just a breach of fiduciary duty of care or loyalty. To which lawyers does this apply? It appears only to apply to lawyers for corporations. Does it apply to a lawyer who represents an officer of a corporation, if they are not representing the corporation as well? I think the answer is no. But that needs to be clarified. … How long should a lawyer wait between telling senior officers and having to tell the board? CC: That’s quite a letter. RP: There’s going to be quite a lot on my list. And there’s going to be a lot on other people’s lists.

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