Bankers: get a moral compass, not a lawyer!


The Barclay’s and Standard Chartered scandals are now starting to shine a rather unwelcome spotlight on the role of banks’ in-house counsel, highlighted in both a recent blog post by Richard Moorhead, and a piece in today’s Financial Times by USD law professor Frank Partnoy.
 
In theory we don’t expect bank lawyers to behave like bankers. General counsel are supposed to be the institutional conscience, guardians of reputation and (legal) risk managers for corporations. Like all lawyers, they are ethically bound by a principle of independence (check it out – In England and Wales its right up there with integrity in the SRA’s 10 mandatory Principles – there is no opt-out for in-house). Though this is often assumed to be primarily a principle that operates to the benefit of clients (part of what Moorhead aptly calls the ‘client first’ ethos), it is wider than that, and in cases of conflict, the public interest ‘tie-breaker’ would indicate that it should trump the duty to the client (see notes 2.2 and 2.7 to the SRA Principles). This is not to say that being an in-house counsel isn’t a tough gig sometimes. If big clients can put pressure on external law firms to provide the advice they want rather than the advice they need, the pressures in-house, where it is even harder to maintain independence, can be enormous. And dividing lines can be notoriously fine. And no in-house department wants the reputation of being the ‘business prevention unit’… and all sorts of other excuses. But what is worrying Moorhead and Partnoy and me, is the sense that this may not be about the vulnerability of poor little general counsel, it is that they may be far more actively complicit in the whole mess than we would like. Research by Robert Nelson and Laura Beth Nielsen at the start of the last decade pointed to this: they found that inside counsel in large corporations positively worked to demonstrate their commitment to corporate objectives, and tended both to defer to management views of legal risk, and to limit their gatekeeping functions accordingly (‘Cops, Counsel and Entrepreneurs: Constructing the Role of Inside Counsel in Large Corporations’ Law & Society Review, vol 34, 457-94).  In other words, asking your lawyer may not be the substitute for a personal moral compass after all. Let’s hope that one lesson to emerge for both bankers and lawyers from the bank scandals is, as Frank Partnoy observes, that banks need inside counsel with moral backbone.
 
And there’s more to it than that, for those of us interested in legal ethics the banking scandals usefully serve to highlight the extent to which in-house lawyering has tended to be the poor relation in thinking about ethics and regulation. Profesional codes of conduct are written around private practice; in-house obligations are largely cherry-picked from (or shoe-horned into) those more general principles. In-house work is, one suspects, for most of the time so far below the radar of professional regulatory and disciplinary authorities as to be virtually invisible, and in-house lawyers themselves complain that the general professional legal training provided by LPC and BPTC largely ignore in-house practice. The profession itself could do more to serve the in-house sector better.
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4 responses to “Bankers: get a moral compass, not a lawyer!

  1. Thanks for these thoughts, Julian. They come just as I am about start researching with Oxera the state of inhouse counsel in the UK for the SRA. Nelson’s and Nielsen’s research was ever-present in my mind.

    • Didn’t know you were doing that, interesting! Please keep me posted. Seems to be a bit of a growth area – my colleague Dal Singh and I are trying to put a project proposal together for post-LETR on the role of in-house counsel in the banking sector, and I think Steven Vaughan may also be interested in corporate counsel….

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