October 25, 2012
Ethics Opinion On Confidentiality And In-House Counsel Claims Against Employer
A recently-issued opinion of the District of Columbia Bar Legal Ethics Committee concludes:
An in–house lawyer may not disclose or use her employer/client’s confidences or secrets in support of the lawyer’s claim against the employer/client for employment discrimination or retaliatory discharge unless expressly authorized by Rule 1.6. If the employer/client puts the lawyer’s conduct in issue, however (e.g., by lodging an affirmative defense or a counterclaim), the lawyer may disclose or use the employer’s confidences or secrets insofar as reasonably
necessary to respond to the employer/client’s contention. An in–house lawyer is not prohibited from bringing such a claim against her employer/client merely because the employer/client may find it necessary or helpful to disclose its confidences or secrets in defending against the lawyer’s claim.
February 16, 2011
Robert Rosen on Lawyers' Roles--In-House and Outside Counsel--in Advising Corporations
Posted by Alan Childress
As promised in a comment, here is more information on a new addition to the publishing project, and quite germane to the blog topic (!): Rob Rosen's (law, Miami) book, Lawyers in Corporate Decision-Making. Today out in hardcover and last month in paperback (allows 'Look Inside'), Kindle, Nook, Sony, and on the iPad via iTunes and K/N apps. This was originally his dissertation in sociology at Berkeley, and had been cited a lot and passed around in manuscript before. It is updated with his new Preface and new Foreword by Sung Hui Kim (law, UCLA) noted below, and a revised chapter two and other additions. Mainly it is the classic study people know and quote. He triangulated interviews with corporate counsel, outside law firms, and the corporate client, on many different legal representations, and got the whole picture of the disparate roles played in corporate advising. Lawyers often perceived it differently from clients. One chapter autopsies four representational failures. Interesting. Rosen also relates all this to theory and practice about "who is the client" and what should be the role of lawyer here: passive, proactive, advising beyond the legal consequences? It is cited a lot, too, for its taxonomy of corporate advising roles. So it is now generally out and not just in Xerox. Rob worked hard to get its substance and presentation just right, and even in library-quality hardback; we hope you'll like it.
"Rosen’s study of in house counsel is a deft, subtle dissection of a complex world where nothing is as it quite seems. In interviewing in house counsel, outside counsel, and clients, Rosen captures, in a Rashomon-like way, the moral character of lawyers’ work–their choices, their pitches, their claims by which they justify what they do. We see inside the professional black box.”
– John Flood, Professor of Law and Sociology, University of Westminster, London
“Widely regarded by experts in the field as a pioneering work in the sociology of the legal profession and a foundational piece in the slowly emerging canon of empirical research on inside counsel…. Not limited to rich, thick description, the study also normatively challenges the legal profession’s ideology of moral ‘independence.’ …With the long-awaited publication of this manuscript, corporate lawyers will have something to guide them.”
– Prof. Sung Hui Kim, UCLA School of Law, from the new Foreword
Also was blogged about at Froomkin's Discourse.net (terming it a cult classic), Business Law Prof Blog, the Advanced Legal Studies@Westminster Blog and Random Academic Thoughts (Flood calling it wonderful), and others (and finally, me!). Libraries can order it through Baker & Taylor, Ingram, Amazon, etc. UPDATE: I forgot to mention that (and thank) Jeff and Nancy and others gave some great blurbs for this you can see below the fold.......below the fold. Also, here is my publisher webpage for the book.
from page i:
“In Lawyers in Corporate Decision-Making, Robert Rosen takes us inside large law firms to explore how corporate lawyers advise their clients and how that advice can go wrong. The case studies he describes—including four situations in which the legal advice failed—show how important it is for lawyers to frame the clients’ needs appropriately. Rosen’s ability to weave together the importance of organizational hierarchy, coordination of responsibility, thoroughness of communication, and business acumen makes this book a ‘must-read’ for lawyers and law students alike.”
— Nancy B. Rapoport
Gordon Silver Professor of Law,
William S. Boyd School of Law, UNLV, and
Coauthor of Enron and Other Corporate Fiascos
“Rob Rosen’s book captures the personal and organizational complexity of the effective in-house counsel’s experience. As a former GC of two large industrial businesses, I know how right he is when he disdains the simple either/or characterizations of inside lawyers as counselors, cops, and entrepreneurs. Inside lawyers (with few exceptions) are the only ones in a position to operate in the Venn diagram overlap between pure business and pure legal decisions; the best ones operate with equal credibility on business and law. ‘No’ is rare, but when an inside lawyer who knows the business speaks, people listen.”
— Jeffrey Lipshaw
Associate Professor, Suffolk University Law School
July 21, 2010
Arbitration Decision To Reinstate Fired Executive General Counsel Overturned
The Wisconsin Supreme Court (with its typical 4-3 split) has held that an arbitration panel exceeded its authority by ordering the reinstatement of the dismissed general counsel of a corporation:
We agree with Menard [the corporation] that the panel exceeded its authority. An arbitration panel exceeds its authority when its award violates strong public policy. An attorney owes a fiduciary duty of loyalty to her clients, a duty so replete in our cases and in the Rules of Professional Conduct as to be axiomatic. Such a duty is deeply rooted in our laws and embodies the strong public policy of the State of
Wisconsin. In this case, we conclude that by accepting reinstatement, Sands [the attorney] would be forced to violate her ethical obligations as an attorney. Thus, we vacate the panel's award of reinstatement on the grounds that it is void as a violation of strong public policy. Under the applicable employment discrimination laws, front pay is a substitute for reinstatement. Accordingly, we vacate the panel's award of reinstatement and remand to the circuit court to determine an appropriate award of front pay.
