In-Counsel Ethics: Entity Management

Lauren Mcmenemy
6 min read

The in-house general counsel is in a unique position in the legal world. On the one hand, they are firmly rooted in the law – or as firmly rooted as you can be in a sector that is constantly shifting, changing with each new government desire or regulator project. On the other, though, they are just as firmly rooted in the business, there to help enact the company strategy and keep the organization on the right side of regulators and the law while still enabling nimble growth and disruptive practices.

Are in-house counsel expected to act as officers of the court, and to uphold the principles of legal professionalism and ethics while enforcing compliance – or are they to blindly protect the confidences of their employers, furthering the organization’s interests without regard for legal and ethical compliance?

When it comes to entity management and governance, in-house counsel ethics becomes a minefield. How can corporate counsel advise on risk-taking strategies for business growth while at the same time ensuring those risks are within the law and unlikely to impact the entity’s good standing? What conversations are considered privileged and what is outside that remit? And what other ethical dilemmas may face the in-house counsel? Let’s look at just some of the things that could impact corporate counsel in their day-to-day work life.

Who’s the client?

When it comes to in-counsel ethics, the question of who is actually the client is an important one. It’s essential to remember that the organization is the client, not any individual member of management or an employee – and that can be difficult to remember, says in-house legal counsel Sterling Miller in his blog, with colleagues often thinking of you as “their lawyer.”

Miller writes: “This means you have to watch out for things like the senior management “squeeze” – “what I’m about to tell you is only between you and me as my lawyer.” You must be able to recognize situations where separate counsel may be needed and to advise your business colleague to get their own lawyer if needed.”

Scope of privilege

This dual role means the scope and nature of legal privilege is impacted. If conversations and work with a lawyer are protected by legal privilege, what do in-house counsel ethics say about those conversations and communications where the in-house counsel is acting in its role as a business advisor rather than a lawyer? To take this a step further: Would minutes of Board meetings be covered by legal privilege, where the General Counsel is involved? And what impact would that have on governance, on how the minutes are communicated and stored, and so on?

Maintaining independence

While in-house counsel ethics around monitoring and policing conflicts of interest are clear when it comes to employees and stakeholders, what can be said of their own conflicts of interest? The in-house counsel must, of course, remain impartial in their advice, but they have an inherent interest in the fortunes of the company. as it’s the company that pays their wages. Where the law would see a conflict of interest, the in-house counsel must consider stepping aside and deferring advice to outside counsel or someone not impacted by the resulting decision.

Likewise, the in-house counsel may be called upon to advise on the actions of directors, or on the risk of conflicts and the consequences of the resignation or recusal of a director. It may or may not be appropriate for the General Counsel to serve on the board, and any decision relating to the in-house counsel’s role at board level should be carefully considered. They must also ensure the board is informed whether discussions are covered under legal privilege in case that changes what is ultimately said.

Negotiations and third parties

Legal ethics governing negotiations say that a misrepresentation can occur if a lawyer incorporates or affirms a statement of another person that the lawyer knows is false. Likewise, the lawyer themselves cannot knowingly make a false statement of a material fact, which includes failure to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client. This is well and good when acting as an independent third-party legal counsel, but what of in-house counsel ethics? How must the in-house counsel act if brought into contract negotiations or as part of a sales process?

A lawyer must also respect the rights of third parties, and not use means that have no substantial purpose other than to embarrass, delay or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person. What does that then mean if a business uses delays to gain leverage in negotiations? Negotiations and dealing with third parties can be a tricky playing field for in-counsel ethics.

Protecting whistleblowers and reporting misconduct

What happens if, in the course of day-to-day work, the in-house counsel discovers corporate wrongdoing either at their own company or a client’s? Or what if an employee comes to them as a whistleblower to report something illegal? This is where the dual role of the in-house counsel could become an issue. Are they duty-bound to report the wrongdoing, or to protect their client?

Keeping licenses up to date

Finally, when working in-house, it can be easy to forget to renew your law license, take any required continuing legal education courses, or ensure you have complied with the jurisdiction’s licensing requirements. In-counsel ethics for entity management should include a process to check licenses, including the practising licenses of any employees who need them.

What impact does technology have on in-counsel ethics?

It’s fair to say that the in-counsel ethics minefield is one that can only be negotiated with careful footing and a very carefully managed paper trail. In-counsel ethics must go hand in hand with a strong and robust governance process driven by technology – only then can in-house counsel ensure everything is recorded and stored properly and securely, and that they can prove their legal reputation can remain intact.

Entity management software can help the in-house counsel to maintain that record, and ensure the right information gets to the right people at the right time. Technology, such as Diligent Entities, creates a single source of truth for the in-house counsel, enabling reporting on governance and compliance requirements and integrating data from multiple business units to create a system of record for the legal needs of the organization.

Diligent Entities also integrates seamlessly with the board portal and secure file-sharing system to create the Governance Cloud, a way for the in-house counsel to gain analytics to spot risks, act on opportunities and turn insights into action. Get in touch and schedule a demo to discover how Diligent’s suite of compliance and governance solutions can help support in-house counsel ethics.

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Lauren McMenemy

Lauren has been writing about the world of compliance and governance for half a decade, but she's been a journalist and copywriter for longer '' that's 20 years spent writing for media, for agencies and for businesses across sectors including finance, professional services, healthcare, technology, energy and entertainment. As an editorial strategist, she has set the tone for national and multinational companies, and loves nothing more than getting to the heart of great stories. An Aussie in London for 13 years, and married to a true English eccentric.