The Domains of Corporate Counsel in an Era of Compliance

• Date: 01 June 2016
• Author: Robert C. Bird,Stephen Kim Park
• DOI: http://doi.org/10.1111/ablj.12077
• Published date: 01 June 2016

The Domains of Corporate Counsel

in an Era of Compliance

Robert C. Bird* and Stephen Kim Park**

INTRODUCTION

The corporate legal department has become an indispensable business

function. Led by the Chief Legal Officer (CLO),

1

in-house lawyers acting

as corporate counsel

2

carry out a wide range of duties within and on

behalf of the firm. The growing authority of corporate counsel is driven

by a vast array of state and federal regulations that impose growing pres-

sures on the firm’s operations. The total economic impact of regulatory

obligations and legal liability is enormous. One report finds that U.S. fed-

eral government regulations imposed $216 billion in regulatory costs

annually.

3

The estimated cost of litigation for Fortune 500 companies is

* Associate Professor of Business Law and Eversource Energy Chair in Business Ethics,

University of Connecticut School of Business.

** Assistant Professor of Business Law, University of Connecticut School of Business.

Prior versions of this article were presented at the 2014 and 2015 annual conferences of

the Academy of Legal Studies in Business. The authors thank Sally Gunz, Susan Martin,

Amy Sepinwall, and David Galloway for their comments, as well as colleagues and family

for their support. Any errors or omissions are our own.

1

The CLO is also commonly referred to as the General Counsel or GC. This article uses

the term CLO in part to denote its unique role as a corporate officer and primary legal

adviser to the board of directors.

2

This article refers to in-house lawyers employed by corporations as corporate counsel. See

Ronit Dinovitzer et al., Reconsidering Lawyer Autonomy: The Nexus Between Firm, Lawyer, and

Client in Large Commercial Practice,51A

M.BUS. L.J. 661, 696–98 (2014) (distinguishing

external counsel employed by law firms from corporate counsel).

3

Jim Tankersley, Report: New Regulations Cost $216B and 87 Million Hours of Paperwork. What

Do They Reap?,W

ASH.POST:WONKBLOG (Jan. 14, 2013), http://www.washingtonpost.com/

blogs/wonkblog/wp/2013/01/14/report-new-regulations-cost-216-billion-and-87-million-

hours-of-paperwork.

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C2016 The Authors

American Business Law Journal V

C2016 Academy of Legal Studies in Business

203

American Business Law Journal

Volume 53, Issue 2, 203–249, Summer 2016

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$210 billion, equivalent to one-third of after-tax profits.

4

These factors

have led The Economist todeclarethat“chieflegalofficershavemore

power than ever before” and identify CLOs as among the most powerful

corporate executives.

5

The accumulation of these legal and regulatory obli-

gations has been branded as a new “era of compliance” for corporations.

6

In this new high-stakes era,

7

an animated debate is taking place over

the role of the CLO. On one side are established corporate counsel who

perceive the CLO as responsible for ensuring compliance with regula-

tions and maintaining an ethical culture.

8

According to such counsel,

the presence of a strong CLO that manages compliance avoids unneces-

sary organizational confusion as well as “bureaucratic waste, confusion,

and possible turf-fighting.”

9

The CLO can also readily apply legal judg-

ment to compliance problems and ensure legal accuracy in compliance

operations.

10

Law and compliance can speak with a unified voice to

4

John B. Henry, Fortune 500: The Total Cost of Litigation Estimated at One-Third Profits,METRO-

POLITAN CORP.COUNS. (Feb. 1, 2008), http://www.metrocorpcounsel.com/articles/9493/for-

tune-500-total-cost-litigation-estimated-one-third-profits.

5

A Guardian and a Guide: Chief Legal Officers Have More Power than Ever Before,ECONOMIST:

SCHUMPETER (Apr. 7, 2012), http://www.economist.com/node/21552170.

6

See Richard S. Gruner, General Counsel in an Era of Compliance Programs,46EMORY L.J.

1113, 1144 (1997) (noting the enhanced need for legal information covering applicable

regulations in heavily regulated industries); see also Tanina Rostain, General Counsel in the

Age of Compliance: Preliminary Findings and New Research Questions,21G

EO.J.LEGAL ETHICS

465, 466–67 (2008) (noting the increasing emphasis on compliance in corporate regulation

since the 1990s).

