Corporate Norms and Contemporary Law Firm Practice

Larry Mitchell\u27s book describes the movement toward share price maximization by corporate managers. More intensive market competition both domestically and abroad has led managers to believe that their corporations have little choice but to focus on short-term profits. This practice leads to greater instability for corporate workers and efforts to externalize other costs on third parties. It also intensifies the erosion of local cultural practices that are seen as impediments to profit maximization, whether they are associated with countries abroad, communities in the United States, or within the corporation itself. In this process, the norms of the market gain increasing influence as the impetus for the rhythms of daily life even beyond the formal institutions of the economic system. Professor Mitchell has done an admirable job of laying out the implications of this development for many aspects of modern life both here and abroad, thereby indicating the wide impact of corporate behavior. In this essay, I want to focus on how the changes in the corporation that Professor Mitchell describes have prompted similar shifts in another important social institution: the large American corporate law firm

Ethics, Law Firms, and Legal Education

A rash of recent corporate scandals has once again put professional ethics in the spotlight. It\u27s hard to pick up the Wall Street Journal each day and not read that authorities have launched a new investigation or that additional indictments are imminent. Stories of financial fraud and outright looting have galvanized the public and shaken the economy. What ethical lessons can we draw from these events? Two explanations seem especially prominent. The first is a story of individuals without an adequate moral compass. Some people\u27s greed and ambition were unchecked by any internal ethical constraints. For such deviants, no amount of money was enough and no level of consumption too high. One trader at Enron, for instance, reportedly paid $6250 a month for an especially desirable parking space. For people like that, the basic problem was flawed character. The lesson is that we need to make greater efforts to transmit moral values and sensitize people to basic ethical precepts. The second story is of individuals who did have a sense of right and wrong, but who buckled under organizational pressure. Enron pushed its executives to devise ever more questionable schemes to keep apparent profits growing and its stock price high. Arthur Andersen auditors felt pressure to accept Enron\u27s numbers in order to preserve millions in consulting fees from the company. In this story, some people knew the right thing to do, but lacked the fortitude to do it. The problem therefore was organizational corruption. The lesson is that we need to provide people in organizations greater protection from retaliation for sticking to their values

Book Review of Jean Stefancic & Richard Delgado, How Lawyers Lose Their Way: A Profession Fails Its Creative Minds (2005)

How Lawyers Lose Their Way claims that lawyers\u27 unease stems from a distinctive source: their excessive use of and exposure to formalism in their work. I think that they are on to something, but the analysis in this book is too underdeveloped to provide much insight into what it is. The authors\u27 use of the term formalism risks being so inclusive that it loses explanatory power. In addition, their claim that overreliance on formalism is the chief culprit in lawyers\u27 unhappiness is vulnerable to the charge that lawyers arc suffering the effect of trends in the workplace affecting a wide range of occupations. Finally, Stefancic and Delgado fail to explore in any depth the material conditions of law practice, and how the evolution of those conditions might relate to the formalism they decry. Their treatment of formalism is, well, formalistic. Formalism seems to be an independent force that rises, falls, and now has reemerged, on its own. This makes it difficult to identify any steps that might help reshape law practice beyond the personal responses of individual lawyers. The result is that the authors leave us with no sense of any collective efforts holding out any promise. One can\u27t help but be disappointed at this conclusion. In what follows, I lay out the authors\u27 arguments, and suggest how its limitations lead to this result. I then offer some thoughts on how what I think of as hyperabstraction may well pose particular hazards for lawyers, which could have broader social ramifications as well

From Protecting Lives to Protecting States: Use of Force Across the Threat Continuum

