The
greatest
challenge
for
the
in-house
lawyer
today
is
reconciling
the
role
of
being
a
corporate
business
partner
with
the
role
of
being
the
corporate
guardian.
Balancing
these
roles
can
be
fraught
with
ethical
pitfalls.
To
navigate
these
pitfalls,
it
is
important
for
the
in-house
lawyer
to
know
and
understand
the
ethical
rules
that
have
been
adopted
to
guide
their
work
and
why
they
have
been
adopted
in
the
first
place.
Background
The
modern
corporate
in-house
counsel
faced
significant
criticism
during
the
early
21st
century
in
the
wake
of
scandals
that
involved
the
collapse
of
corporate
giants
like
Enron
and
WorldCom.
The
failures
of
in-house
lawyers
during
this
period
were
largely
the
result
of
their
inability
to
effectively
serve
as
ethical
gatekeepers,
a
responsibility
that
should
have
helped
prevent
the
fraudulent
activities
that
led
to
these
catastrophic
corporate
downfalls.
The
Wave
Of
Scandals
Enron’s
collapse
was
a
result
of
widespread
fraud,
particularly
through
the
manipulation
of
accounting
practices
and
the
creation
of
off-balance-sheet
entities
to
hide
debt.
The
in-house
lawyers
at
Enron
failed
in
several
critical
ways:
-
Failure
To
Challenge
Questionable
Practices.
Despite
clear
evidence
of
unethical
and
illegal
practices,
such
as
the
creation
of
complex
financial
structures
designed
to
mislead
investors
and
regulators,
the
in-house
lawyers
did
not
take
meaningful
steps
to
challenge
or
stop
these
practices.
In
fact,
the
in-house
lawyers
often
worked
to
facilitate
these
schemes,
interpreting
the
law
in
ways
that
allowed
the
company
to
conceal
its
financial
problems. -
Conflicted
Loyalties.
The
general
counsel
(GC),
as
a
senior
executive,
had
a
duty
to
the
board
and
shareholders
to
protect
the
integrity
of
the
company.
However,
the
GC
at
the
time
appeared
to
prioritize
the
interests
of
the
CEO
and
other
senior
executives
over
the
interests
of
shareholders
and
the
company’s
long-term
health,
creating
a
conflict
of
interest. -
Ethical
Blind
Spots.
The
in-house
lawyers
failed
to
recognize
or
act
on
the
broader
ethical
implications
of
the
company’s
actions,
focusing
on
legal
technicalities
rather
than
the
spirit
of
the
law
or
the
company’s
ethical
responsibilities.
WorldCom’s
scandal
involved
the
fraudulent
inflation
of
assets
by
$11
billion,
which
led
to
the
largest
bankruptcy
in
U.S.
history
at
the
time.
The
failure
of
WorldCom’s
in-house
lawyers
highlighted
similar
issues:
-
Lack
Of
Oversight.
WorldCom’s
in-house
lawyers
failed
to
establish
or
enforce
appropriate
oversight
mechanisms
within
the
company
where
the
fraud
was
taking
place. -
Failure
To
Protect
Whistleblowers.
Employees
who
had
suspicions
about
WorldCom’s
financial
practices
found
little
support
from
the
in-house
lawyers
who
were
responsible
for
ensuring
that
whistleblower
protections
are
enforced.
This
lack
of
support
contributed
to
a
culture
of
silence,
which
allowed
the
fraud
to
grow
unchecked.
The
Enron
and
WorldCom
cases
were
emblematic
of
a
broader
crisis
of
corporate
governance,
where
in-house
lawyers
failed
in
their
role
as
ethical
stewards.
Several
common
factors
contributed
to
these
failures:
-
Overemphasis
On
Legalism
Over
Ethics.
In-house
lawyers
during
this
era
tended
to
focus
on
what
was
legally
permissible
rather
than
what
was
ethical
or
in
the
best
long-term
interest
of
the
company
and
its
stakeholders.