7

Noncompliance can trigger a variety of substantial penalties, including large fines,

decreases in share price, personal liability, forced changes to senior management, and

greater regulatory scrutiny. STACEY ENGLISH &SUSANNAH HAMMOND,THE RISING COSTS OF

NON-COMPLIANCE:FROM THE END OF A CAREER TO THE END OF A FIRM 7 (2014), https://risk.

thomsonreuters.com/sites/default/files/GRC01700.pdf.

8

See Benjamin W. Heineman, Jr., Don’t Divorce the GC and Compliance Officer,HARV.L.SCH.

F. ON CORP.GOVERNANCE AND FIN.REG. (Dec. 26, 2010), http://corpgov.law.harvard.edu/

2010/12/26/dont-divorce-the-gc-and-compliance-officer/; see also Jaclyn Jaeger, Why Compli-

ance Reporting to GC Still Exists,C

OMPLIANCE WK. (Feb. 25, 2014), http://www.compliance-

week.com/news/news-article/why-compliance-reporting-to-gc-still-exists (reporting that

ethics and compliance issues are largely still managed by the CLO).

9

Heineman, supra note 8.

10

Edward T. Dartley, The Combined Role of General Counsel and the Chief Compliance Officer—

Opportunities and Challenges,P

RAC.COMPLIANCE &RISK MGMT.FOR THE SEC.INDUSTRY, May-

June 2014, at 21, 21–23.

204 Vol. 53 / American Business Law Journal

senior management and the board of directors, and these two comple-

mentary corporate functions can operate harmoniously in strategic deci-

sion making.

11

Such counsel view the CLO as a “lawyer–statesman” who

asks not only if a decision is legal but whether a decision is the right

one to make.

12

This broad-based view envisions a CLO with fundamen-

tal responsibility for both legal and ethical concerns as well the firm’s

reputation and relationships with regulators and stakeholders.

13

On the other side of the debate are compliance professionals and

their industry supporters who have aggressively sought executive-level

status and autonomy.

14

These challengers argue that the Chief Compli-

ance Officer (CCO)

15

should not only be independent from the CLO

but also act as both the moral conscience of the firm and be responsible

for a firm’s ethical culture.

16

Under this view, the CCO should design

and implement compliance processes, investigate misconduct, and serve

as a neutral fact finder whose duties transcend the practice of law.

17

11

Id.; see also Jaeger, supra note 8 (noting that the separation of legal and compliance risks

diluting one message or the other).

12

Ben W. Heineman, Jr., The General Counsel as Lawyer-Statesman 7 (Harv. L. Sch. Program

on the Legal Prof. 2010), https://clp.law.harvard.edu/assets/General_Counsel_as_Lawyer-

Statesman.pdf.

13

Id.

14

See generally Tania Rostain, The Emergence of “Law Consultants,”75 FORDHAM L. REV. 1397

(2006) (describing the rise of non-attorney–client based law consulting in a variety of

forms).

15

This position is also commonly referred to as the Chief Ethics and Compliance Officer

(CECO), which reflects the dual roles of compliance officers: preventing, detecting, and

responding to compliance transgressions; and managing corporate ethics. See Michele

DeStefano, Compliance and Claim Funding: Testing the Borders of Lawyers’ Monopoly and the

Unauthorized Practice of Law,82F

ORDHAM L. REV. 2961, 2976 (2014).

16

As one author colorfully explains, “[i]f one were to stage a retelling of Shakespeare’s

Hamlet in a modern corporate boardroom, chances are the most likely source of the ‘con-

science of the king’ would not be the company’s general counsel, but the chief compliance

officer instead.” John G. Browning, Why Chief Compliance Officers Are More Important than

Ever, D CEO (July-Aug. 2013), http://www.dmagazine.com/publications/d-ceo/2013/july-

august/why-chief-compliance-officers-are-more-important-than-ever; see also ETHISPHERE,

THE BUSINESS CASE FOR CREATING A STANDALONE CHIEF COMPLIANCE OFFICER POSITION 4–5

(2010), http://m1.ethisphere.com/resources/whitepaper-separation-of-gc-and-cco.pdf.

17

Michael W. Peregrine & Joshua T. Buchman, Managing the General Counsel/Compliance

Officer Relationship, AHLA CONNECTIONS, Oct. 2011, at 34, 34–35; Zane Gilmer, Column,

2016 / The Domains of Corporate Counsel in an Era of Compliance 205