Linking the paycheck of a company's top lawyer to that of its chief executive could create a serious conflict of interest, a law professor testified Tuesday at the trial of Tyco International's former general counsel.
Thomas Lee Hazen, a corporate lawyer who teaches at the University of North Carolina, was testifying in Manhattan's state Supreme Court at the grand larceny trial of Mark A. Belnick, Tyco's former chief corporate counsel, who is accused of accepting an illegal bonus of as much as $17 million from L. Dennis Kozlowski, the then-chief executive who had recruited him to Tyco.
Last week, Belnick's former law partner testified that Belnick's pay package included a provision in which his annual bonus would be one-third that of Kozlowski's.
Justice Michael J. Obus barred prosecutors from asking Hazen specifically about Belnick's conduct.
But in response to prosecution questions, Hazen explained that a general counsel's client is the corporation, not its chief executive. If the counsel's fortunes are aligned with those of the chief executive, he said, "the potential for a serious conflict" arises.
A company's general counsel could be willing to overlook wrongdoing by the chief executive if exposing it would diminish his own compensation, Hazen told Assistant District Attorney Clark Abrams.
Hazen admitted under cross-examination by Belnick attorney Mark J. Hulkower that he knew of no statute that barred direct linkage of a general counsel's pay and that of a chief executive.
Belnick is charged with first-degree grand larceny, securities fraud and falsifying business records. He could face up to 25 years in prison if convicted of the top count.
Belnick's lawyers say the defendant accepted the bonus because he thought Kozlowski was authorized to give to him.
Prosecutors say Belnick, as Tyco's top legal officer, knew that only the board of directors could have given him the bonus. They say he received the money because he was protecting Kozlowski from federal investigators and Tyco's own auditors.
Belnick is also accused of improperly taking more than $14.5 million from Tyco's loan programs and lying about it on company forms.
Hazen testified that the legality of actions by the company and within it are "primary responsibility" of the general counsel. "The buck stops there, so to speak."
The professor also said the general counsel, as a lawyer, is held to a higher standard than other executives in spotting and acting on legally questionable issues.
Hulkower asked for, but was denied, a mistrial based on Hazen's testimony.
Based in Bermuda, with U.S. headquarters in West Windsor, N.J., Tyco makes everything from telecommunications equipment to home alarm systems. In the year ended Sept. 30, the corporation had sales of $36.8 billion.