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Counsel scruples scrutinised

Counsel scruples scrutinised

IN-HOUSE COUNSEL have an important role to play in ensuring Australia doesn’t see more of its own Enron-style corporate collapses, according to a prominent company director.Kathryn Greiner,…

IN-HOUSE COUNSEL have an important role to play in ensuring Australia doesn’t see more of its own Enron-style corporate collapses, according to a prominent company director.

Kathryn Greiner, executive director of Gabane Pty Ltd and a board member of several organisations including Bond University, told a meeting of corporate counsel in Sydney last week they should be paying close attention to Columbia University Professor John Coffee’s recent book, Gatekeepers, the Professions and Corporate Governance.

The book contends in-house counsel were among those that failed in their duty in some of this decade’s high-profile corporate collapses.

Not only directors of companies, but corporate counsel have an important duty to uphold as gatekeepers and should be prepared to resign if they cannot reconcile their ethical and legal responsibilities with their duty to their employer, said Greiner — a former Sydney City councillor and one-time candidate for Lord Mayor of Sydney.

“The role of the corporate gatekeeper is particularly important because we carry all of the information. We are carrying the knowledge of the organisation, and we are ensuring that organisations have [complied with the law],” she told the Australian Corporate Lawyers Association’s In-house Counsel Symposium in Sydney.

Greiner used Macquarie Bank as an example of an Australian company that has grown rapidly and will have to be careful that it maintains its founders’ high corporate governance ideals.

“Mac Bank is almost too big for its own self, and needs to rethink where it wants to go and what it wants to look like in five or ten years time,” she said.

“It could be another Enron if the managerial level doesn’t keep a very close eye and track [on corporate governance], and the gatekeepers within the Macquarie Banks of this world don’t keep focus on their entity,” she told the conference.

She later told Lawyers Weekly that she referred to Macquarie Bank because one of its founding members, deputy chairman Mark Johnson, is now in the process of retiring.

“In large organisations where the original founders retire, one often gets a diminution in the original ethical structure that underpinned the founding members and the work of a company,” she said.

“[My comment] was in relation to a company that loses its original ethos, if you like. The trap that can befall a large company is that it can end up cutting corners, for want of a better word, which could create pressure on in-house counsel to keep an eye out and prevent that kind of thing from happening.”

A Macquarie Bank spokesperson said the company is A-rated by Standard and Poor’s and is overseen by a number of regulators in Australia and overseas.

“Our strong independent risk management and prudential controls are a central management function and are a fundamental part of the way Macquarie Bank does business,” she said.

“Macquarie Bank continues to invest heavily in prudential compliance and operational risk assessment. Macquarie fosters a culture of risk management responsibility for all of its staff in addition to staff training in this area.”

Greiner’s comments about corporate counsel’s gatekeeper role echo those of others, including National Australia Bank general counsel David Krasnostein, who said in a speech last year that “the scene is being set for a rapid expansion of corporate counsel duties”.

He said even though in-house lawyers had not been specifically targeted in Australia by the corporate governance crackdowns, it is inevitable they will be soon.

“The massing of national wealth in the latter half of the last century within the control of corporations makes them, their directors, officers and corporate counsel, obvious targets for increased regulation to protect the public interest,” he told the Annual Banking and Financial Services Law Association conference held on the Gold Coast in August 2006.

“Corporations’ lawyers will, as a consequence, likely assume disproportionate responsibility from what might have been expected in years past.”

Greiner warned that in-house counsel must ensure they do not become “marginalised” and are kept closely informed of the decisions of their company in order to carry out their important role.

But ultimately, she said if internal lawyers cannot reconcile conflicting duties, “some days you might just have to decide to go”.

At the same time, both internal and external lawyers are concerned that increased pressure following several high-profile inquiries — including the Oil for Food inquiry and the inquiry into James Hardie’s asbestos compensation funds — to overrule privileged communications with their client will lead their employers to shy away from consulting with their legal advisers.

The Australian Law Reform Commission is due to release an issues paper next month to kick off its inquiry into whether legal professional privilege (LPP) should be abrogated by law to assist investigations by Commonwealth agencies.

Will Irving, general counsel of Telstra, has said this could in fact lead to more consultations and advice going unrecorded for fear it will become public, lawyers not being included in important discussions until the decisions have been made, or managers resorting to “euphemisms” when speaking to their lawyers.

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