TAKE COLLEGE-LEVEL COURSES WITH
LAWSHELF FOR ONLY $20 A CREDIT!

LawShelf courses have been evaluated and recommended for college credit by the National College Credit Recommendation Service (NCCRS), and may be eligible to transfer to over 1,300 colleges and universities.

We also have established a growing list of partner colleges that guarantee LawShelf credit transfers, including Excelsior University, Thomas Edison State University, University of Maryland Global Campus, Purdue University Global, and Southern New Hampshire University.

Purchase a course multi-pack for yourself or a friend and save up to 50%!
5-COURSE
MULTI-PACK
$180
10-COURSE
MULTI-PACK
$300
Accelerated
1-year bachelor's
program

Conflicts in Corporate Representation

When a lawyer takes on the representation of a corporate client, avoiding conflicts can become especially tricky. While nominally, the corporation is the lawyer’s client, the corporation is usually a conglomeration of many individuals with sometimes-conflicting needs. The motives of corporate directors and officers sometimes diverge from those of the shareholders. Shareholders often demand results fast or they will sell their shares. Directors and officers must placate shareholders to save their own jobs, but also must consider that investments take time to grow and nurture. Sometimes a corporation has to take a loss in a quarter in order to invest in greater future returns. Director interests might diverge from those of the day-to-day officers of the corporation. Preferred stockholder interests may differ from those of common stockholders. The list of potential conflicts goes on and on, and can present quite a headache for lawyers pursuing the best interests of the corporation as a whole. See In re Marine Power & Equipment Co., 67 B.R. 643 (1986)

Note that an attorney may, perhaps, represent a corporation and its employees (including directors and officers) provided that their interests are not adverse and that consent is obtained for the dual representation. See Model Rule 1.7

Big conflicts occur when the lawyer is approached by, for example, an officer of the corporation because the officer seeks legal advice about a wrong he may have committed while carrying out a corporate function. The problem is that the lawyer represents the corporation as a whole, but not necessarily the officer individually. 

The corporation’s legal goals are not always consistent with those of the officer who may be consulting with the corporate attorney, especially if the officer is in a position where he needs to extricate himself from a legal quagmire. The officer’s crimes, for example, might be imputed to the organization. The organization will surely try to distance itself from the officer’s wrongdoing, and to do whatever it must to rectify the problem, including perhaps firing the officer or contacting the governmental authorities regarding the wrongdoing. 

If the lawyer represents both the corporation and the officer individually, and communicates what the officer has told the lawyer to others in the corporation, then the lawyer may be violating the officer’s right to prevent confidences from being divulged. Then again, if the lawyer represents the corporation and not the officer individually, then the lawyer’s obligation to protect the corporation supersedes any obligation to the officer personally. 

Basically, if the lawyer for the firm knows that someone associated with the firm is engaged in an act that would constitute a violation of a legal obligation to the organization, then the lawyer has a duty to proceed in a manner that promotes the best interests of the organization – and not the individual. 

Model Rule 1.13 holds that a lawyer must take the following steps upon learning of an employee violation that will likely cause a substantial injury to the organization:

  • suggest that the offender reconsider the matter.
  • advise that a legal opinion on the matter be given to an appropriate authority (perhaps the firm’s chief counsel). 
  • refer the matter to a higher authority. 

If the corporation refuses to act to rectify the problem then the attorney may resign from his post. 

EXAMPLE: Len Ron is CEO of a Fortune 500 corporation. The corporation has business holdings on every continent on Earth, and billions in its war chest for use to acquire practically any other company it wants, whenever it wants. The company’s stock is trading at an all-time high, and managers, including Len Ron, are getting a bit greedy. 

This institutional culture leads to ethical lapses. Len Ron orders his CFO to cook the books so that some offshore losses are attributable to a remote subsidiary and not to the holding company which everyone’s eyes are on. Len Ron comes up to you, the attorney for the corporation, and tells you what he did, although he says, “just for reference’s sake.” You’re deeply concerned, as you realize that if the authorities or the media gets hold of this information, it could bring down the firm’s management. 

First, according to your ethical obligations, you suggest that Len Ron reconsider the attribution of losses to the subsidiary and instead order the CFO to restate earnings for the past quarter to integrate the losses. The shareholders will not be happy, you note, but they are entitled to legitimate information about the company’s financial state. In this example, Len Ron refuses.

Next you may advise that a legal opinion be provided by another authority, perhaps in-house, such as the firm’s general counsel (the lead attorney representing the firm). By doing so, you will be required to divulge the information that Len Ron provided you. Remember that you are a representative of the corporation and not Len Ron himself – therefore, if he is not willing to heed your advice regarding reconsideration of the matter, he does so at his own risk without your support. 

Chances are, the general counsel will want to pursue the matter further, given that the reputation of everyone associated with the firm could suffer if improprieties are uncovered. Managers of a corporation owe strict fiduciary duties to stockholders, each other, and the public in general, and an ethical lapse from a big, influential firm may reverberate throughout the business community. It goes without saying that lying about earnings to stockholders and, perhaps, government agencies, brings serious consequences.

As such, if the CEO will not play ball and recant, it might be in the corporation’s and your own best interest to resign your post. Under no circumstances, however, should you open up to the media or to a public agency, as you would thus be violating your obligation to Len Ron and the firm to maintain confidences.