The increasing prominence in recent years of non-international armed conflicts that extend across state borders has strained the traditional legal categories that we use to regulate state use of force. Simultaneous with this phenomenon has been growing acceptance that human rights law and international humanitarian law should co-exist, with the former informing interpretations of the latter to varying degrees. Scholars continue to debate vigorously the implications of these developments and how these bodies of law should interact. As Kenneth Watkin’s book Fighting at the Legal Boundaries: Controlling the Use of Force in Contemporary Conflict observes, however, commanders have no choice but to navigate these ambiguities and attempt to reconcile these tensions on the operational level as they engage in hostilities. Watkin’s magisterial book can be seen both as a work of operational law and a major scholarly treatment of the law governing the use of force. It provides detailed accounts of how situations arise on the ground that evade easy classification in terms of our existing conceptual and legal categories. At the same time, it furnishes a valuable framework for analyzing the features of such operations that are relevant in assessing how force should be used in particular scenarios. Finally, Watkin offers a set of principles for both operational law and broader policy decisions to help navigate the complex terrain of modern security challenges. Watkin argues that the twenty-first century approach to conflict must be “holistic” in nature. On the one hand, it must it must acknowledge “the simultaneous application of humanitarian and human rights law,” and the greater influence of the latter in shaping perceptions of the legitimacy of violence. On the other hand, it must appreciate that “the altered security environment of this century has witnessed a definite move away from looking at conflict itself as being uniquely conventional or unconventional,” as transnational non-state organized armed groups have emerged that do not resemble traditional armed forces. This review essay describes the main ideas in Watkin’s rich and comprehensive analysis. It then focuses in more detail on two of his suggestions. The first is that state forces should presumptively operate under law enforcement rules until this is insufficient to meet a threat, even in the course of an armed conflict. This reflects the incorporation of human rights principles as a default policy even when more permissive rules on use of force are available. The second suggestion is that certain hostile engagements with non-state forces may appropriately be characterized as armed conflicts of limited duration, governed by international humanitarian law. These two proposals reflect his view that characterization of the nature of hostilities should depend upon facts on the ground, specifically the nature of the means that states must use in order effectively to deal with a threat. I then discuss whether this approach should lead to assessments of state use of force that rely on contextual analysis of the weight of the interests at stake in a given situation, rather than on classification of hostilities in one of our two traditional main legal categories. While Watkin does not take this step, I analyze the work of others who make a cogent argument that we should. Ultimately, I conclude that our existing imperfect legal framework is preferable to a purely contextual approach, because of the radically different moral universes that animate human rights law and international humanitarian law

Moral Intuitions and Organizational Culture

Many efforts to understand and respond to a succession of corporate scandals over the last few years have underscored the importance of organizational culture in shaping the behavior of individuals. This focus reflects appreciation that even if an organization has adopted elaborate rules and policies designed to ensure legal compliance and ethical behavior, those pronouncements will be ineffective if other norms and incentives promote contrary conduct. Responding to the call for creating and sustaining an ethical culture in organizations requires appreciating the subtle ways in which various characteristics of an organization may work in tandem or at cross-purposes in shaping behavior. The idea is to identify the influences likely to be most important, analyze how people are apt to respond to them, and revise them if necessary so that they create the right kinds of incentives when individuals are deciding how to act. This can be a tall order even if we assume that most behavior is the result of a deliberative process that weighs multiple risks and rewards. It’s even more daunting if we accept the notion that conscious deliberation typically plays but a minor role in shaping behavior. A focus on what two scholars describe as “the unbearable automaticity of being” posits that most of a person’s everyday life is determined not by conscious intentions and deliberate choices but by mental processes outside of conscious awareness. In this article, I discuss a particular strand of research that is rooted in the study of non-conscious mental processes, and consider its implications for ethics and culture in the organizational setting. This is work on the process that we use to identify and respond to situations that raise what we think of as distinctly moral questions. A growing body of research suggests that a large portion of this process involves automatic non-conscious cognitive and emotional reactions rather than conscious deliberation. One way to think of these reactions is that they reflect reliance on moral intuitions. When such intuitions arise, we don’t engage in moral reasoning in order to arrive at a conclusion. Instead, we do so in order to justify a conclusion that we’ve already reached. In other words, moral conclusions precede, rather than follow, moral reasoning. If this research accurately captures much of our moral experience, what does it suggest about what’s necessary to foster an ethical organizational culture? At first blush, the implications seem unsettling. The non-conscious realm is commonly associated with irrational and arbitrary impulses, and morality often is characterized as the hard-won achievement of reason over these unruly forces. If most of our moral judgments are the product of non-conscious processes, how can we hope to understand, much less influence, our moral responses? Are moral reactions fundamentally inscrutable and beyond appeals to reason? If reason has no persuasive force, does appreciation of the non-conscious source of our moral judgments suggest that any effort to promote ethical conduct must rest on a crude behaviorism that manipulates penalties and rewards? I believe that acknowledging the prominent role of non-conscious processes in shaping moral responses need not inevitably lead either to fatalism or Skinnerian behaviorism. Research has begun to shed light on how these processes operate. Related work has suggested how our moral responses may be rooted in human evolution. This perspective focuses on the ways in which our capacity for moral judgment is embedded in physical and mental processes that have provided an adaptive advantage in human evolution. These bodies of research contribute to a richer portrait of human cognition and behavior that can be valuable in thinking about how to promote ethical awareness and conduct. As Owen Flanagan has put it, “seeing clearly the kinds of persons we are is a necessary condition for any productive ethical reflection.” If there were such a thing as a normative theory of human movement, it would be futile if it exhorted us to fly. Efforts to create an organizational culture that encouraged people to fly would be doomed as well. In thinking about ethics, we need to have a sense of what lies between simply accommodating what we tend to do and demanding that we fly. My hope is that this article takes a small step in that direction

