As the sordid saga of National Bank of Washington unfolded last week, at least one Washington lawyer remembered a warning issued barely two months ago by the chairman of the Securities and Exchange Commission, Harold M. Williams.
Chastising the American Bar Association for not drafting strict enough standards for corporate lawyers, Williams singled out the most dangerous dual role a lawyer can play -- serving as counsel to a corporation and simultaneously as a member of its board of directors.
When an attorney takes a seat on the board, Williams warned, the dual role "can foster a public perception of conflict of interest and may undermine the objectivity of the advice the lawyer/director renders in either capacity."
Noting that the SEC already has demanded disclosure of lawyer/director situations, Williams stopped just short of advocating an outright ban on lawyers serving on the boards of client companies.
"The bar could establish a general prohibition against dual service," he suggested, but exceptions might be permitted if an outside nominating committee or an independent ethics panel decides there is no conflict or compromise.
If Williams didn't have National Bank of Washington in mind when he addressed the Bar Association's convention in Honolulu last August, he might have.
The SEC and other federal regulators were already looking at the bank and by then had discovered that Ronald G. Nathan -- general counsel to NBW and a member of the board -- was in the midst of the mess.
As Washington Post investigative reporter Patrick Tyler disclosed last week, Nathan got both his bank jobs as rewards for legal services for Sam Church, president of the United Mine Workers Union, which controls NBW. c
Lawyer/director Nathan Tyler reported, was recruiting customers for the bank, urging its management to approve loans, and doing personal deals with both bank's clients and his colleagues in the corporation.
Even ignoring the excesses that are now the subject of federal investigations, the NBW situation would make a textbook example of what Harold Williams was talking about.
A member of mangaement's "primary mission is to ensure that the corporation generates adequate profits," Williams pointed out. "Lawyers -- along with their more mundane responsibilities -- must be the architects of the accountability process," he said. And the corporate lawyer has a still higher "obligation to protect the corporation as a societal institution."
Nathan isn't the only Washingtton lawyer who sits on the board of a bank or corporation from which his or her firm receives legal fees.
Lawyer/directors are the rule rather than the exception here and elsewhere. The SEC found last year that 57 percent of all public corporations have made one or more of the corporate counsels a board member. A few minutes thumbing through the proxy statements of Washington corporations suggests the percentage is probably higher here, especially among banks and smaller companies.
It wasn't always that way, Williams notes. "Fifty years ago, it was generally considered unprofessional for a lawyer to sit on a client's board. But, once some lawyers began routinely to serve on boards, other lawyers believed that they no longer could afford to look exclusively to ethical considerations."
Williams recalled that a new canon of legal ethics prohibiting lawyers from serving as board members under any circumstances was once proposed by the late Robert Swaine, one of the founders of Cravath, Swaine & Moore, perhaps the ultimate Wall Street law firm.
If he'd needed another case to cite, Williams might have pointed out that today not even Swaine's own firm upholds the founder's ethics. Cravath partner Samuel C. Butler sits on the baord of Geico, while the firm handles the insurance conglomerate's securities work.
The practice has become so pervasive that the Bar Association -- which Williams contends ought to consider banning it -- has instead proposed an endorsement. The ABA ethics code now being drafted states that "it is often useful that the lawyer serve both as counsel and as one of its directors."
Responds the SEC chairman: "Useful to whom? And, for what purpose? I doubt any usefulness that cannot be effectively achieved in other ways."
Wiliams also challenged the ABA to elevate the ethical standards of corporate lawyers in another fashion, by endorsing the right of counsel who is not a board member to go over the heads of management and take issues directly to the board.
The Bar Association's proposed ethics code would permit that, but Williams complained that the permissive code includes so many cautions that it "may be used by timorous corporate lawyers to justify standing mute."
Given human nature, such a permissive standard, in most cases, likely would mean no standard at all."
An attorney ought to be ethically bound to go to the board, "if he or she is aware that the corporation is embarked on a course of conduct which, while arguably lawful, may be questionable and is of such significance that the corporation's interest may be materially affected," he suggested.
Williams worries that his fellow corporate lawyers are abdicating their professional duties to government regulators, giving up their role as corporate conscience to become legalistic technicians who advise companies on what they can get away with.
The implication, the SEC chief warns, is a society in which "anything which is not illegal is within the realm of the acceptable."