Coping with a 'culture of waiver': today, governmental agencies expect a company under investigation to broadly waive attorney-client or work-product protections. Without these protections, however, corporations can find themselves at an extreme disadvantage during litigation.

• Author: Steinberg, Marty
• Position: LEGAL ISSUES

Recently, a corporation retained this writer's law firm as outside counsel to scrutinize unusual invoices and expenditures in the overseas operations of a newly acquired company. Our firm had barely begun our investigation when the corporation's CFO alerted its auditors to the inquiry. The corporation's auditors immediately asked for our entire work product and strategic investigative plan. At the time of the request, we had not yet completed all of our interviews, obtained all of the relevant documents or determined that a criminal act had even occurred.

Of course, we refused to provide the privileged materials. As outside counsel, it is our role to advise the company of its disclosure obligations if we determine any exist. Without the requested information, the corporation's auditors threatened to refuse to issue a financial statement or to simply resign.

After months of negotiations, the client was finally bullied into providing privileged materials to the auditors, who, with no analysis whatsoever, turned it over to the U.S. Securities and Exchange Commission (SEC). This triggered an investigation that took years to resolve. Ironically, our investigation eventually found no illegal conduct, and the SEC came to the same conclusion, but not before the client was forced to spend vast amounts of time and money defending itself against a needless government investigation.

A 'Culture of Waiver' Emerges

This scenario is being repeated again and again throughout the country. Counsel traditionally directs internal investigations and advises companies of possible reporting obligations; however, the rash of recent accounting scandals in the wake of the Enron collapse dramatically altered the corporate governance landscape.

A March 2006 survey of more than 1,400 in-house and outside counsels revealed a widespread perception that the attorney-client privilege is under attack. Almost 75 percent of respondents to the survey--conducted by the Association for Corporate Counsel, the National Association of Criminal Defense Lawyers and the American Bar Association--indicated their belief in a "culture of waiver," in which governmental agencies expect a company under investigation to broadly waive attorney-client or work-product protections.

By protecting communications between lawyer and client as confidential, the attorney-client privilege aims to encourage frank discourse. Similarly, the work-product doctrine protects materials prepared in anticipation of litigation against discovery, so it remains undisclosed to adversaries. Without these protections, corporations can find themselves at an extreme disadvantage during litigation.

This culture of waiver is evident in the post-Enron policies of the Department of Justice (DoJ) and SEC. In 2001, the SEC announced that among the criteria to be considered when deciding to take enforcement action against a corporation, a key factor is if the corporation makes available the results of its review of the "nature, extent, origins and consequences of the conduct and related...