FCPA Compliance and Ethics Blog

June 9, 2014

Why the Compliance Function is Different Than the Legal Function

Joseph WelchI have long been proud of my profession. I would often tell students that they ware about to join a profession which extended as far back as Demosthenes, who practiced his closing orations against crashing sea waves so that the full Greek demos might hear him when he closed a trial. Further, while thoughts of Atticus Finch are never far from a Southern lawyer’s mind, if not aspirations to emulate him, today we celebrate a real life lawyer who did the profession proud. It was on this day, 60 years ago in 1954 that Joseph Welch, then Special Counsel to the US Army, unmasked Senator Joseph McCarthy for what he and his hearings into communism were. In response to McCarthy’s charge, that Frederick G. Fisher a young associate in Welch’s law firm had been a long-time member of an organization that was a “legal arm of the Communist Party,” Welch responded, “Until this moment, Senator, I think I never really gauged your cruelty or your recklessness.” Welch then uttered these immortal lines, “Have you no sense of decency, sir, at long last?” The audience applauded Welch’s stinging comeback. The hearings closed one week later. The US Senate officially condemned McCarthy for contempt against his colleagues later that year.

Unfortunately the legal profession took one in the eye last week when General Motors (GM) released its internal investigation into the company’s failure to recall millions of defective small cars, and found no evidence of a cover-up. As reported by Bill Vlasic in a New York Times (NYT) article, entitled “G.M. Lawyers Hid Fatal Flaw, From Critics and One Another”, stated the GM law department did not come out of this matter looking too well. Vlasic said that “interviews with victims, their lawyers and current and former G.M. employees, as well as evidence in the report itself, paint a more complete picture: The automaker’s legal department took actions that obscured the deadly flaw, both inside and outside the company.”

While GM’s General Counsel (GC), Michael Millikin, survived dismissal in the aftermath of the internal investigation, he certainly did not come out as a GC who was particularly engaged with what was going on in his own department. Vlasic reported, “At least three senior lawyers are among the employees who lost their jobs as a result of the investigation conducted by the former United States attorney Anton R. Valukas… One of the lawyers dismissed this week was William Kemp, who had been orchestrating G.M.’s legal strategy and in-house investigations of the defective ignition switch for more than two years before the recall. Yet it was not until early February, days after a high-level committee finally ordered the switch recall, that Mr. Kemp informed Mr. Millikin of the deadly consequences of the flawed part. G.M. has linked 13 deaths and 54 crashes to the defect.” Two other lawyers reported to have been dismissed, as a result of the internal investigation, were Lawrence Buonomo, head of product litigation, and Jennifer Sevigny.

Equally damning were the internal investigations report that during safety meetings relating to the ignition switch failure, “Mr. Valukas said employees he interviewed told him they had refrained from taking notes in safety meetings “because they believed G.M. lawyers did not want notes taken.”” Beyond this ban on note taking, Vlasic said “The secrecy factor extended to how some employees kept or discarded old emails. According to two former G.M. officials, company lawyers conducted annual audits of some employees’ emails that could be used as evidence in lawsuits against the company.” While GM euphemistically called this email deleting program “information life-cycle management,” when the purpose is to remove evidence that could be used against the company in lawsuits, it once again shines a very bad light on my legal profession brethren.

This sordid tale of the complicity of the GM legal department is all part of what GM Chief Executive Officer (CEO) Mary Barra “denounced as a “pattern of incompetence and neglect” at the company that allowed a defective part to exist in its vehicles for more than 10 years.” But more than simply causing the corpse of Atticus Finch to spin over in his fictional grave, the GM legal department’s role in the company’s debacle points to something that Donna Boehme and Mike Volkov have been articulating and writing about for some time. It is not simply that the Chief Compliance Officer (CCO) needs to be out from under the roof of the GC’s office; it is that the compliance function is different than the legal function.

When I initially went in-house, it was made clear to me that the role of the in-house department in the company I worked for was to protect the company. When I became a GC, I took that role to heart and felt like I was the company’s lawyer (even if the CEO felt like I was his lawyer). But as Boehme points out in her article in the June 2014 issue of the SCCE Magazine, entitled “Toldya. (Reason #119 why Compliance is not a subset of Legal),” there are distinct differences in approaches to doing compliance from practicing law. She said, “one thing is clear – the two functions have very different mindsets, mandates and priorities.” She notes that the legal department mandate is to “advise and protect the company.” However, Boehme believes that the compliance mandate is much broader. She writes, “Compliance, on the other hand, is tasked with detecting and preventing misconduct.” The compliance mandate includes constant vigilance on the integrity of the compliance program, protecting internal whistleblowers (in part to demonstrate to others that it is safe to come forward), and supporting a culture of accountability, especially at levels of management.

I might say that a corporate legal department’s role has traditionally been seen to protect the company from problems, while the role of the compliance function is to remedy problems. Here you can think of McNulty’s Maxim No. 3 – What did you do to fix it when you found out about it? But Boehme takes it a step further by noting, “A well-run compliance program requires hundreds of judgments, big and small, to be made on a weekly basis. The company with the political will to elevate their chief compliance officer to a “separate but equal” status in the C-suite will benefit from those judgments being made with an independent compliance mindset, and not “Always Legal but Occasionally Compliance” prism.”

I often repeat the legal truism that bad facts make bad law. Make no mistake about it; the GM ignition switch imbroglio is very bad. But the GM legal department’s role in the company’s ongoing scandal, clearly points out the difference between the roles of legal and compliance. I am sure that the GM lawyers involved, and those who were terminated, thought their job was to defend the company at all costs. But I have never met a CCO who felt that way. They believe that their job is to prevent, detect and remedy any compliance issues that arise. You cannot do that if you are instructing others not to take notes in relevant meetings, deleting potentially incriminating emails and hiding from your boss that there is a real problem out that that must be dealt with.

For the rest of you out there who are lawyers and reading this, remember Joseph Welch today as a far better example of our historical brethren.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

1 Comment »

  1. I agree with your comments on the differences between compliance and legal departments. However, they should both work together. This is because the compliance department may not know how to properly collect and inventory the evidence, the rules of law involved, and when to turn the issue over to the legal department. If the issues might end up in court, the legal department needs to be involved. In my experience, coordination with the legal department has resulted in the best solutions.

    Comment by Elliot Fisch — June 11, 2014 @ 4:44 pm | Reply


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