Keeping Big Firms Within Bounds

Did you ever wonder what lawyers for large corporations talk about when they get together? Many of you probably think a frequent topic is “how to get around the law.� Guess again.

At a recent meeting in New Orleans of 165 corporate lawyers, the topic of discussion was “Organizing for Corporate Compliance.� That term describes efforts within a corporation to ensure compliance with all applicable laws, be they environmental, regulatory or criminal.

Two important events led to this meeting. Congress adopted the U.S. Sentencing Guidelines for the sentencing of organizations, and the U.S. Department of Justice issued a policy statement concerning environmental laws.

The guidelines are designed to help judges determine the sentence to be imposed on a corporation when it is found guilty of a federal crime. But the guidelines go further, offering a corporation the opportunity to have a penalty reduced if it had engaged in significant “compliance review.�

The Justice Department statement seeks to “encourage self-auditing, self-policing and voluntary disclosure of environmental violations. . . .�

“In the ideal situation, if a company fully meets all the criteria,� the statement notes, “the result may be a decision not to prosecute the company criminally.�

The idea of compliance review, self-auditing and self-policing was first suggested in 1965 by one of the authors of this column, Louis Brown, in a USC Law Review article titled “Legal Audit.� Since then, particularly in the last ten years, organizations have started and maintained legal-audit and compliance-review procedures.

The New Orleans discussion was devoted to how lawyers should assist their clients in compliance review. This puts the lawyers in a kind of policing role or, as the lawyers prefer to say, a monitoring function. This is an unfamiliar role to many lawyers and to many clients. The customary function of the lawyer--the one we hear about most--puts him or her in the middle of a dispute. The compliance-review process gets lawyers involved earlier--when there are no disputes. The purpose is a preventive-law one--to keep clients legally healthy. Law schools are just beginning to concentrate teaching efforts on this sort of activity.

There are problems to work out, of course. How, for example, are confidential and privileged communications preserved during this process? What records must be kept? And what is the role of the lawyer when there has been, or may have been, a violation of law?

Discussion participants generally agreed that each corporation should start with a statement of philosophy, or ethics, regarding compliance. Next, procedures for managers and company lawyers to assist all personnel with compliance should be established. Sounds like something more companies should consider.

Klein is an attorney and president of The Times Valley and Ventura County editions. Brown is professor of law emeritus at USC and chairman of the board for the National Center for Preventive Law. They cannot answer mail personally but will respond in this column to questions of general interest about law. Do not telephone. Write to Jeffrey S. Klein, The Times, 9211 Oakdale Ave. , Chatsworth, Calif. 91311.