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The Securities and Exchange Commission asked, and GCs responded. As the SEC has worked on a raft of new rules required by the Sarbanes-Oxley Act, it has continually asked for public comment on its proposals. Some of the most voluble commentators have been general counsel, and not surprisingly, they haven’t liked much of what the commission has in mind. They say that company leaders will be less likely to seek legal advice because new reporting obligations will weaken attorney-client privilege. GCs will become responsible for lawyers who don’t work in the law department or in a legal capacity. And reams of paperwork will be generated by reporting requirements that insist all complaints be sent “up the ladder” and “direct to the CLO.” Most public comments were posted on the SEC’s Web site as the agency received them. Below, a sampling of GC remarks from November 2002 to January 2003.
James Melican, executive vice president-legal and external affairs, International Paper Company Agreed in principle with up-the-ladder internal reporting, but not “noisy withdrawal,” which would require that an outside lawyer notify the SEC after he quit a client because of wrongdoing at the company. “[The] requirement of a ‘noisy withdrawal’ by outside counsel will have a double-barreled chilling effect upon the willingness of (1) inside counsel to contact outside experts at precisely the time when outside advice may be most important, and (2) business leaders to engage their legal advisers in exactly the type of open attorney-client communications necessary to comply with the spirit and letter of the [Sarbanes-Oxley] Act.” Scott MacKay, associate general counsel-litigation and compliance, Lockheed Martin Corporation Said that individuals holding a law degree but working in a nonlegal capacity shouldn’t be held to the proposed requirement for attorneys to report evidence of material violations. “The CLO of [a company] … should be responsible … only for those attorneys over whom he or she has the authority to exercise control. The effect of proposed Part 205 is to place the CLO … in the untenable position of being responsible for employees who happen to have law degrees, but who neither perform legal duties nor report to him or her within the legal organization.” W. Hardy Callcott,senior vice president and general counsel, Charles Schwab & Co., Inc. Addressed a wide range of issues, including how the CLO can’t remedy violations, why outside counsel can’t always judge materiality, who is an attorney, and what the costs would be for investigating and documenting up-the-ladder reporting. “I believe there will be hundreds of immaterial matters for each material one, and that the cost of investigating and documenting will be closer to 100 lawyer-hours each, rather than ten hours each [as the SEC has suggested]. In other words, the commission is underestimating the cost of these rules by a factor of over 1,000.” Edward Knight, executive vice president and general counsel, The Nasdaq Stock Market, Inc. Argued that the original definition of a “financial expert” qualified to serve on an audit committee was too restrictive, and also that companies should not be obliged to disclose the names of financial experts. “[In] the absence of protections from additional liability as a result of the [financial expert] designation, disclosure of the names of financial experts will discourage people from serving on an audit committee, thus further reducing the pool of qualified individuals and depriving [companies] and their investors of these individuals’ valuable service.”

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