Risky business

Georgetown Law Journal

Volumn 94, Issue 6, 2006, Pages 1957-1984

  Regan Jr , Milton C ^a  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 33749867271     PISSN: 00168092     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (136)

1. PETER L. BERNSTEIN, AGAINST THE GODS: THE REMARKABLE STORY OF RISK 1 (1996).
2. Id.
3. Id. at 2.
4. ANTHONY E. DAVIS, RISK MANAGEMENT: SURVIVAL TOOLS FOR LAW FIRMS 5 (1995). A cottage industry model conceptualizes a law firm as an umbrella encompassing a cluster of decentralized practices controlled by relatively autonomous lawyers and practice groups. Id.
5. Id.; see Milton C. Regan, Jr., Law Firms, Competition Penalties, and the Values of Professionalism, 13 GEO. J. LEGAL ETHICS 1, 61 (1999) ("[C]ategorical resistance to competition penalties implicitly reflects an individualistic model of law practice that is at odds with the fact that most modern legal services are provided through team production.").
6. Anthony V. Alfieri, The Fall of Legal Ethics and the Rise of Risk Management, 94 GEO. L.J. 1909 (2006).
7. For insightful exploration of the implications for lawyers of the adoption of a risk management perspective in the corporate world, see Robert Eli Rosen, Risk Management and Corporate Governance: The Case of Enron, 35 CONN. L. REV. 1157 (2003);
8. Robert Eli Rosen, "We're All Consultants Now": How Change in Client Organization Strategies Influences Change in the Organization of Corporate Legal Services, 44 ARIZ. L. REV. 637 (2002).
9. See Alfieri, supra note 6, at 1910 ("[W]idespread adoption of risk management mechanisms . . . actually diminishes the appreciation of moral choices facing lawyers in practice . . . .").
10. See, e.g., Elizabeth Chambliss & David B. Wilkins, Promoting Effective Ethical Infrastructure in Large Law Firms: A Call for Research and Reporting, 30 HOFSTRA L. REV. 691 (2002);
11. Ted Schneyer, A Tale of Four Systems: Reflections on How Law Influences the "Ethical Infrastructure" of Law Firms, 39 S. TEX. L. REV. 245 (1998).
12. See infra Part IV.
13. CANONS OF PROFESSIONAL ETHICS Canon 15 (1908),
14. reprinted in REGULATION OF LAWYERS: STATUTES AND STANDARDS 222-23 (Stephen Gillers & Roy D. Simon eds., 2006) [hereinafter REGULATION OF LAWYERS].
15. CANONS OF PROFESSIONAL ETHICS Canon 16 (1908),
16. reprinted in REGULATION OF LAWYERS, supra note 11, at 33.
17. CANONS OF PROFESSIONAL ETHICS Canon 32 (1908),
18. reprinted in REGULATION OF LAWYERS, supra note 11, at 33.
19. See REGULATION OF LAWYERS, supra note 11, at 537.
20. MODEL CODE OF PROF'L RESPONSIBILITY Preliminary Statement (1983),
21. reprinted in REGULATION OF LAWYERS, supra note 11, at 540-41.
22. Id.
23. See Theodore Schneyer, Professionalism as Politics: The Making of a Modern Legal Ethics Code, in LAWYERS' IDEALS/LAWYERS' PRACTICES: TRANSFORMATIONS IN THE AMERICAN LEGAL PROFESSION 95 (Robert L. Nelson et al. eds., 1992) (providing an interesting account of the political maneuvering among different segments of the bar with respect to various provisions of the code).
24. See REGULATION OF LAWYERS, supra note 11, at 3.
25. Tanina Rostain, Ethics Lost: Limitations of Current Approaches to Lawyer Regulation, 71 S. CAL. L. REV. 1273, 1280 (1998).
