DealBook Column Addresses Role of Counsel

By Cydney Posner

Here is thought-provoking article in the NYT's DealBook,  , that discusses the failures on the part of GM's in-house lawyers to effectively represent their client, GM. The question raised is, why, with numerous lawyers on the scene, "none took responsibility for making sure their client did not continue to keep defective cars on the road." Moreover, there are allegations in the press that some of the terminated counsel may have even helped to obscure the ignition defect. http://www.nytimes.com/2014/06/07/business/gm-lawyers-hid-fatal-flaw-from-critics-and-one-another.html?module=Search&mabReward=relbias%3As%2C%5B%22RI%3A7%22%2C%22RI%3A16%22%5D. While the DealBook column is focused on in-house counsel, it is worth considering whether similar issues can affect lawyers outside the company as well, albeit in different contexts.

As you probably read in the press, the internal investigative report "describes the failures over a decade in which G.M.'s lawyers were squarely at the center of the ineptitude. They were participants in numerous meetings that produced little tangible action to address a serious problem. The New York Times reported that the role of the lawyers, at least three of whom have been fired, will be a focus of congressional hearings on the company's failure to recall its vehicles. One of the first rules of the legal profession is that ‘a lawyer shall provide competent representation to a client.' How could so many lawyers fail in this regard? The report's description of G.M.'s culture is particularly telling in how it seems to have infected the company's lawyers. Mary T. Barra, the chief executive, described the ‘G.M. nod,' which, according to the report, happens ‘when everyone nods in agreement to a proposed plan of action, but then leaves the room and does little.'"

A lack of urgency in addressing issues was not the only problem: "In 2012, a newly hired lawyer asked why a recall had not been issued for vehicles that had problems related to airbags not deploying in an accident, which was directly traceable to the faulty ignition switch. The response was that other lawyers ‘were resigned to the fact that engineering was acting slowly,' which led him to conclude that ‘this is how it works. We raise it with engineering and they decide.' The report described this as the ‘G.M. salute,' which is ‘a crossing of the arms and pointing outward towards others, indicating that the responsibility belongs to someone else, not me.' But that is the antithesis of a lawyer's responsibility in representing a client. "

The column observes that the "company's lawyers appear to have viewed their obligation to only deal with the incidents immediately demanding their attention, thereby failing to notice the pattern of problems. Each piece of litigation was evaluated solely on the question of how much the company might have to pay, without any regard to the broader issue of whether there was a systemic failure in one of its products. Thus, cases were settled without any urgency to assess whether G.M. had a more extensive problem, despite warnings from outside counsel that there was a risk of punitive damages that could have cost the company millions of dollars more… Even the fact that a defect in its vehicles caused deaths was never brought to the attention of the company's general counsel…." according to the investigative report. The author concludes that the "failure to take the long view, to step back from the particulars of a lawsuit to ask harder questions about whether there was a pattern, was the ultimate failure by G.M.'s lawyers. And that's at the heart of what a lawyer should do in representing a corporate client, to ensure that it does not continue to engage in conduct that puts it at increasing risk."

Could the poor showing by GM's in-house attorneys be a springboard for future focus on the role of counsel? In a recent speech, Commissioner Kara Stein contended that "one gatekeeper that often is absent from the list of cases I see every week are the lawyers. Lawyers often serve as trusted advisers, and they give advice on almost every corporate transaction. They prepare and review disclosures that investors rely upon – disclosures that are at the core of the Commission's regulatory program. And in most cases, they do a good job. But when lawyers provide bad advice or effectively assist in a fraud, sometimes their involvement is used as a shield against liability for both themselves, and for others. Are we treating lawyers differently from other gatekeepers, such as accountants? I think we should carefully review the role that lawyers play in our markets, with a view towards how they can better help deter misconduct and prevent fraud." With the potential for congressional hearings in the offing and some SEC Commissioners also looking to highlight the role of counsel, we may see more attention to this issue – deserved or undeserved -- in the future.

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