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 Letters to the 107th Congress June 20, 2002 The Honorable John Edwards Dear Senator Edwards: Thank you for sending me a copy of your June 18, 2002 letter to SEC Chairman Harvey Pitt. I have also had an opportunity to review your Senate speech of the same day concerning the responsibilities of lawyers under the federal securities laws. This letter will bring you up to date on the American Bar Association’s recent efforts to examine and, where appropriate, modify or amend the ABA Model Rules of Professional Conduct that govern the ethical conduct of corporate attorneys. In your June 18 letter and floor speech, you suggested that in the wake of the Enron scandal, you believe that the role of corporate attorneys, and not just accountants, should be examined in order to maintain the integrity of our free market system. Specifically, you called for the creation of a new national rule of professional conduct, either through SEC rule or through federal legislation, that would require a corporate attorney who becomes aware of misconduct to bypass the company’s management and report the misconduct directly to the corporation’s board of directors. In addition, in your speech, you suggested that the ABA has failed to take a leading role in helping to develop such a national rule. Although we believe that you have raised important questions, your criticism of the ABA is misplaced. The ABA shares your concerns emanating from the collapse of Enron and other Enron-like cases. In addition, we agree that the devastating effects that these types of cases can have on the entire economy and on those most closely affected—employees, customers and shareholders—argue for careful review of the roles lawyers and other key parties play and can play in creating an environment designed to assure corporate integrity and responsibility. Indeed, in an effort to address these concerns, I announced the formation of an ABA Task Force on Corporate Responsibility on March 27, 2002. A roster of the ABA Task Force members (including North Carolina Business Court Judge Ben Tennille) is attached. The ABA Task Force on Corporate Responsibility is currently in the process of examining the framework of laws and regulations and ethical principles governing the roles of lawyers, executive officers, directors, and other key participants in the corporate governance system. The Task Force is studying these issues to determine how the current system of checks and balances can be improved in order to enhance the public trust in corporate integrity and responsibility. We are confident that through our Task Force, the ABA will be able to contribute its perspective to the dialogue now occurring among regulators, legislators, major financial markets and other organizations focusing on legislative and regulatory reform to improve corporate responsibility. The ABA Task Force has met numerous times over the past several months, and it plans to submit its Preliminary Report outlining its recommendations to the ABA Board of Governors at the ABA Annual Meeting in Washington, D.C. in August. These recommendations will focus on two principal areas, namely, (1) further clarifying the role of corporate lawyers in corporate governance responsibility, including proposals for amending the ABA Model Rules of Professional Conduct, and (2) proposals to strengthen internal corporate governance. With regard to the responsibility of a corporate lawyer who knows that a constituent of the organization has engaged or may engage in improper conduct, under existing ABA Model Rule 1.13, the lawyer currently has the authority to bring the matter to the organization’s highest authority for resolution. Among the recommendations being considered by the ABA Task Force is a recommendation to clarify and strengthen ABA Model Rule 1.13, the very ethical rule that you addressed in your June 18 letter and Senate speech. Therefore, the ABA, through the work of its Task Force, is already addressing possible changes to the Model Rule that you believe should be amended. While the ABA welcomes any suggestions that you, the SEC, or any other party may have for amending the ABA Model Rules of Professional Conduct, we continue to believe that the promulgation and enforcement of lawyer ethical standards should remain the primary responsibility of the state courts. For over 200 years, the legal profession has been regulated almost exclusively by the judicial branch of government, and today, judicial regulation of lawyers is a principle firmly established in every state. Traditionally, lawyers in the United States have been licensed by the highest court of the state in which they practice, and once admitted to practice before the courts in that state, each lawyer has been subject to the ethical rules adopted by that state’s highest court. While most state courts have chosen to adopt the ABA Model Rules of Professional Conduct in whole or in part, the final decision is entirely that of the state courts. Therefore, although we agree with you that the issue of the corporate attorney’s ethical duty to disclose misconduct to boards of directors is important and should be closely examined, we believe that changes in this ethical rule, if any, ultimately should be accomplished through the adoption of new state court rules, not through federal legislation or federal agency regulations. We appreciate your efforts to improve the existing ethical rules governing corporate attorneys, and we welcome your input on this important subject. I am hopeful that we can work together to further improve the ABA Model Rules and, ultimately, the ethical rules of the state courts, to ensure the integrity of our free market system. Very truly yours, Robert E. Hirshon Cc: The Honorable Harvey Pitt, Chairman, Securities and Exchange
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AMERICAN BAR ASSOCIATION Governmental Affairs Office 740 Fifteenth Street, NW Washington, DC 20005 ph: 202-662-1760 fx: 202-662-1762 |