Who Let the Lawyers Out?: Reconstructing the Role of the Chief Legal Officer and the Corporate Client in a Globalizing World

ARTICLE 4_BAGLEY 2-17.DOCX (DO NOT DELETE) 2/17/16 7:39 PM WHO LET THE LAWYERS OUT?: RECONSTRUCTING THE ROLE OF THE CHIEF LEGAL OFFICER AND THE CORPORATE CLIENT IN A GLOBALIZING WORLD Constance E. Bagley* Mark Roellig** Gianmarco Massameno*** “If you aint cheating, you aint trying.” — Barclays Bank foreign exchange trader1 “Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation.” — Deputy Attorney General Sally Quillian Yates2 * Constance E. Bagley is a Senior Research Scholar in Law at the Yale Law School and was previously Professor in the Practice of Law and Management at the Yale School of Management and Associate Professor of Business Administration at the Harvard Business School. The authors gratefully acknowledge the valuable assistance of Professor Boel Flodgren of Lund University in gathering and analyzing the data from Swedish general counsel in Part VI of this Article. They also thank Professor Gillian K. Hadfield of the University of Southern California Law School for her kind permission to use excerpts of her interviews with general counsel. In addition, they also thank Susan Schillaci for her excellent research assistance and Christoph A. Bagley for his graphics support. ** Mark Roellig is Executive Vice President and General Counsel of the Massachusetts General Life Insurance Company and previously served as General Counsel of Fisher Scientific International Inc., Storage Technology Corporation, and U S West. He is also an Adjunct Professor at Colorado Law, University of Colorado Boulder. *** Gianmarco Massameno served as Process Development Administrator to Daimlerowned Mercedes-Benz USA addressing compliance issues. He was also the Learning Assessment Fellow to the Dean of the Harvard Graduate School of Arts & Sciences. 1. James Titcomb, Barclays Handed Biggest Bank Fine in UK History Over ‘Brazen’ Currency Rigging, TELEGRAPH (May 20, 2015, 8:17PM BST), http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11619188/Barclayshanded-biggest-bank-fine-in-UK-history-over-brazen-currency-rigging.html [perma.cc/SW3P-98DW]. 2. Sari Horwitz, Justice Dept. to Focus on Individuals in Cases of Corporate 419 ARTICLE 4_BAGLEY 2-17.DOCX (DO NOT DELETE) 2/17/16 7:39 PM 420 [Vol. 18:2 U. OF PENNSYLVANIA JOURNAL OF BUSINESS LAW In the wake of the collapse of Lincoln Savings and Loan in 1989 and again after the implosion of Enron and WorldCom in 2001, Judge Stanley Sporkin famously asked, “Where were the lawyers?” Section 307 of the Sarbanes-Oxley Act of 2002 imposed new duties on in-house counsel to report up violations of law. Yet, we still had the LIBOR and foreignexchange rigging scandals, which had, by 2015, led to multi-billion dollar settlements and fired bank CEOs in England and Germany; rampant insider trading by hedge funds and corporate titans; the subprime mortgage crisis; the option backdating scandals; and massive recalls by automotive manufacturers Toyota, General Motors, and Volkswagen. We submit that legislation and regulatory action alone are, and will continue to be, insufficient to deter corporate misconduct of the sort we have experienced in the last two decades. As in-house counsel have become more entrepreneurial in both the United States and elsewhere, and as many business schools have failed to adequately prepare future managers to address the legal and ethical aspects of business, more attention must be focused on the internal forces within companies. In addition to addressing Judge Sporkin’s question, we must ask, “Where were the managers?” In this Article, we provide new data on the role of in-house counsel in Sweden and assert that counsel and managers can be more effective drivers of both compliant corporate behavior and the creation of sustainable value if they work together as strategic partners, that is, when corporate managers are legally astute and are advised by strategically astute counsel. INTRODUCTION........................................................................................... 421 I. A BRIEF HISTORY OF THE CHANGING ROLE OF GENERAL COUNSEL IN THE UNITED STATES ................................................... 432 A. Period of Prestige: Post-Civil War through 1930s .................. 432 B. Period of Decline: 1940s through Mid-1960s ......................... 433 C. Period of Renaissance: Mid-1960s through 1980s .................. 433 D. Prestige at the Cost of Integrity?: 1980s to 2002 ..................... 436 E. SOX Enforcement Era: 2002 through 2008............................. 439 F. The Subprime Mortgage Crisis and Massive Product Recalls Land Counsel and their Clients Back in the Drink: 2008 to the Present................................................................... 441 II. LEGAL AND STRATEGIC ASTUTENESS ............................................ 449 A. Value-Laden Attitudes ............................................................. 450 B. Proactive Approach ................................................................. 451 Misconduct, WASH. POST (Sept. 10, 2015), https://www.washingtonpost.com/world/ national-security/justice-dept-to-focus-on-individuals-in-cases-of-corporate-misconduct/ 2015/09/10/c14b0ec0-57db-11e5-abe9-27d53f250b11_story.html [perma.cc/PC5W-JL8H]. ARTICLE 4_BAGLEY 2-17.DOCX (DO NOT DELETE) 2016] III. IV. V. VI. VII. WHO LET THE LAWYERS OUT? 2/17/16 7:39 PM 421 C. Exercise of Informed Judgment ............................................... 452 D. Context-Specific Knowledge of the Law and Business and the Application of Legal and Managerial Tools ...................... 454 E. Partnership of Legally Astute Managers with Strategically Astute Lawyers ........................................................................ 456 GENERAL COUNSEL AS STRATEGIC PARTNER NOT HIRED GUN OR COP ............................................................................................ 456 THE VALUE OF LEGAL ASTUTENESS .............................................. 461 A. Using Contracts to Strengthen Relationships .......................... 461 B. Enhancing, Leveraging, and Transforming the Value of Knowledge Assets and Other Firm Resources ........................ 465 C. Creating Options ...................................................................... 467 D. Strategic Compliance Management ......................................... 468 E. Shaping the Regulatory Environment ...................................... 471 TRAINING THE NEXT GENERATION OF LEGALLY ASTUTE MANAGERS AND STRATEGICALLY ASTUTE LAWYERS ................... 477 GLOBALIZATION AND THE CHANGING ROLE OF GENERAL COUNSEL: NEW DATA, PREDICTIONS, AND PRESCRIPTIONS .......... 488 A. The Anglo-American Nexus .................................................... 491 B. In-House Counsel in Sweden................................................... 492 C. The Application of Our Prescriptions Outside the U (...truncated)