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Dina Medland warns that the emphasis placed on good corporate governance by business means lawyers are not exempt from scrutiny.

Lawyers and accountants are among those carelessly bundled together under the ‘professional services’ label. For a long time the use of ‘professional’ appears to have been taken as somehow meaning ‘value-neutral’. The implication is that these individuals offer and perform ‘a service’, which has clearly written rules, and as such no further scrutiny of how that service is provided is required.

This sort of thinking spills over, oddly enough, into the attitude adopted towards recruiting lawyers onto listed company boards. Lawyers are deemed to be ‘not commercial enough’, too ‘academic’, too ‘dry’, too – dare I say it, boring? Yet lawyers are increasingly at the centre of decision-making in companies, and therefore can have a direct impact on the way they are run. Further, if corporate governance is the ‘essence of a company’, as Lord Green, former chief executive and chair of HSBC was recently quoted as saying, then why isn’t the relationship between law firms and the companies they work for given more oversight?

Accountants have already found themselves in the spotlight over their relationships with business, and the quality of their work. According to the Wall Street Journal, the Big Four accountancy firms – KPMG, PricewaterhouseCoopers (PwC), Deloitte & Touche and Ernst & Young – were found to have deficiencies in 39 per cent of audits inspected, up slightly from 37 per cent the previous year. Meanwhile, in the US the Public Company Accounting Oversight Board inspected 23 of BDO’s audits last year and spotted weaknesses in 65 per cent of them, according to CFO Journal.

 


It seems certain that in the company of the future, the ethics department and the legal department will not be separate, by any stretch of the imagination


 

It is increasingly looking like lawyers will be next in line for this kind of treatment. From a corporate perspective, Quindell plc, which is listed on the London Stock Exchange’s AIM index and provides ‘legal services’, has recently come under fire. The company has been described as one of the largest law firms in the UK, processing large numbers of personal injury law suits, making it one of the first legal businesses of size to be listed. However, Gotham City Research has recently made a series of allegations against it, which call into question the legitimacy of the business, for example claiming that ‘42 per cent to 80 per cent of Quindell’s profits are suspect’. Despite Quindell responding to all the accusations made against it by Gotham City Research, auditors PwC will now conduct an independent review of the company’s claims-processing business. This comes after Rob Terry, founder and chairman, stepped down from the board of directors in November.

It is not just large legal organisations that are facing criticism: consider recent events at China’s state-owned oil and gas group, China National Offshore Oil Corp (CNOOC). The company reportedly sanctioned one of its legal affairs directors for not disclosing a conflict of interest with outside counsel Baker & McKenzie after she married the head of its Beijing office. CNOOC revealed that lawyer Karen Xin Kang violated ‘unspecified national regulations and internal corporate policies’ by taking Baker-sponsored trips to Europe and Australia and later helping the firm get work. Xin dated and eventually married Stanley Dianan Jia, but did not recuse herself, according to a CNOOC email sent to at least two major international law firms and obtained by the Wall Street Journal.

The role of John Rizzo, the US Central Intelligence Agency (CIA)’s top lawyer at the time it is alleged to have carried out a programme of torture, has also come under fire. Mr Rizzo has described himself as ‘one of the program’s chief legal architects’. In an email recently revealed by the UK’s Channel 4 News, Mr Rizzo says Colin Powell would ‘blow his stack if he were to be briefed in full’. Here is a clear example of the power lawyers can have in deciding what the ‘salient facts’ are in certain situations, and what the repercussions of such decisions might be.

With cases like this in mind, and if the current wave of global interest in good corporate governance continues unabated, it seems certain that in the company of the future, the ‘ethics department’ and the ‘legal department’ will not be separate, by any stretch of the imagination. 

 

Dina Medland is a freelance journalist and can be contacted at dinamedland1@gmail.com.