26. The section on the Scope of the Rules cautions, "The Rules do not, however, exhaust the moral and ethical considerations that should inform a lawyer, for no worthwhile human activity can be completely defined by legal rules. The Rules simply provide a framework for the ethical practice of law." MODEL RULES OF PROF'L CONDUCT Scope, reprinted in REGULATION OF LAWYERS, supra note 11, at 12. The ABA offers no indication, however, of what these moral and ethical considerations might be, presumably leaving their identification to the conscience of individual lawyers rather than to any collective effort on the part of the profession.
27. See Heidi Li Feldman, Codes and Virtues: Can Good Lawyers Be Good Ethical Deliberators?, 69 S. CAL. L. REV. 885, 886 (1996) ("In particular, I argue that [a technocratic] mode of lawyering discourages, and may even entirely thwart, a certain sentimental responsiveness integral to genuine ethical deliberation.")
28. AMERICAN BAR ASS'N, COMM'N ON PROFESSIONALISM, ". . . IN THE SPIRIT OF PUBLIC SERVICE": A BLUEPRINT FOR THE REKINDLING OF LAWYER PROFESSIONALISM, reprinted in DEBORAH L. RHODE & DAVID LUBAN, LEGAL ETHICS 38 (4th ed. 2004).
29. Id.
30. See, e.g., CODES OF CONDUCT: BEHAVIORAL RESEARCH INTO BUSINESS ETHICS 46 (David M. Messick & Ann E. Tenbrunsel eds., 1996) (suggesting "a perspective of 'command responsibility' and an emphasis on the various duties of individuals, including the duty not to overlook harm, and the duty to carry out positional responsibilities");
31. Harvey S. James, Jr., Reinforcing Ethical Decision Making Through Organizational Structure, 28 J. BUS. ETHICS 43 (2000) (examining how a firm's organizational structure affects the ethical behavior of workers).
32. JOHN M. DORIS, LACK OF CHARACTER: PERSONALITY AND MORAL BEHAVIOR 1 (2002). Doris's book contains an extensive discussion of much of this body of work.
33. Id. at 146.
34. Id. at 147.
35. Id.
36. Id. at 153.
37. Id.
38. See, e.g., B.F. SKINNER, ABOUT BEHAVIORISM (1976).
39. Alfieri, supra note 6, at 1911.
40. MILTON C. REGAN, JR., EAT WHAT YOU KILL: THE FALL OF A WALL STREET LAWYER 322-23 (2004).
41. Id. at 323.
42. Oliver Wendell Holmes, The Path of the Law, reprinted in COLLECTED LEGAL PAPERS 167, 171 (Harold J. Laski ed., 1920).
43. Rostain, supra note 19, at 1335.
44. See Robert Cialdini, Social Influence and the Triple Tumor Structure of Organizational Dishonesty, in CODES OF CONDUCT: BEHAVIORAL RESEARCH INTO BUSINESS ETHICS, supra note 24, at 44, 56-57.
45. See Robert Cooter, Do Good Laws Make Good Citizens? An Economic Analysis of Internalized Norms, 86 VA. L. REV. 1577 (2000);
46. Timothy F. Malloy, Regulation, Compliance, and the Firm, 76 TEMP. L. REV. 451, 464-75 (2003).
47. On the importance of this phenomenon for obedience of the law in general, see TOM R. TYLER, WHY PEOPLE OBEY THE LAW (1990).
48. Lynn Sharp Paine, Managing for Organizational Integrity, HARV. BUS. REV., Mar.-Apr. 1994, at 106, 109.
49. Id. at 111.
50. Id.
51. See IAN AYRES & JOHN BRAITHWAITE, RESPONSIVE REGULATION: TRANSCENDING THE DEREGULATION DEBATE (1992).
52. Id. at 19.
53. Id. at 24-25.
54. Id.
55. Id. at 47.
56. Id. at 49.
57. See id.
58. See id. at 19-53 (discussing the concept of the "Benign Big Gun" - speaking softly and carrying a big stick).
59. For a suggestion that informal norms may have played a role in regulating lawyer behavior in the absence of rules, see W. Bradley Wendel, Regulation of lawyers Without the Code, the Rules, or the Restatement: Or, What Do Honor and Shame Have to Do With Civil Discovery Practice?, 71 FORDHAM L. REV. 1567, 1568 (2003).
