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For Martin B. McNamara, a partner in the Dallas office of Gibson, Dunn & Crutcher, the decision not to represent Transocean Sedco Forex Inc., a publicly traded company in Houston, hinged on one principle: “I just opted for simplicity.” Since 1994, McNamara has served on the company’s board of directors. But neither he nor any other lawyer at the firm does legal work for Transocean. “There are no rules or ethical codes that forbid it,” McNamara says. “I don’t think it’s terribly unusual to find lawyers on boards who also do legal work. But in my case, it was just a personal choice. I was more comfortable focusing on my role as a director.” In the post-Enron environment, when issues of corporate conflicts of interest merit front-page treatment, McNamara’s “personal choice” has taken on a new, more public meaning. It’s not uncommon for lawyers to act as counsel to a company and a member of its board of directors — recently, the alleged actions of a lawyer-board member for beleaguered Tyco International Inc. were called into question. But ethical experts, government officials, stock exchange administrators and firm managers are beginning to ask whether lawyers should be able to continue playing dual roles. The Securities and Exchange Commission may establish rules as part of the recently enacted Sarbanes-Oxley Act that would make it more difficult for lawyers to serve as members of boards’ audit committees if their firms also do work for the corporations. Separately, the stock exchanges also may enact guidelines that restrict outside lawyers’ roles on other board committees, according to SEC officials and other lawyers familiar with the regulations. Rick Burdick, a partner in the Washington, D.C., office of Dallas’ Akin, Gump, Strauss, Hauer & Feld, serves on the boards of two public companies, and other lawyers at the firm serve on 20 others, according to a computer search of SEC filings and other databases. But Burdick says that may change. “We’re still waiting for the SEC rulemaking,” he says. “All the companies are going to review this under Sarbanes-Oxley. Lawyers who may have been considered independent before may no longer be considered independent. There may be a different standard.” SEC spokesman John Heine says the agency will not speculate about future rulemaking until the regulations are released. But Harold Degenhardt, district administrator for the SEC regional office in Fort Worth, says, “When they clarify that I think the requirements are going to be fairly strict.” John Olson, a partner in the Washington, D.C., office of Gibson Dunn who serves as chairman of the corporate governance committee of the American Bar Association Business Law Section, believes a number of factors will reduce the attraction of corporate boards for outside lawyers. “I think for liability reasons and the stricter standards most law firms will get quite cautious,” Olson says. “Serving on a board takes a lot of time and with all these restrictions and costs the question becomes, ‘What’s the purpose?’ ” Historically, Olson concedes, lawyers serve on outside boards to broaden their knowledge, cement ties to clients and develop new contacts. For some, it’s clear there’s a potential for conflict of interest when a lawyer serves on a board. “Lawyers should not be on the boards of large clients. That’s it,” says Charles Elson, a professor of corporate governance at the University of Delaware and vice chairman on the committee with Olson. The likelihood that the lawyer could not separate his role as an outside director and as an adviser to insiders is too great, Elson suggests. “I bet that there are going to be fewer and fewer lawyers serving on boards,” predicts Richard Gutman, an assistant general counsel at ExxonMobil Corp. based in Irving and co-chairman of the ABA’s Public Companies Practices Committee. Gutman believes Sarbanes-Oxley will have a chilling effect on lawyers’ interest in serving on clients’ boards. NO RULE Given that recent focus on lawyers’ role on boards, the computer research shows that 37 of the 100 largest firms in Texas have partners or of counsel members serving on the boards of publicly traded companies. The 100 firms include Texas-based firms as well as firms with offices in Texas. According to the SEC filings, eight of the Texas 100 firms have individual lawyers serving on the outside boards for five different companies. [See "Lawyers From Firms in Texas on Corporate Boards"] That roster of 37 suggests that many Texas firms may be vulnerable to allegations of conflicts arising from lawyers also acting as outside directors and counsel. But the relationships vary. At 28 of the firms, the research shows, a lawyer who serves on a board theoretically wears two hats. Specifically, the partner or of-counsel member of the firm serves on the board of a corporation that also reports in its proxy statement filed with the SEC that the board member’s firm also represents it. At Akin Gump, the research shows, partners or of-counsel members serve on the boards of 22 different publicly traded