The court majority explains:
Sands also made clear her views of Menard's leadership——her clients if reinstatement were upheld. In her briefing before the arbitration panel, Sands stated that John Menard's conduct was "so monstrous and reprehensible that it shocks the conscience"; that he is a "reckless, callous actor who care[s] nothing about anyone else's rights or reputation"; that he "is a man with no parameters, no limits, no respect for the law and obviously, no self-discipline to control or limit his own behavior——nor does he see any need to"; that his honesty and integrity are "completely illusory"; and that his "dishonesty is serious and overwhelming."
Let there be no mistake——the mutual animosity and distrust between Sands and the executive leadership of Menard, the very people to whom her absolute loyalty would be owed, continued throughout the arbitration hearing and shows no signs of abating today. Sands was right. No reasonable person would consider reinstatement a possibility in this situation. No one could have assessed this situation and determined that reinstatement could lead to a productive setting where both Sands and Menard would benefit. Trust has been completely broken; nothing good could possibly come from reinstatement. In view of this especially bitter litigation marked by personal and professional animosity, we see no way Sands could now return to Menard and serve the company in conformity with her ethical obligations.
If the level of hostility alone was not enough, Sands performed an unusually high-level and sensitive role at Menard. She was the Executive General Counsel, heading up the in-house legal operations and supervising the legal work for all of Menard. She also served as Menard's spokesperson and was a public representative to the community. More than most attorneys, her position required a high degree of confidence and trust and a close relationship with Menard's executive leadership. In order to perform her role, Sands had to represent the company's best interests with outside partners, attorneys, and the media. Sands' unique and significant role at Menard required the highest level of good faith, loyalty, and mutual trust.
The facts recounted in the majority opinion tell a real horror story of the clients abusing their in-house attorney. The attorney met John Menard when he dated her sister. She had about five years experience when she was asked to serve as a corporate attorney and other functions. She was hired at an hourly rate and required to punch a time clock.
She later assumed the duties of the departing general counsel and was paid a fraction of his salary. She put up with it for a couple of years. When she pressed for a raise, she was threatened, humiliated, and fired. The panel described the termination, which came in the wake of her suggestion that she just might have claims against the corporation:
...on the evening of Tuesday, March 14, 2006, Sands was preparing for a meeting in her office when John Menard stepped in. "This isn't working, is it," he said. "I'm sick to death of your not getting back to Charlie and you don't respond and your threats." John Menard then instructed Sands to work out an agreement with Charlie Menard by the end of business the next day or she would be "all done." Then he left her office.
Moments later, John Menard returned and declared, "[Y]ou know what, you're all done right now. Pick your shit up; I want your ass out of here. You've got five minutes." Sands asked if he was firing her. John Menard stated that he was placing her on administrative leave. Sands asked for a clarification and stated that Menard did not have an administrative leave policy. John Menard repeated that Sands was on administrative leave, that she had better get moving, and that she now had only four minutes. "[D]o you understand what you're doing right now is unlawful?" Sands asked. "I don't care," John Menard replied. "I want your ass out of here."
At some point during this encounter, Sands turned to her computer in an attempt to log off. John Menard saw this, approached her from the other side of her desk with his hand in a fist, and ordered her to get away from the computer. He then continued to tell Sands to get "[her] ass out of there" and that he wanted "[her] ass gone." Sands collected a few personal items, and left with John Menard following her out of the building.
John Menard threatened the attorney's sister to discourage her from testifying in the arbitration, saying that he would "hate to see her obituary anytime soon."
The arbitration panel awarded damages of nearly $1.8 million that were not affected by the decision here. The panel had ordered reinstatement notwithstanding the attorney's decision not to seek that remedy.
The dissent would give deference to the arbitration panel's conclusions and result:
Although the majority's conclusions about a public policy are indeterminate, there is no doubt that attorneys have fiduciary and ethical duties and obligations of professional conduct. Other employees also have fiduciary and ethical obligations to their employers.
The problem is that the majority is unable to pin down a particular rule, duty, or obligation or offer more than its own repeated assertions that if the award stands, a violation of ethical obligations would be the necessary result. The majority claims that because the panel did not affirmatively discuss Sands' ethical duties as an attorney, this necessarily implies that the panel "never examined whether Sands could ethically perform her role if it awarded reinstatement." ...
The majority parlays this supposition into the conclusion that the award of reinstatement "would have the practical effect of forcing Sands to violate her ethical obligations." Majority op., ¶65. Both the claim and the observation are at best speculative and moreover are belied by the record
There is no reason to believe, much less to affirmatively conclude as the majority has done, that the arbitration panel did not consider the applicability of Sands' ethical obligations as an attorney. It is no secret that Sands is an attorney. Through its 49-page factual review, legal analysis, and ultimate findings, the panel was amply aware of Sands' professional role and her responsibilities toward the Menard corporation, its officers, and the individuals representing the corporation. The panel explicitly acknowledged the "difficult[y]" of the "hostile" relationship between the parties. In doing so they necessarily assessed the dynamic between attorney and client and the issues inherent therein. Even if there were uncertainty as to what law the panel did or did not consider, the majority oversteps its bounds in review of an arbitration award when it construes ambivalence or silence in the record to justify overturning a result it disfavors. As the majority recognizes, the party seeking to overturn the panel award bears the burden of proof.
Significantly, Sands and Menard explicitly stipulated that each member of the panel would be an attorney. Each of the arbitrators was an experienced and successful attorney, themselves bound by the Rules of Professional Conduct and bound to be versed in those rules, which the majority opinion invokes to justify its result in the present case.
