Lawyers as compliance officers: a behavioral ethics perspective

What role do corporate lawyers play in preventing wrongdoing by executives in their client organizations? And how is this role impacted by behavioral ethics?

In “Behavioral Legal Ethics Lessons for Corporate Counsel,” to be published in the Case Western Reserve Law Review, Paula Schaefer of the University of Tennessee College of Law  first examines “the corporate lawyer’s consciously held conceptions and misconceptions about duty owed to her corporate client when company executives propose a plan that will create substantial liability for the company—when and if it is caught.” As she shows, lawyers often have an unduly limited view of what that duty is.

Schaefer next “turns to behavioral science and highlights some of the key factors that corporate attorneys are unconsciously influenced by as they try to decide how (or if) to address client conduct that may amount to a crime or fraud.” Those factors are:

– Attorney self-interest. A key point on how to become a criminal defense lawyer is this: “Corporate advisors keep their jobs (as inside or outside counsel) when they keep executives happy; they do this by finding ways to implement corporate executives’ plans, and not by saying no.” Of course, on some level this is obvious but, based on the research of Tigran W. Eldred of New England Law School,  she notes that lawyers are often not aware of the extent to which self-interest corrupts the professional conduct of attorneys vis a vis clients.

– Obedience Pressure. A key point here: “Obedience research explains the power an authority figure or colleagues have to influence bad advice.” The best-known study in this area is, of course, that conducted by Stanley Milgram, which measured the extent to which participants were willing to inflict shocks on apparent learners in the experiment when instructed to do so by an apparent authority figure and which demonstrated just how powerful obedience pressure could be. As Schaefer notes: “In the case of a corporate attorney addressing planned conduct that may be criminal or fraudulent, the authority figure is likely the corporate executive that the attorney reports to in the professional relationship.” And as she notes this is likely to create more pressure than the instruction of some man in a white coat in Milgram’s experiment.

– Conformity Pressure. Here, Schaefer describes experiments by Solomon Asch concerning the extent to which the participants gave knowingly incorrect answers to a question because of the fact that other participants did so. The results showed a high degree of such correlation. As she notes: “Asch’s research should be particularly concerning for lawyers. For Asch’s subjects, the stakes were low—the subjects likely did not know the other participants in the study and had no ongoing relationship with them. Further, the right answer was black and white, and they still felt pressured to choose the wrong answer selected by the majority. For a corporate lawyer addressing possibly fraudulent or criminal conduct, the group (with whom she feels pressure to conform) might be fellow attorneys or other decision makers at the corporation.”

– Partisan Bias. Schaefer writes: “The research reveals that partisanship makes it difficult for a lawyer to filter and interpret information objectively. One study found that students who participated in a moot court competition overwhelmingly perceived that their assigned side had the better case. In another study, subjects were asked to play the role of attorney for plaintiff or defendant in determining the settlement value of a case. Even though both sides received identical information, those who were randomly assigned to play the plaintiff predicted an award substantially higher than that predicted by the defendant.”

Schaefer next considers “interventions to combat a corporate attorney’s wrongful obedience and conformity.” All of these seem sound, but I don’t have space to discuss them here.

However, I do want to add that – although not the focus of Schaefer’s paper – the research may also be relevant to the longstanding debate about whether the general counsel or other member of the law department should serve as chief ethics and compliance officer (CECO)  or if the individual in that role should be independent with respect to reporting purposes. At least to me, the research suggests that it may be more difficult for in-house attorneys to rise above the potential conflicts in this role than is generally thought.

Of course, even an independent CECO would be subject to the various biases described in this article. However, they would still – in my view – stand a better chance of ethical success since the notion of independence is truly foundational to their role, i.e., there is presumably not the same confusion about their duty than Schaefer found was the case with in-house attorneys.

Finally, note that I am not saying that this means that the General Counsel can never serve in a CECO role – only that the implications of this research should be considered along with various other factors in determining what approach makes the most sense for a given company.

For further reading:

– The Legal Ethics Blog

– An earlier post from the COI Blog with a different view on lawyers as compliance officers