Many
of
the
financial
maneuvers
used
by
companies
like
Enron,
WorldCom,
and
others
might
have
been
legally
defensible
but
were
deeply
unethical
and
unsustainable. -
Weak
Or
Compromised
Independence.
In
many
companies,
in-house
lawyers
were
heavily
influenced
by
the
executive
team
and
did
not
have
the
independence
necessary
to
stand
up
to
improper
or
unethical
demands
from
CEOs
or
CFOs.
This
compromised
their
ability
to
serve
as
independent
guardians
of
corporate
integrity. -
Lack
Of
Communication
With
The
Board
Of
Directors.
In-house
lawyers
often
failed
to
adequately
communicate
legal
and
ethical
risks
to
the
board,
either
because
they
were
sidelined
or
because
they
downplayed
risks
in
favor
of
short-term
financial
performance.
In
some
cases,
in-house
lawyers
were
complicit
in
keeping
boards
in
the
dark
about
major
red
flags,
such
as
significant
off-balance-sheet
liabilities
or
aggressive
accounting
practices.
Response
To
The
Wave
Of
Scandals
The
Enron
and
WorldCom
scandals
prompted
the
American
Bar
Association
(ABA)
to
tighten
its
ethical
rules
by
clarifying
the
in-house
lawyer’s
duty
to
the
organization,
strengthening
reporting
obligations,
and
emphasizing
the
in-house
lawyer’s
role
in
preventing
corporate
fraud.
Impact
Of
These
Changes
Prevention
Of
Future
Scandals.
The
ABA
sought
to
prevent
lawyers
from
becoming
complicit
in
corporate
fraud
by
imposing
clearer
reporting
duties
and
enabling
in-house
lawyers
to
break
confidentiality
in
certain
cases.
-
Increased
Accountability.
The
ABA
sought
to
hold
in-house
lawyers
more
accountable
for
addressing
and
preventing
misconduct
within
organizations. -
Stronger
Ethical
Culture.
The
ABA’s
rule
changes
were
part
of
a
broader
movement
toward
enhancing
the
ethical
culture
within
both
the
legal
profession
and
corporate
America,
emphasizing
transparency,
integrity,
and
the
in-house
lawyer’s
role
as
a
gatekeeper.
In-house
lawyers
play
a
crucial
role
in
driving
business
success,
but
they
also
bear
the
weighty
responsibility
of
safeguarding
the
organization’s
ethical
integrity.
While
it
is
essential
to
support
innovation
and
growth,
the
in-house
lawyer
has
an
ethical
duty
to
protect
the
company,
a
duty
that
can
never
be
compromised.
In-house
lawyers
must
always
remain
vigilant,
ready
to
speak
up
when
legal
or
ethical
boundaries
are
crossed.
When
necessary,
in-house
lawyers
must
even
speak
out
to
ensure
the
organization’s
long-term
health
and
compliance.
Staying
grounded
in
the
ethical
rules
is
not
just
a
professional
obligation
—
it’s
a
critical
safeguard
for
the
organization
and
the
lawyer’s
career.
Ultimately,
failing
to
uphold
these
responsibilities
could
result
in
more
than
just
a
business
failure
—
it
could
cost
you
your
bar
license.
If
you
are
interested
in
hearing
more
on
this
topic
check
out
Ethics
for
In-House
Counsel:
Navigating
the
Ethical
Responsibilities
of
In-House
Counsel
to
the
Organization’s
President,
Board
of
Directors,
and
Employees,
available
only
via
IHC
On
Demand
(with
CLE!).
Lisa
Lang
is
an
in-house
lawyer
and
thought
leader
who
is
passionate
about
all
things
in-house.
She
has
recently
launched
a
website
and
blog
Why
This,
Not
That™
(www.lawyerlisalang.com
)
to
serve
as
a
resource
for
in-house
lawyers.
You
can
e-mail
her
at
[email protected]
,
connect
with
her
on
LinkedIn
(https://www.linkedin.com/in/lawyerlisalang/)
or
follow
her
on
Twitter
(@lang_lawyer).