The opinion of the Wisconsin Court of Appeals is linked here. The company owns a large chain of home improvement store located throughout the Midwest. Forbes reports that John Menard is worth $7.3 billion and is the richest person in Wisconsin. (Mike Frisch)
March 28, 2010
The Difference Between Being a GC and a CEO
Posted by Jeff Lipshaw
Unfortunately, I can't provide a link because the online version of today's New York Times doesn't seem to include it, but the second page of Sunday Business is the "Corner Office" interview with Debra L. Lee, the chairwoman and CEO of BET (and successor to Bob Johnson, who founded the network before it got sold to Viacom). Buried in the interview are a couple observations I found interesting, given that Ms. Lee was BET's general counsel before being appointed as the chief operating officer.
Q. Looking back, it sounds as if it was a big leap to go from general counsel to C.O.O.
A. As a general counsel, you're taught research, research, find out every case, find out every opinion, think about it. It's almost like you are a judge.
So when I went from being general counsel to C.O.O., that's the way I first approached it. Well, it doesn't work. I had to learn to make decisions quicker and follow my gut. You're not going to be able to run the numbers and come up with perfect answers.
I certainly agree with her observation about being a COO or a CEO, but I think that most COOs and CEOs would get very, very frustrated with a general counsel who couldn't either translate all of the legal stuff into something that could factor into an executive's gut-based decision, or couldn't make quick and gut-based business decisions herself that placed the legal concerns alongside the non-legal ones.
The example I give in The Venn Diagram of Business Lawyering Judgments (forthcoming, 46 Seton Hall L. Rev., Issue 1 (2011)) is the decision whether to proceed with an acquisition in which there is significant competitive overlap. The synergies arising from that overlap may well be part of the purely business decision whether the acquisition is attractive, and the analysis whether a Hart-Scott-Rodino pre-merger filing is necessary, and whether there are substantive Section 7 concerns is almost purely legal, but the decision whether the acquisition is attractive enough to merit the risk and cost of the antitrust review is one of mixed law and judgment that I believe only a "well-attuned to the business" GC is in a position to make.
February 11, 2010
Lipshaw on Judgment (and Metaphor)
Posted, written, directed, produced by, and starring, Jeff Lipshaw
I hope you have the point. I have decided that the article I've been working on (February is the hardest month, isn't it?) has, sometime in the last several days, passed not only the point of minimal coherence, but is indeed ready to leave the womb, sink or swim, fend for itself. I am hoping it takes care of me in my old age. Seriously, folks (ta ta boom), The Venn Diagram of Business Lawyering Judgments: Toward a Theory of Practical Metadisciplinarity is up on SSRN (in the spirit of "tomorrow's research today, not completely complete, but getting there, subject to post-production), now that I've decided what to leave on the cutting room floor. It is the basis of the last part of my book-to-be (in utero), Lawyering and the Mystery of Judgment.
If you get the idea that metaphors have something to do with the point, you win the kewpie doll. What I've tried to do is exploit what is my niche - bridging the real world and the academy - and it is recursive in exactly the way I tend to think of the world: how do we make judgments that bridge or fall between disciplines? Those are interdisciplinary judgments, but is there a skill that focuses on those kinds of judgments, meaning that we are dealing with an even higher order concept, namely metadisciplinarity? Which academic department grants a Ph.D. in that? (The fact that TypePad has just put a dotted red line under metadisciplinarity makes me hopeful I've coined a term!) What I have tried to do is spice the theory with many real world examples, admittedly anecdotal, but also, I think, typical. I will look forward to comments, because I have tried to be provocative, especially with regard to the pitfalls of "thinking like a lawyer", and the education that takes us there.
The abstract follows the fold.
Here's the abstract:
The relationship of pure and mixed business and legal judgment can be modeled in a Venn diagram. The question is who is capable of making judgments in the overlap. Businesspeople are not competent to assess the legal implications, and not inclined merely to trust the decision to lawyers. Lawyers, on the other hand, are usually successors to a particular method of organizing the world, and members of a closed discipline. By nature of the very concept of a judgment, it must occur privately in a single conscious mind, no matter how the judgment is ultimately communicated, shared, or adopted by others. The implication for lawyering and legal education is that some of the old canards about leaving business judgment to the business people must fall away.
There are three sub-themes. First, there is no "collective judgment." Practical judgment does not occur in some communitarian ether, but in a mind. The closest we have come to a science of judgment is the exploration of consciousness and cognition, both of which remain tough nuts. There is still no scientific explanation of consciousness; it is subject to what Thomas Nagel referred to as the "explanatory gap." It is fair to say that if there is anything to the idea that consciousness is irreducible, judgment is next in line. Could we pour all the relevant facts and authorities into a legal computer, and have it provide us with advice such that we could not determine, in a blind test, that it came from a computer and not a human being? Indeed, an inquiry into prospective judgment overlaps traditional questions whether anything actually constrains a judge's decision. It seems intuitively correct when we take the issue of judgment out of adjudication and consider it prospectively that our judgments are neither pre-ordained by some kind of formula nor wholly random. We need to assess rule following in the non-adjudication context, and for that I turn to work in cognitive science and the law.
Second, the judgment in the overlap is interdisciplinary. Business judgment depends far more on the argument from merit, versus legal judgment, which depends far more on the argument from authority, and a particular kind of authority at that. What, then, does it means to be an expert in the overlap of the diagram? We need to define a new professional discipline: the field of metadisciplinarity. Being a metadisciplinarian takes one to a higher order skill than mere interdisciplinarity: it means being an expert in the making of interdisciplinary judgments, which in turn invokes the role of metaphor and analogy in our cognitive abilities.
Metadisciplinarity recruits such basic cognitive abilities that the task of learning it is never going to be easy. It requires that its practitioners understand that human beings are "meaning-making machines," employing what the cognitive scientists call "cognitive integration" or "blending" (of which metaphor is a prime component). Metadisciplinary lawyers will not merely understand the fact of cognitive blending, but also approach it empathetically.