companies. But only 11 of those companies report in their proxy statements that Akin Gump also does legal work for it. “We don’t have a hard-and-fast rule about what types of boards [on which] our members can serve,” says Burdick, the Akin Gump partner. A management committee reviews each one on a case-by-case basis, he says. For example, Vernon E. Jordan Jr., of counsel at Akin Gump, serves on the boards of five different companies — American Express Co., American Online Latin America, Dow Jones & Co., J.C. Penney Co. and Revlon Inc. While the firm does work for J.C. Penney and Revlon, those corporations do not report it in their proxy statements. Burdick says that Revlon does not report the relationship between the firm and the company because fees to the firm are less than $60,000. At J.C. Penney, Jeffrey J. Vawrinek, an associate general counsel, gives the same reason to explain why the attorney-client relationship was not reported in the company’s proxy statement. It’s unclear whether J.C. Penney and Revlon or any other company that doesn’t report an attorney-client relationship with a board member’s firm followed disclosure standards that the SEC may begin to enforce more rigorously. SEC officials and other lawyers who are experts in the disclosure area concede the rules for disclosing the relationships are somewhat obtuse. “Nobody ever said the SEC law was easy,” jokes Heine. Specifically, Heine notes, SEC regulation SK item 404 has two parts, one covering business transactions and one covering business relationships as they relate to directors. Under the latter, a specific section requires the company to disclose the relationship between the firm of a board member and the company. As a stand-alone section, the reporting of the firm-client relationship has no threshold amount, even though such a $60,000 milestone applies to other sections, Heine says. Gibson Dunn’s Olson, who has been practicing in the area for more than three decades, says, “Item 404 has two parts. How they fit together is not terribly clear. But before no one at the SEC was checking on this. Now they might start.” At Fulbright & Jaworski, based in Houston, no single partner dominates the corporate board scene. But Fulbright lawyers serve on the boards of 17 different companies, and 11 of those companies report in their proxies that the firm also represents them. “We have a policy,” says Leigh Ann Nicas, spokeswoman for Fulbright. “Any board member that serves on a board does so in a private capacity.” Nicas also stresses, however, that a partner who wishes to serve on a board must get clearance from the firm’s executive committee. “We do a careful review on a case-by-case basis,” she adds. Nicas says the firm has a policy of not identifying clients. But she concedes that some of the companies for which Fulbright lawyers serve as outside directors do not disclose the relationship between the firm and the company in their proxies. Inconsistencies in the reporting of firm relationships are surprisingly commonplace — perhaps because of the confusion about the requirement. Texas Lawyer‘s research shows that more than 10 companies did not report the relationship in their proxy statements. POSSIBLE PROBLEMS? At Houston’s Vinson & Elkins, managing partner Joseph Dilg says the firm has tried to keep the practice of members serving on clients’ boards of directors to a minimum. Partner John E. Chapoton serves on the boards of Stancorp Financial Group Inc. “We generally discourage it,” Dilg says. “I’m not sure about the issue of wearing two hats.” Michael Boone, a founding partner of Dallas’ Haynes and Boone, says his firm has held to a policy of no members serving on outside boards — period — since the early ’80s. “We started to see it cause problems then, and we set the policy,” Boone says. The firm has made one exception, allowing partner George W. Bramblett Jr. to serve on the board of Golden State Bancorp Inc., a company that Haynes and Boone also represents. Boone says the firm prefers not to create potential conflicts between the role as lawyer and outside director. Gibson Dunn, which is based in Los Angeles but has an office in Dallas, made an exception to its general policy banning partners from service on boards to allow McNamara to serve on the board of Transocean. “A key element of that exception was that I won’t do any work for the company,” McNamara says. He wouldn’t do it anyway, asserting it would be “unseemly” for a board member to buttonhole executives for business. The reason his firm discourages partners from serving on clients’ boards is because of potential conflicts. “We don’t permit it because you’re wearing two hats and people start to ask, ‘which hat were you wearing when?’ ” McNamara says. When his firm has allowed a partner to serve on a board, he says, it has done so extremely cautiously. McNamara says the management committee of the firm has examined the corporation’s bylaws, as well as its finances and the backgrounds of other board members. Related chart: Lawyers From Firms in Texas on Corporate Boards

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