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In-house counsel, especially general counsel and those acting as corporate secretaries or securities counsel of publicly traded companies, are spending an inordinate amount of time implementing Sarbanes-Oxley Corporate Fraud and Accountability Act of 2002-mandated corporate governance reforms. One element of reform involves the ability of the audit committee to engage independent advisers and counsel. While hornbook treatises state that a GC’s client is the “company,” or the organization, the practical reality is that corporate governance gadflies see the GC as a management mouthpiece and not an independent voice representing the organization. The Sarbanes-Oxley requirement, contained in 301 of the act, which grants audit committees the right to engage independent counsel and other advisers, addresses this situation and provides audit committees a basis upon which to demand the use of independent advisers. Moreover, the concept has been applied broadly to allow entire boards and other board committees — most notably compensation committees — the grounds to insist upon retention of counsel and advisers independent from management. Although nearly everyone applauds this specific development and immediately recognizes the common-sense approach it embraces, GCs might be justifiably apprehensive. Faced with the possibility of an adversarial lawyer representing the board or one of its committees, a GC now must confront another new twist to the job description: General counsel must determine how to deal with the prospect of another — outside, nonetheless — lawyer providing legal advice to the board. While this development could be seen as undermining the authority and position of the GC, the reality is somewhat more complex. Nothing prohibits a collaborative approach between a GC and independent counsel in matters related to corporate governance. In fact, this may be the best, and perhaps only, manner in which to treat this new corporate governance development. Newspapers and magazines are filled with stories of general counsel who did not collaborate with outside attorneys — and even worked to thwart their mission. The U.S. Securities and Exchange Commission, for example, has charged several general counsel at publicly traded companies with securities fraud. More often than not, these charges resulted because a general counsel did not cooperate with investigations conducted by outside counsel that the board or one of its committees retained. Several stories have been published in which general counsel have been accused of not providing documents, or even destroying documents that board-retained independent counsel have requested. Thus, the first rule for a general counsel is to cooperate with investigations conducted by outside counsel, especially when the board has deemed it important enough to retain independent attorneys. However, there is more a GC can do to help outside counsel provide needed advice to the board. MAKE RECOMMENDATIONS At the outset, once a general counsel knows the board intends to retain its own counsel, he or she can ensure the board receives meaningful advice by recommending potential advisers. The list of potential advisers can range from compensation consultants to headhunters to attorneys. Because of his or her day-to-day and historical experience with the company, the general counsel can steer the board to the best adviser based on specific areas of expertise or prior connections (or conflicts) with the company. The GC should view independent counsel as a potential ally. The general counsel can effectively use the independence to facilitate some matters that are the cause of friction between management and the board. The independent adviser can deliver politically unpopular news to the board that management may be reluctant to discuss. General counsel also can be thankful that independent outside attorneys handle certain functions that may by default land in the general counsel’s office. For example, the negotiation of employment agreements with senior management is one area that can be problem-prone if handled solely by the general counsel. It is extremely awkward and conflicting for the general counsel to negotiate provisions of an employment contract with a chief executive officer, even if done at the behest of the board or compensation committee. General counsel can quickly find himself or herself in a no-win situation: Argue too aggressively on behalf of the board and the GC risks alienating the principal officer of his or her one and only client; be too lenient in granting perquisites to the CEO and the GC risks the board or shareholders accusing him or her of robbing the company. Matters such as this are best handled by independent counsel who answers solely to the board. However, GCs can assist outside advisers in this regard by providing crucial information regarding employee benefit plans, long-term incentive compensation plans and historical company data to the outside attorneys advising the board on management compensation matters. By working with independent attorneys, general counsel can make sure that the legal services are provided in a cost-effective manner, and the organization’s time and money is not wasted by having the outside attorneys learn all about the organizational structure, policies and past history of the company. By guiding outside counsel and bringing important facts to their attention, GCs can help assure the best use of resources. This offer of assistance and collaboration does not come without risks. Foremost, general counsel must be aware that whatever information he or she shares with outside counsel will be shared with the board, as it rightfully should. There is no attorney-client privilege in communications with the independent counsel, because the counsel technically represents the board and not management or the company. Moreover, GCs need to be diligent that they share all information with outside advisers — lest they be accused of withholding data. It is best to be overly inclusive in the amount of information shared. Let outside counsel decide what is relevant and material to the investigation. Some matters that general counsel may view as minor or immaterial may hold some significance to a member of a board committee, unbeknownst to the GC. While it is best when the general counsel has a role in selecting an outside adviser to the board, there may be instances when the board retains its own counsel without informing the general counsel. There are many legitimate and valid reasons for doing so, and general counsel should not take it personally. Some matters, such as hiring or firing a CEO, must occur in a closely confined arena, and the board may not feel that it can discuss the possibility of severe executive management changes with the general counsel. Yet, even in these situations, effective corporate governance mandates that GCs work closely with outside advisers once the board feels comfortable disclosing the situation to the general counsel. In the era of accelerated filing deadlines, outside help is mandatory when having to file a Form 8-K within the requisite time period after the company announces the departure or appointment of a principal officer. General counsel must work with the independent advisers who helped draft the employment or resignation agreements to make sure that the organization and 16 SEC filers correctly report relevant portions. Sarbanes-Oxley has no doubt changed the landscape for general counsel and, in many cases, added stress and confusion regarding corporate governance issues. However, general counsel should welcome the addition of another problem-solver — independent advisers and counsel retained by the board. Having outside attorneys advise the board is a fact of corporate life that general counsel should embrace. Michael L. Silhol is the senior vice president, general counsel and secretary of Radiologix Inc. in Dallas.

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