February 11, 2010 in Abstracts Highlights - Academic Articles on the Legal Profession, Comparative Professions, General Counsel, Law & Business, Law & Society, Lipshaw, Straddling the Fence, The Practice | Permalink | Comments (0) | TrackBack
December 10, 2008
Association of Media & Entertainment Counsel (AMEC) Honors Law Professor
And the only law professor to be so honored is . . . our colleague Nancy Rapoport. (She of UNLV law school, Enron movie IMDB, and competitive ballroom dancing infamy.) The Association of Media and Entertainment Counsel, which recognizes the achievements of in-house legal counsel in the entertainment industry, has nominated its 2008 Counsel of the Year awards. Full list of nominees here. You have to like that one of the categories is Dealmaker of the Year. (Last year's winner was not the man who put together all the financing and talent pawns to resurrect Knight Rider, TV's only show this year where the pilot already jumped the shark.) In the category of Public Service, the nominees are Nancy and Prof. David Sherwyn of Cornell's Hospitality School. Congratulations to both, and let's hope that this category is not one of the awards they give off-camera at some half-filled hotel ballroom a week before they dole out the jazzy awards and inappropriate political speeches. Though if so, she's one of the few who could use the ballroom for its intended purpose. [Alan Childress]
July 04, 2008
Follow Up to Career Advice - In-House Prospects
Orin Kerr graciously linked from the Volokh Conspiracy over here to the litigation versus corporate career post. I want to return the favor by linking back to a set of comments being posted over there. The same over at Above the Law. There are a number of thoughtful comments out there.
One of the themes being discussed is whether it's easier to move in-house if you've been a transactional lawyer or a litigator in-house. I don't have any idea what the data is on this, but my philosophy as a general counsel, unless I was hiring for a specific specialty, like a litigation supervisor, an HR lawyer, or a patent lawyer, was to look for the best available athlete, and I had a track record of hiring both transactional and litigation lawyers to be divisional or business group GCs.
Many leading GCs are or were former litigators, including Jeff Kindler, first at McDonald's and then Pfizer (and now CEO of Pfizer), Peter Kreindler at Honeywell, Don Kempf at Morgan Stanley, Paul McGrath at FMC Corp. and then American Standard, and the list could go on and on. John Donofrio, the GC at Visteon, and Bob Armitage, the GC at Eli Lilly, are patent lawyers by background.
I think many of the comments reflect something I suggested before, which is how hard it is at the bottom of the heap to experience what it's like to be a senior lawyer in either specialty. For example, the communication skills you learn as a litigator translate nicely into talking publicly to a board or in a negotiation. A congenial personality works well in front of a jury as well as in a boardroom (the six or twelve lay people in either environment tend not to like assholes any more than anybody else). One of my mentors at Dykema, now retired, Don Young (Harvard '63 I think) had a fearsome reputation both internally and externally (as a summer associate I drew a cartoon of an associate who looked like he had just put his finger in an electric socket; the caption had him saying to another lawyer, "Don Young just reviewed my research memo"), but in front of a jury he was the embodiment of Mr. Charm. Fortunately, despite the fearsome reputation, he also had a sense of humor and an appreciation for chutzpah in young lawyers, much less summer associates who had yet to get an offer!
March 06, 2008
In-House Counsel Rule
The Massachusetts Supreme Judicial Court has adopted a new provision, effective June 1, that allows for in-house counsel to represent a single organizational client in Massachusetts without admission to the Massachusetts bar. Attorneys who wish to practice pursuant to the rule must be in good standing in a jurisdiction and file an annual registration statement. (Mike Frisch)
March 02, 2008
Michael Clayton Finds His Ethics, as General Counsel Loses Hers
Posted by Alan Childress
After re-watching Michael Clayton yesterday, I realized that one could read its ethical barometer as saying that the outside Biglaw firm lawyers just want to do good, if only if it were not for the evil though angst-ridden General Counsel. I promised Jeff Lipshaw today that I would note here that there are some remarkable similarities between the movie and Jeff's pre-professor career (with no parallels between his looks and Clooney's, or for that matter Tilda Swinton's). He was, inter alia, General Counsel and VP at Great Lakes Chemical Company, which has a name as generic (and thus fake-sounding per Hollywood) as does U/North Agricultural. He insists, and I tend to believe him, that he never hired a hitman (or even the politically correct hitperson) to knock off a senior partner of an outside-counsel NYC law firm.
Good to know.
Update: Here is Columbia's Michael Dorf on the movie, also posted this weekend. Dorf says the movie is 'unfair to lawyers' in part because the ethical dilemma that the senior partner had is a false one, readily resolved under current ethics and discovery rules. There is a nice exchange in the comments.
January 23, 2008
Harvard Law Center on Profession Has Talk 2/4 On Being a Corporate Lawyer
Presentations On Being a Corporate Lawyer
A talk by John Coates
PLP faculty memeber John Coates will deliver a lecture on the occasion of his appointment as the
John F. Cogan Jr. Professor of Law and Economics.
October 06, 2007
Video Of Corporate Counsel Symposium
The Georgetown Journal of Legal Ethics and Center for the Study of the Legal Profession held a symposium last week on Corporate Compliance: The Role of Company Counsel. The symposium brought together both in-house and outside counsel in panel discussion of papers that are being prepared and were discussed by Professors Sarah Duggin (Catholic), Sung Hui Kim (Southwestern) and Tanina Rostain (New York Law). The link here will provide access to the video of the symposium. (Mike Frisch)
August 29, 2007
Soft Drink Lawyers and Leadership
Posted by Jeff Lipshaw
I am reminded every day by the bumper sticker on a car parked along our street (between our house and the T station in Porter Square) that my new governor is Deval Patrick (left), the former general counsel of The Coca-Cola Company. So I was impressed when I heard the other day that one of the possible replacements for Alberto Gonzales was Larry D. Thompson (right), currently the general counsel of Pepsico, Inc.
