In Corporate Representation Geoffrey C

University of California, Hastings College of the Law UC Hastings Scholarship Repository Faculty Scholarship 2009 Legal and Managerial "Cultures" in Corporate Representation Geoffrey C. Hazard, Jr. UC Hastings College of the Law, [email protected] Follow this and additional works at: http://repository.uchastings.edu/faculty_scholarship Recommended Citation Geoffrey C. Hazard, Jr., Legal and Managerial "Cultures" in Corporate Representation, 46 Houston Law Review 1 (2009). Available at: http://repository.uchastings.edu/faculty_scholarship/1080 This Article is brought to you for free and open access by UC Hastings Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of UC Hastings Scholarship Repository. For more information, please contact [email protected]. ESSAY LEGAL AND MANAGERIAL "CULTURES" IN CORPORATE REPRESENTATION Geoffrey C. Hazard,Jr." TABLE OF CONTENTS I. INTRODU CTION ......................................................................... 2 II. INDIVIDUAL CLIENTS ........................................4 III. TYPICAL CORPORATE MANAGERS AND PROPRIETORS ........:...... 6 IV. "CULTURE" IN CORPORATE CONTEXT .................................... 8 V. "CULTURE" IN REPRESENTATION OF CORPORATE CLIENTS ............................................................. 9 A. Benefit Versus Burden ............................................... 10 B. Certainty Versus Ambiguity ....................................... 12 C. Subjectivity Versus Objectivity .................................. 13 D. Multiple Versus Single ............................................... 13 E. T im e ........................................................................... 13 F. Vocational Techniques: Deeds and Words .................. 14 VI. CONCLUSION: A COMPARATIVE SOCIOLOGICAL APPROACH ....................... 15 * Thomas E. Miller Distinguished Professor of Law, University of California Hastings College of Law; Trustee Professor of Law, University of Pennsylvania Law School; Sterling Professor of Law Emeritus, Yale Law School. The Author was the keynote speaker at the Thirteenth Annual Houston Law Review Frankel Lecture on November 7, 2008, where an initial version of this Essay was presented. HOUSTON LAW REVIEW [46:1 I. INTRODUCTION Perhaps the most difficult professional task for a lawyer is giving firm advice to a client concerning a legally risky project (transaction or litigation) in which the client has a substantial investment-psychological, financial, or otherwise. A client's project can be affirmative in that the client contemplates positive action, such as launching a new venture, or negative in that the client refuses or omits to take action, such as holding on to a losing investment or refusing to settle a dispute on terms recommended by the lawyer. This Essay focuses on representation of business clients, particularly corporations, although similar problems arise in all branches of practice. In the corporate setting, the client is the corporate juridical entity, not the people who govern and operate it. For convenience, in this Essay reference will often be made to "the client." This reference should be understood to mean the relevant corporate officials. If the client has doubts about the desirability or feasibility of the project, the client and the lawyer will usually make parallel and complementary assessments. Sometimes lawyers can envision bolder strategies than their clients. However, much legal advice is addressed to legal risks and other negative aspects of a transaction, while clients typically think in terms of opportunity. Hence, in commonly encountered transactions the client is more or less committed to a project. In a corporate representation, a project often will not even surface for legal consideration unless someone in the company has become invested in it. On the other hand, the lawyer may believe the project should be reshaped or abandoned. If the client is a fairly sensible person, as most clients are, the project will have a reasonable basis; that is, be objectively rational in business terms. If the lawyer is a fairly sensible person, as most lawyers are, and has doubts or reservations, it is because the project entails substantial risk of serious adverse legal consequences. The lawyer therefore considers the project to be imprudent when considered objectively. Unfortunately, some lawyers fail to fulfill their professional responsibility to give objective legal advice, as required by professional tradition and the rules of ethics.' This deficiency is often "systemic" or "cultural," be it within an office in 1. E.g., MODEL RULES OF PROF'L CONDUCT R. 2.1 (2005) (mandating that lawyers .exercise independent professional judgment and render candid advice" when representing their clients). 