Tax Advisors and Conflicted Citizens

Thousands of lawyers are involved every day in advising clients outside of litigation. These lawyers counsel clients on how they can benefit from or avoid violating statutes, regulations, and other sources of law. How should we think about the obligations of the lawyer in this setting? This article argues that we should eschew a single prescriptive model of the advisor in favor of a pluralistic conception that bases responsibilities on the salient factors of the context in which the advisor operates. The model of the advocate that suggests that the lawyer take a relatively aggressive approach to interpreting the legal provisions applicable to a client in order to maximize the client’s freedom of action. While an advisor who acts as an advocate may focus on either the letter or the spirit of the law in order to serve the client’s purposes, advisors who act as advocates in the regulatory context often focus on the literal terms of the law to help the client engage in what they is called “creative compliance.” This involves structuring transactions, relationships or entities according to the letter of the law in a way that allows the client to avoid as much of the substantive impact of regulation as possible. An alternate conception of the advisor is as a trustee of the legal system who assumes some responsibility for ensuring its integrity as a mechanism for ordering social life. The trustee is inclined to go beyond creative compliance in counselling clients. She therefore is generally more likely than the advocate to see herself as having an obligation to ensure that the client complies with not only the letter of the law but its spirit. The models of the advocate and the trustee each speak to important features of the relationship between government and citizens in the regulatory setting. Different regulatory regimes may possess different features that impose different obligations on lawyers who advise on them. I analyze the provision of tax advice as an example of a particular regulatory regime that acknowledges the claims of both the advocate and the trustee. Tax advice is an especially notable advisory practice setting because tax advice is a practice setting in which there are powerful strains of argument for an advisor to assume the roles of both advocate and trustee. This reflects the potentially conflicting roles of the taxpayer as a private and a public citizen. The private citizen jealously protects her property and is suspicious of government’s claims on it. The public citizen appreciates that the state cannot function to protect property or liberty unless all taxpayers contribute their fair share of revenues. A tax advisor who assumes an adversarial posture toward the state advances a citizen’s private interest but may do so at the expense of her public identity. An advisor who embraces the model of the trustee may provide assurance that the needs of the public citizen will be met, but may risk providing insufficient protection for the private citizen against state power by resolving all close questions in favor of the government. As the article discusses, this ambivalence about taxation is reflected in the regulation of taxpayer and advisor conduct