Both, I suspect, have impressive bona fides. And there are plenty of other companies with minority GCs (DuPont and Deere, just to name two) so that can't be it. (Note to self: would I ask that question if they were both Jewish or both women? Something to think about.) One is a Democrat; one is a Republican, so that's not it. I would not have thought that the food, drink, and entertainment industries had particular need for "political" lawyers (versus, say, a defense contractor). Is this just a funny coincidence? Or does the road to political power go through the cola wars?
July 12, 2007
The GC's Client from Hell
Posted by Jeff Lipshaw (cross-posted at PrawfsBlawg)
Yesterday I offered up some views on the Whole Foods/Wild Oats merger, particularly the Whole Foods CEO's ill-advised e-mails to board members. It turns out the hypothetical conversation I posited would never have occurred. It has now come to light that this guy is the client from hell.
Now I should note that I love Whole Foods. I would have to, to pay the premium one pays there, particularly when the low fat ice cream selection stinks as badly as it does. And I should also say that a general counsel calling his or her CEO a "client" is an undue formalism that would probably portend a disastrous relationship were the GC actually to see it merely as "lawyer-client" as opposed to "don-consigliori" or "friend-friend." But I digress.
Oh my god. He was on the freaking Yahoo chatboard. Under a pseudonym it would take most of the Yahoo chatboard psychos about ninety seconds to figure out. (N.B.: the Yahoo chatboard is to publicly traded stocks what lawschooldiscussion.com is to law school admissions.) I once was the general counsel to a CEO with hyper-sensitivity to what was said on the board, and more than once I threw myself bodily across his computer keyboard to stop him from going online to respond to comments about him or the company. Not only do you have the obvious securities disclosure issues; not only do you have the "gold medal in the Olympic ten meter stupid embarrassment" event; but you also have the issue whether the company has endorsed the chatboard as an authorized outlet for company discussion, thus, at least in theory, making the company liable for the various defamations of its executives and their families that occur on a daily basis.
July 11, 2007
How to Practice Preventive Antitrust Law: Lessons from Whole Foods
Posted by Jeff Lipshaw (and cross-posted at PrawfsBlawg)
Gordon Smith has some commentary over at Conglomerate on the FTC's decision to challenge the Whole Foods-Wild Oats merger, and, trust me, the entire M&A antitrust bar has to be silently grinning with a soupcon of schadenfreude. I should note this also raises the issue into which I waded several weeks ago at MoneyLaw and LPB - does the New York Times test mean don't write what you don't want published, or does it mean don't do what you don't want published.
The critical question is the definition of the relevant product market. If it's all grocery stores and supermarkets, the deal goes through without much of a flurry. But if the market is "organic and natural foods supermarkets and groceries" maybe it is concentrated enough to merit challenge under the FTC's Merger Guidelines. The guidelines themselves (at least last time I looked) took a hypothetical market and tested whether a player could hold a non-transitory five percent price increase. If it could not, then the market definition needed to be expanded.
I used to tell clients that their image of FTC lawyers as impartial regulators interested in nothing more than truth and justice, but eager and ambitious litigator/prosecutors looking to put notches on their holsters. These notches would lead to advancement in the agency or to lateral partnerships at Wall Street firms. Some of my best friends advanced this way. So that when you gilded the lily by overstating or misstating the reasons for an acquisition in some ill-chosen memorandum (usually written by the investment bankers), you were creating good old-fashioned understandable evidence.
In this case, the Whole Foods CEO sent an e-mail to the board listing as the top two reasons for the acquisition: "Elimination of an acquisition opportunity for a conventional supermarket" and "Elimination of a rival." Two reactions: (1) Damn! You can do all the training and prophylactic work you want with your business people, but CEOs still write these damn e-mails (which constitute 4(c) documents) without showing them to you, the general counsel; and (2) I could re-write the two reasons to say almost the same thing without the incendiary effect: "Enhance our ability to compete against the more powerful and resource-laden supermarket chains who are bound, in view of the low barriers to entry, to provide the kinds of natural and organic products we do" and "Achieve cost, marketing, and sales synergies through rationalization of locations, more efficient advertising budgets, and other efficiency moves."
General Counseling 101: If the CEO had sent the draft e-mail to me, we would have had the following conversation:
Lipshaw: "The e-mail is fine if that's what you really mean, but I think you are using loose language and it comes out contrary to your intent."
Lipshaw: "You have made it sound like you are trying to eliminate competition, when in fact you know that Kroger, Safeway, Meijer, and Winn-Dixie could crush us tomorrow in one fell swoop. Marsh in Indianapolis is already taking share from us with their organic and natural section. So "eliminating" Wild Oats wouldn't do a damn thing."
CEO: "That's true."
Lipshaw: "So why write it that way? It's red meat to the FTC carnivore! You don't need this puffing to persuade the board it's a good deal."
CEO: "How would you do it?"
Lipshaw: "Doesn't this sound more like why we are REALLY doing this deal?" [Reads bullet points from above].
CEO: "Yeah! That's good. Read again to me slowly so I can get it down."
Lipshaw: "I will e-mail it to you. And, by the way, thanks for originally sending me your draft labeled 'Subject to attorney-client privilege. Review draft for legal review before distribution" just like I taught it to you."
CEO: "Well, you've just earned your outrageous stock compensation for this year."
As I said, this story is the poster child for getting good legal counsel.