2009] CULTURES IN CORPORATE REPRESENTATION 3 independent law practice, in a corporate law department, or in the interactions with a client. This problem is important and well documented.2 Nevertheless, for the purposes of this Essay it will be assumed that lawyers and their corporate management counterparts are competent and professionally responsible. Lawyers recognize that the client is the principal and the lawyer a mere agent. As principal, the client has final authority on how to proceed.3 The lawyer must proceed as the client directs, short of the extreme case where the lawyer may withdraw because the venture appears utterly imprudent.! In the corporate setting, there is technically no individual principal because both the lawyer and the managers "personify" the client as agents of the corporate entity.5 The extreme case where the lawyer feels impelled to resign is unusual in the corporate setting. The practicable problem in the client-lawyer relationship, therefore, is getting to an assessment of the project from a viewpoint shared by the client's management in business terms and by its corporate counsel in legal terms. Many clients grumble that the trouble with lawyers is that they only advise what not to do. The conflict involved in these different perspectives is common and commonly complained about in several forms: legal literature; "lawyer stories" in popular literature; and business management literature. From one viewpoint, no inconsistency may be involved. The client's approach may well have very positive elements in terms of the client's perceptions and values, but also be burdened with serious adverse consequences when viewed in legal terms. The different appraisals of a project by management and legal counsel will both be well grounded, but based on somewhat different interpretations of the project.6 2. For example, Arthur J. Lachman discussed the issue in a recently published bibliography. Arthur J. Lachman, "Are They Just Bad Apples? Ethical Behavior in Organizational Settings": An Introduction (and Bibliography), 2007 PROF. LAW. (SYMPosIuM ISSUE) 33. 3. MODEL RULES OF PROF'L CONDUCT R. 1.2 (2005) (stating that except in narrow circumstances "a lawyer shall abide by a client's decisions concerning the objectives of representation and ... consult with the client as to the means by which they are to be pursued"). 4. MODEL RULES OF PROF'L CONDUCT R. 1.16(b)(4) (2005) (allowing a lawyer to withdraw from representation if "the client insists upon taking action that the lawyer considers repugnant or with which the lawyer has a fundamental disagreement"). 5. See MODEL RULES OF PROF'L CONDUCT R. 1.13(a) (2005) ("A lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents."). 6. Geoffrey C. Hazard, Jr., Foreword: The Complex Role of Corporate Counsel, in Ti-E BUREAU OF NAVL AFFAIRS, LEGAL ETHiCS FOR IN-HOUSE CORPORATE COUNSEL, at xi, xi (2007). HOUSTON LAW REVIEW [46:1 Compliance with regulations usually involves costs that business efficiency would avoid. However, compliance with the regulations is a central concern of a corporation's legal staff. ... In determining the kind and level of regulatory compliance, there is therefore usually an element of practical judgment involved-and hence risk. Making that determination requires corporate management and corporate counsel to confront a practical situation from two viewpoints: that of business management, focused on present cost and eventual effect on profit... and that of corporate counsel, who must also take account of subsequent cost and perhaps eventual loss entailed in noncompliance.7 One aspect of such differences in interpretation can properly be described as "cultural": the difference between the typical culture of responsible business management and the typical culture of responsible lawyers. That difference is the subject of this Essay. II. INDIVIDUAL CLIENTS The problem of "cultural" disparity between client and lawyer arises in all fields and forms of law practice. This problem in the corporate context can be put in sharper focus by a preliminary reference to the corresponding cultural disparity in the representation of individual clients. That problem has been given greatest attention concerning representation in two types of practice: domestic relations practice, particularly divorce matters,' and representation of people who have limited means and limited acquaintance with the law and administration of justice.9 The latter category of clients has no clear definition and includes many clients who pay legal fees but who have very limited resources for doing so; for example, clients ensnared in matters involving immigration,

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