Most publicly-held businesses are aware of the changes for accounting procedures enacted by Congress in the wake of the Enron and WorldCom scandals. CEOs are required to certify year-end statements; accounting firms cannot provide both consulting and auditing services; and tougher penalties will be imposed for violations. But the biggest change is that affecting the relationships between publicly-held company clients and their attorneys.
Section 307 of the Sarbanes-Oxley Act requires the Securities and Exchange Commission to enact rules mandating corporate attorneys to report possible misconduct and criminal wrongdoing to chief company officials or to the Board of Directors.
The standard for attorneys to report wrongdoing is any "evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company." What constitutes a "material violation" or "evidence"? Actions that one attorney might view as aggressive, but legal, could be viewed by another as reportable. Clients may find themselves paying attorneys to conduct internal witch-hunts rather than to provide legal strategies and advice.
Publicly-held companies need to examine the law and adopt new procedures on dealing with attorneys.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.