Risky Business

This article is part of an exchange including Anthony Alfieri and William Simon in the Georgetown Law Journal on the implications of law firms\u27 increasing reliance on the concept of risk management as the focus of efforts to ensure ethical conduct by lawyers. A risk management program involves the adoption of various policies and procedures designed to minimize conduct that may lead to individual and firm liability. Conflicts checking procedures, standard terms in engagement letters, and the requirement of a second signature by a disinterested partner on legal opinions are but a few of such measures. On one hand, the risk management paradigm reflects appreciation of the importance of situational incentives and pressures in shaping behavior in organizational settings. This is an advance over conceptions of legal ethics that assume that behavior is principally a function of individual character. Law firms are now major business enterprises, and their systems of rewards and sanctions, as well as their cultures, necessarily influence the conduct of those who work in them. Attending to the ways in which these influences can reinforce or discourage certain types of behavior can help firms establish and maintain environments that enhance the likelihood that lawyers will act ethically. On the other hand, a risk management approach risks inculcating an instrumental view of legal and ethical provisions. To the extent that it conceptualizes ethics as a matter of avoiding liability, risk management may foster the attitude of Holmes\u27s bad man, who cares only for the material consequences which . . . knowledge [of the law] enables him to predict. The bad man wants to avoid punishment, but has no commitment to legal compliance as a good in itself. This can lead to an impoverished view of law and ethics, in which the choice of behavior is contingent on the costs and benefits of a given course of action. This tension in the risk management model has been examined in the context of corporate legal compliance programs, and law firms may draw useful lessons from that research. Social psychologists and management theorists have identified complex connections among program characteristics, group dynamics, individual perceptions and motives, and employee behavior in the business setting. In particular, they have suggested that instrumental and values-based programs proceed on different premises and contribute to compliance in different ways. Instrumental programs can be effective by affecting employee cost-benefit calculations, while values-based programs can foster appropriate behavior because the employee identifies with the values that this behavior expresses. Scholars suggest that compliance programs with both dimensions generally are necessary, but integrating them into a single program requires careful consideration of how they may interact. The article closes by suggesting that this research on corporate programs may offer useful insights for law firms. It cautions, however, that applying this research will need to take account of the ways in which law firms both resemble and are different from typical business corporations

The IRS Under Siege

This is Chapter 1 of Confidence Games (MIT, 2014). Confidence Games provides an account of the wave of tax shelters that occurred at the turn of the twenty-first century. During this period, some of America’s most prominent law and accounting firms created and marketed products that enabled the very rich—including newly minted dot-com millionaires—to avoid paying their share of taxes by claiming benefits not recognized by law. These abusive tax shelters bore names like BOSS, BLIPS, and COBRA and were developed by such prestigious firms as KPMG, Ernst & Young, BDO Seidman, the now defunct Jenkens & Gilchrist and Brown & Wood, now merged into Sidley Austin. These shelters brought in hundreds of millions of dollars in fees from clients and deprived the U.S. Treasury of billions in revenue before the IRS and Justice Department stepped in with civil penalties and criminal prosecutions targeting the professionals and firms involved. As we suggest, the decade of tax shelter activity between the mid-1990s and mid-2000s is the most serious episode of professional misconduct in the history of the American bar. Chapter 1, available here, describes how an overstretched and under-resourced IRS came under attack in the late 1990’s by anti-tax and anti-government members of Congress. In the chapters that follow, we describe the heightened competition for professional services, the relaxation of tax practitioner norms against aggressive advice, and the creation of complex financial instruments that made abusive shelters harder to detect. By 2004, the tax shelter boom was over, leaving failed firms, disgraced professionals, and prison sentences in its wake. A central theme that we explore in the book is the role of organizational forces in abetting wrongdoing. In the conclusion, we assess the regulatory responses that ultimately put an end to this wave of shelters. We also consider strategies and approaches that might serve to strengthen professional norms governing tax advice. The rise and fall of the tax shelter industry offers a cautionary tale that we believe remains highly relevant today, as lawyers and accountants continue to face intense competitive pressure and regulators continue to struggle to keep pace with accelerating financial risk and innovation