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This hasn’t been much of a year for the image of corporate lawyers. Once they were sage advisers, orchestrators in every deal. But after the scandal season hit, they became mere mechanics. Fraud? Grand, grand theft? Outrageous lying? Who knew? This professional abdication undercuts the bar’s determined stand against harsh new regulations that may require lawyers to turn in their clients or face liability themselves. In brief, the lawyers argue that they can be more effective as trusted counselors to their clients, not as whistleblowers. But even if we are to take their recent protests at face value, it’s clear the current system didn’t promote honest talk between lawyer and client because, as the lawyers will be the first to tell any member of Congress, they didn’t know what was going on. Really: They were just pushing papers. OK. We believe them. But that doesn’t help solve the core problem. Whether or not lawyers knew or should have known what their clients were up to, at least a few of their clients apparently chose to fleece their companies and their investors. So, what to do? Rules requiring lawyers to zealously represent a company on one hand, while checking up on management on the other, are awkward at best. As one ABA member puts it: The first time a general counsel goes around management to the board is likely be the last as well. The answer instead may lie in dusting off a public sector idea. Companies wishing to signal investors of their commitment to honest governance should create an office of corporate independent counsel. We all know the government’s experiment with an independent counsel was unhappy. Investigations by Kenneth Starr, Lawrence Walsh and others dragged on for years, becoming perpetual prosecution machines that consumed the innocent and the guilty alike. Why visit that plague on corporate America? But a corporate independent counsel (CIC) would be a private attorney, not a government prosecutor. Instead of convening grand juries and ordering around the FBI, a CIC would function as an ombudsman, fielding complaints from employees, initiating inquiries, and objectively evaluating company actions. The key is independence. The CIC should exist completely outside the normal corporate chain of command, reporting directly to the board. Persons holding the position should be given a guaranteed, but nonrenewable, contract, terminable only by a vote of a majority of the board. To ensure fiscal discipline, the CIC should have a limited staff and budget, based on the market capitalization of the company. The position’s mission would likewise be limited. The CIC should not conduct full-blown investigations or audits, but make initial determinations on allegations brought to the counsel’s attention, presenting findings to the board for further action. Though corporate executives and lawyers might be expected to resist having a full-time independent investigator in their midst, eventually they would come to see it as a blessing. A common dilemma corporations now face is deciding who should investigate alleged wrongdoing by management. Currently the job often falls to regular in-house counsel. But that can put them in the untenable position of investigating their bosses, or perhaps even themselves if they participated in the decisions under scrutiny (increasingly, the line between legal advice and business advice is blurred, especially where in-house counsel are concerned). Corporations can turn to their regular outside counsel to investigate, but that practice isn’t foolproof either. If the law firm has close relations with the company and the malfeasance is widespread, the outside lawyers may be tainted as well. Or, more likely, if the client is large and the relationship is deep, the law firm may not be as disinterested as it should be. Of course, a worried board can hire a new group of lawyers who have little knowledge of the company to investigate. That’s expensive and inefficient. It may be necessary in the most egregious cases — especially the ones where outside counsel are mere mechanics. But for the rest, the CIC could help fill the investigatory gap. Creating CICs would address other problems as well. New corporate governance standards will impose heavy burdens on directors, especially audit committee members. The increased liability and time commitment associated with being a director are already serving as recruiting challenges, particularly for smaller companies. A CIC could provide some of the increased manpower, and management supervision directors will need to assure that they are on top of any unpleasant developments. In appointing CICs, corporations would finally acknowledge an obvious fact: Asking lawyers to participate in complex commercial activities and then later to evaluate their propriety is no longer a viable approach. By splitting off the investigatory function of in-house counsel, a company could ensure renewed confidence on the part of its directors, employees, and shareholders that future internal investigations would be thorough and impartial. A truly independent entity can meet that standard. Anybody have Ken Starr’s number?

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