May 09, 2007
Generalists Versus Specialists
Posted by Jeff Lipshaw
I have recently been dipping my toe into an area that is new to me, and a colleague who I respect as much or more than anyone in the world offered the wise and well-meaning FWIW counsel that this may be something you don't want to try at home. That may be par for the course in the funny hybrid that is legal academia, and a source of the prevalent (and by no means trivial) sense that "law and . . . " requires a deep level of expertise, if not an advanced degree, in the ". . ." In this particular case, the warning was that the specialists in the particular field believed that attempts to generalize or analogize from the specialty were usually off-base, because you had to be a specialist truly to understand the point, and most non-specialists screwed it up.
That is counsel worth taking to heart, but is it the end of the story? It certainly bespeaks caution, and in my case it was a wake-up to respect the precision of the particular specialty. But I started wondering about several things.
First, I drew on long practical experience to say "I have a natural distrust, born of many years of being a generalist dealing with specialists, of specialists telling me that only specialists can really understand the subject matter of the specialist, but being unable to tell me why because I'm not a specialist." When you are the generalist sitting "atop" an acquisition, for example, it's often the case that you compromise the optimum position in a specialist's area, whether it is real estate, or environmental, or insurance. But it's also possible really to hack up something if you don't understand it - I'm thinking in particular of transitional service agreements that are common when the buyer of a division needs the seller to provide a set of services to the business for a period after the closing. I have seen instances where the generalists did not understand, for example, how the SAP contract allocates "seats", because of insufficient specialized knowledge, with the result that the buyer either ended up paying more to resolve the issue, or simply had no support service.
Second, as to counseling businesses more generally, you can think of a Venn diagram with overlapping circles representing law and business, respectively. My position was always that the lawyers were responsible for understanding the overlap and being able to explain it to the business people. It didn't mean that a lawyer had to be an accountant or a manufacturing engineer, but it meant understanding enough of the cross-discipline to get the overlap right. (Many litigators love being litigators because they have to become "experts" capable of communicating to fact-finders the essence of something as to which they are not experts over and over again.)
Third, I have written before on a Harvard Business Review article from the early 1990s by Womack and Jones, the authors of the classic industrial organization study The Machine that Changed the World, entitled The Myth of the Horizontal Organization. As businesses within diversified corporations became more "empowered" and "decentralized" and "specialized," and the organization got "flatter," the question was who would be responsible for seeing the opportunities that lay between these specialties. By and large, it couldn't be the specialists.
Fourth, there's no question that scientific theories take on an analogized popular meaning. If you say something outside of quantum physics about the Heisenberg Uncertainty Principle, you are probably not talking about issues of particle momentum and position, but instead some kind of polarity in which being precise about one pole means that you cannot be precise about the other. I don't know how nuclear physicists feel about that. Do they just shake their heads and say - "what can you do?" Relativity and Freudian psychology have produced similar effects.
But does that mean the analogies, or the popular sense of the scientific principle, are invalid? Do you have to be an expert in both disciplines to be cross-disciplinary? Am I wrong in saying the great 20th century philosophers of science were not scientists? Do philosophers of science and scientists of philosophy (brain science?) have anything to say to each other? Perhaps a dose of pragmatism is helpful here: if the analogy is useful, regardless of its technical bona fides, then it is worth something.
April 25, 2007
The Apple GC, Speech Acts, and the Backdated Options
Posted by Jeff Lipshaw
There is a fascinating linguistic issue at work in the civil complaint just filed by the SEC against Nancy Heinen and Fred Anderson, the former general counsel and chief financial officer, respectively, of Apple, Inc. arising out of allegedly backdated options, which is a hot news story today. I'm going to assume the allegations to be true for purposes of some observations as to what I would call standard practice, but not necessarily of legal liability.
1. The hair on the back of my neck certainly went up when I read the allegations that Heinen had "altered company records" (Paragraph 1), and "fabricated or falsified" company records, "including the creation of minutes for a non-existent Board of Directors meeting" (Paragraph 2). So I flipped the pages looking for the particulars.
2. The complaint is about two different grants. The first was to the Apple Executive Team. There is no question under these allegations that the selection of a January 17, 2001 date was backward-looking and designed to find a day that had a low closing price, but that would also fall on a day after some recent public announcements that might have raised an inside information issue. But interestingly, on this one, I cannot find an allegation of a falsely dated document. First, the complaint leaves out any allegation as to the dates on the actual grant document, simply referring to it as "option grant paperwork" that was undertaken in February. Second, and more significantly, the complaint alleges that on February 1, 2001, "Heinen began the process of preparing false paperwork to submit to Apple's Board of Directors so that it could authorize the grant." The very next allegation says that she directed the preparation of a "Unanimous Written Consent" with an effective date of January 17, 2001. This is a little ambiguous, but it looks to me like the UWC was simply made "effective January 17, 2001."
That in itself, if I have the facts correct, is not a false statement. The law has long recognized that you can do something "now for then" or nunc pro tunc. Moreover, Section 141(f) of the Delaware GCL makes it clear that a unanimous consent is not the same thing as a meeting. It is an action in lieu of the meeting. And one can imagine benign circumstances in which the Board might well want its consent to have been effective retroactively. Nothing in the Delaware GCL, as far as I can tell, bars that. Certainly nothing in Section 141(f) does so.
The real problem here is the distinction between what Searles calls illocutionary and perlocutionary acts. The statement of the effective date is an illocutionary act because it is asserting something to the listener. Searle says: "Correlated with the notion of illocutionary acts is the notion of the consequences or effects such acts have on the actions, thoughts, or beliefs, etc., of hearers."
So it is possible that an assertion, wholly true in itself, may have the effect by itself or in conjunction with other statement in particular circumstances, of meaning something else to the listener. In other words, the speech act in context is perlocutionary. [See update below.]
At this moment, I'm agnostic (but leaning toward a view that there was deception) on the overall context. But the mere creation of the UWC with an earlier effective date was not, in my view, irregular.
3. But it does get worse. The second grant was in October, 2001, and that is the one for Steve Jobs himself. Here, Heinen created minutes of a Special Meeting of the Board as of an earlier date, where that meeting had not occurred. That does raise the hair on the back of my neck. I think I would have said, "I am not going to make up meetings of the Board of Directors of a public company that did not occur. There is a device called the written consent that we use in lieu of a meeting when there was no meeting." (I would also distinguish the following. The discussion at a real meeting gets garbled. I look around at the directors and say "I think you mean this for your action - I will straighten it out in the minutes." There is no objection, and I do it. I don't have a problem with that; minutes are not a transcript, they are minutes.)
Now we are beyond a true illocutionary act that may be (intentionally or not) deceptive in its perlocutionary context. The propositions within the illocutionary act are false. There are references and predicates to things that did not occur.
It also looks like Heinen, without the consent of the Board, removed the reference in the minutes to discussion of option grants to Jobs at an earlier meeting. This may be false in itself or false in the context; I can't tell from the complaint.
As with the Executive Team options, there is no allegation about the dating on the option grants themselves. Obviously, there's an inference to be drawn if the option grant dates were accurate, but all the auditors got were either UWCs or meeting minutes suggesting that the option grants actually took place before they did.
So merely the UWC in itself wouldn't raise an issue for me. But the use of the UWC in context with the auditors as a means of fudging the date of a grant, if as alleged, as well as the creation of minutes to a meeting that didn't occur, would bother the hell out of me as a lawyer and the certifying secretary.
UPDATE: One of Larry Solum's readers has rightly taken issue with my sloppy turn of phrase on perlocutionary acts. She writes that I have misunderstood speech act theory regarding perlocutionary acts as follows: "Assertions may of course elicit a range of perlocutionary effects, but the meaning of the assertion does not turn on these effects (an assertion that p that elicits fear in A does not mean something different vis-a-vis B, who reacts with joy). Nor can an assertion be understood "in context" as a perlocutionary act!"
Let me clarify. The next sentence in Searle after the one quoted above is: "For example, by arguing, I may persuade or convince someone, by warning him I may scare or alarm him, by making a request I may get him to do something, by informing him I may convince him (enlighten, edify, inspire him, get him to realize)."
My point was that the propositional act in the UWC was a referral to a board and an effective date and options and a predicate that they were approved. The illocutionary act in the UWC is an assertion by someone in the company that options were approved effective January 17. That meaning is what it is. I think the perlocutionary act in this case is the convincing of an auditor by the making of the statement that the options were actually issued then. Because that's how the listener hears the statement. And then there is the second order question whether the speaker intended the deception. But my point there was that there was nothing false in itself about the statement in the UWC.
I am thinking of the example of a trial lawyer who is cross-examining a witness about a letter the lawyer believes the witness sent but has not yet tracked down. The lawyer picks up a sheet of paper that the witness cannot tell is blank and stares at it for several seconds. "It's true, isn't it," says the lawyer, waving the paper, "that you sent a letter to Mrs. X on December 4." There is no ambiguity whatsoever about the meaning of the assertion; the witness understands it just as the lawyer intended it to be understood. The witness was prepared to lie in response, but thinks the blank piece of paper is the letter, and is frightened by the possibility of being impeached. So she answers "yes, I did." Isn't the frightening and/or deception of the witness by the assertion a perlocutionary act with a perlocutionary effect? In later commentary, Searle refers to necessary "stage-setting" to be able to assess perlocutionary versus illocutionary acts, and it seems to me that has to be "context." I think of the UWC in the same way. There was no real issue as to either the clarity or the correctness of its propositional and illocutionary aspects. But the way it was used induced a particular effect in the listeners.
I agree my original post was incorrect in stating "In other words, the speech act in context is perlocutionary" and in conflating the meaning of the assertion with the perlocutionary effect. More precisely, the speech act is the speech act. The perlocutionary act is the fact that by making the statement I may deceive the listener, and, indeed, the listener is deceived.
The "Do We Need to Know..." Trilogy: Part 3 - The Skeptical Client
When I was the general counsel of a large publicly-held company, we had a chief executive officer, my primary advisee (not my primary client, mind you, that was the corporate entity), who I think truly believed that the law and lawyers were put in the world for no reason other than to place barriers or hurdles between where he was and where he wanted to be. No surface answer was ever sufficient to satisfy him. "Why can't we buy back stock now?" "Why can't we sell stock in our public traded subsidiary?" "Why can't we sue X or Y for this?" "Because that's the law" or "because I said so" was never enough. And despite the fact that he wasn't a lawyer, his natural smarts and suspicious take on the whole game made the cross-examination as intense as any grilling to which a Kingsfield-like law professor could ever subject a student.
Before I would talk to him about a matter, particularly one as to which I knew he would not like my answer, I asked myself the question "what do I need to know?" and the answer was often that I needed to peel the artichoke all the way down to the heart.
April 22, 2007
The NYT's Misapprehension of the Role of Law Firms in M&A Deals: Law Firms Don't Talk to Boards, Lawyers Do
Posted by Jeff Lipshaw
I was bemused by the shallow analysis in the "Dealbook" column by Andrew Ross Sorkin (right) in the New York Times business section this morning ("When Conflicts Arise, Lawyers May Be a Source").
It's not completely clear, but I think the point of this column is to suggest another reason why the well-publicized alleged conflicts of investment bankers firms (i.e. representing multiple parties; wanting M&A fees; simultaneously doing M&A work while doing "buy-hold-sell" analysis) should also be imputed to the Wall Street law firms with big M&A practices.
Here's Mr. Sorkin's hypothesis (I think). A public company agrees to a private equity buyout arranged by an investment banker like Merrill Lynch or Citigroup. The board meets over a period of time, in accord with its duties under Van Gorkom, Revlon, Unocal, and the myriad of Delaware cases that defines the board's obligation in connection with the sale of the company. There are lengthy presentations by the company's management and the investment bankers. The lawyers expound at length on the fiduciary obligations of the board, but it's all a show because they are going to say that it's okay to go forward with the deal. Nobody on the company side, including the board members who continue to serve in the "post-Enron" "post-Sarbanes" environment, or the general counsel, really does any thinking at all, being content to be able to say that because they relied on the advice of their advisors, everything is copacetic. And the lawyers from Wachtell, or Skadden, or Weil, or whomever, are saying go ahead because the big investment banking firms are their clients as well (in other transactions as to which there is no conflict under the PR rules, or as to which, by and large, there has been disclosure even if there is no technical conflict) and the investment banking firms want the lawyers to approve the deal.
Hooey. I'm not saying that well-advised board can't make mistakes. I also know almost nothing about the specifics of the Zell-Tribune deal that sparked the column. I do know that one of the toughest calls for lawyers and boards is the issue of proving that the board maximized shareholder value in a Revlon situation (where the company is or will be in play) when the bid in front of you appears to be pre-emptive, and may even be conditioned on a "no-shop" agreement with some kind of fiduciary "out" if another bidder appears after announcement of the deal. In the vernacular, you have a bird (and a quite tasty one, at that) in the hand, and sometimes the law looks like you have to let the bird go in order to prove that it's tasty (actually, the analogy at this point is backwards because you are letting the bird go to see if another bird thinks your hand is tasty, but what the hell, reporters don't need precision, so why should I?).
The one thing that I feel pretty sure about is that there wasn't a single mindless automaton sitting in the Tribune board meeting digesting all the information. I know from my own experience as a public company general counsel that, in the midst of the consideration of a public company deal, I was on the phone almost endlessly, not with some noumenal entity like WeilSkaddenKirklandSidleyWachtell, but with a real human being with a name, whom, if I thought for one second had an interest other than complete, total, experienced, knowledgeable, nuanced, wise, loyal, cautious but realistic advice to the board (and the shareholders), I would have fired in a heartbeat.
As far as I can tell, there isn't a single fact cited in this column to suggest any GC would do otherwise. Of course, no reporter has ever witnessed a vigorous board debate, so it can't have happened.
April 20, 2007
Nicholson on the Under-Representation of Women in Corporate GC Positions
Posted by Alan Childress
Lisa Nicholson (Louisville), right, has posted to SSRN her article, "Making In-Roads to Corporate General Counsel Positions: It's Only a Matter of Time?" It is also on 65 Md. L. Rev. 625 (2006). Here is the abstract:
There were 40,018 law graduates in the class of 2004, of which almost half were women. Many of these women, equipped with exceptional educational credentials, predictably have high hopes of ascending to the upper hierarchy of law practice. Unfortunately, their hopes of obtaining the fabled “corner office” may be dashed when they note who actually practices at the highest levels in those law firms and corporations. Indeed, by the end of 2004, women lawyers would only account for seventeen percent of law partners at the nation's major law firms and fourteen percent of the Fortune 500 general counsel.
This article focuses on the under-representation of women lawyers practicing in the upper levels of Fortune 500 corporations. Because law firm partners and senior associates are essential participants in any corporation's applicant pool for senior-level in-house positions, this article also addresses the promotional barriers encountered by women lawyers who practice at major law firms. To that end, Part I of this Article summarizes the reasons for the paucity of senior-level women lawyers at law firms and explains why corporations should be concerned. Part II proffers the beneficial impact of improving gender diversity throughout the upper ranks of corporate legal departments. In Part III, this article examines the assertion that in-house legal practice is better than law firm practice for women lawyers by questioning whether corporate legal departments do, in fact, provide better advancement opportunities, and work-life balance than law firms--particularly in light of the fact that those law firm pathologies have begun creeping in-house in recent years. Finally, Part IV provides solutions that may be implemented to address the limited gender diversity in the upper ranks of law practice at corporations.
February 27, 2007
ABA Ethics Opinion On Communicating With Inside Counsel to a Represented Corporation (It's OK), + More on Restrictive Covenants in Retirement Pacts
Posted by Alan Childress
This morning's ABA email newsletter YourABA, amid a flurry of articles [here in PDF] about the ABA's mid-year meeting in Miami, also links to summaries of two recent Ethics Opinions it has issued. [The PDF above also includes this Eye on Ethics section.] One opinion deals with the Model Rule 4.2 dilemma of prohibited communications with the opposing client where the lawyer wishes to communicate with in-house counsel to a corporation or organization that is otherwise represented by outside counsel. The opinion, with related cautions about care in communicating with the client in this position and honoring a request not to communicate that way, finds that the contact is permissible. It reasons that the policies of protecting clients from pressure and harmful admissions do not apply to the in-house counsel in that situation. The formal opinion is linked here.
The other opinion deals with restrictive covenants in lawyer retirement agreements, related to a topic [when New Jersey ruled on a similar matter of non-competes] on which Jeff previously posted and analyzed here. It appears that the ABA position is more generally approving of such agreements than had been New Jersey [see previous Law.com story on Jersey here], at least in the context of in-house counsel working for a competitor after leaving the company. On a quick reading this morning, I'd say that the ABA opinion solves some of the "puzzlement" that Jeff expressed with the New Jersey ruling -- and shows a more realistic place for lawyers in the grand scheme of things as subject to employment contracts to some extent as real people are. But there are obvious differences between the ABA focus on retirement agreements and qualifications that the retirement be real, as opposed to non-competes where the in-house lawyer contemplates further employment after leaving the company.