60. Rostain, supra note 19, at 1336.
61. See Cialdini, supra note 37; Edward L. Deci & Richard M. Ryan, The Support of Autonomy and the Control of Behavior, 53 J. PERS. & SOC. PSYCHOL. 1024, 1026 (1987).
62. On the "crowding-out" phenomenon, see generally BRUNO S. FREY, NOT JUST FOR THE MONEY: AN ECONOMIC THEORY OF PERSONAL MOTIVATION 7-39 (1997);
63. Bruno S. Frey & Felix Oberholzer-Gee, The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out, 87 AM. ECON. REV. 746 (1997).
64. See Ann E. Tenbrunsel & David M. Messick, Sanctioning Systems, Decision Frames, and Cooperation, 44 ADMIN. Sci. Q. 684, 688 (1999).
65. On the potential for destruction of social norms by legal rules, see generally Richard H. Pildes, The Destruction of Social Capital Through Law, 144 U. PA. L. REV. 2055 (1996).
66. The literature on the operation of social norms and their interaction with law is of course legion, with various different theories on the nature of the interaction. For a sampling, see ROBERT C. ELLICKSON, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES (1991);
67. ERIC POSNER, LAW AND SOCIAL NORMS (2000);
68. Symposium: Law, Economics, and Norms, 144 U. PA. L. REV. 1643 (1996);
69. Symposium: The Legal Construction of Norms, 86 VA. L. REV. 1577 (2000);
70. Symposium: Norms and Corporate Law, 149 U. PA. L. REV. 1607 (2001).
71. For an effort to "develop principles of theory acceptance - a metatheory - for theories of social norms as they relate to law," see W. Bradley Wendel, Mixed Signals: Rational-Choice Theories of Social Norms and the Pragmatics of Explanation, 77 IND. L.J. 1, 39-56 (2002).
72. See generally Leandra Lederman, The Interplay Between Norms and Enforcement in Tax Compliance, 64 OHIO ST. L.J. 1453, 1469 (2003) (discussing several studies focusing on the influence of other taxpayers' attitudes toward the tax system upon the individual taxpayer's ultimate compliance).
73. See Davis, supra note 4, at 3 ("The hallmark of lawyers before the advance of the large firm was their sense of independent professionalism. Whether they worked alone or in firms, they prized their independence."); Regan, supra note 5, at 34-36 ("This aspiration to independence is expressed in the statement that the lawyer is an 'officer of the legal system,' who bears some responsibility for ensuring the integrity of the legal process.").
74. The classic statement of cognitive dissonance theory is LEON FESTINGER, THEORY OF COGNITIVE DISSONANCE (1957).
75. See infra note 62 and accompanying text.
76. Tenbrunsel & Messick, supra note 54, at 687.
77. See id. at 688; David M. Messick, Alternative Logics for Decision Making in Social Settings, 38 J. ECON. BEHAV. & ORG. 11, 26 (1999).
78. See Tenbrunsel & Messick, supra note 54, at 688; Messick, supra note 61, at 14.
79. See Tenbrunsel & Messick, supra note 54, at 693.
80. Id. at 699 ("[W]hen an ethical frame is evoked, cooperation should be the dominant choice, independent of the presence or absence of a sanctioning system and the expected cost of the sanctions.").
81. Id. at 700.
82. Id. at 702.
83. See Lederman, supra note 56, at 1508 ("A survey of Minnesota taxpayers found that normative beliefs about tax compliance are related to opportunity to evade.").
84. Id. at 1500.
85. Id. at 1500-03. For a suggestion of how deterrence and a norm of compliance can be intertwined in the tax context, see John T. Scholz & Neil Pinney, Duty, Fear, and Tax Compliance: The Heuristic Basis of Citizenship Behavior, 39 AM. J. POL. SCI. 490, 508-09 (1995) (finding that a taxpayer's sense of duty affects his analysis of the risk of cheating and suggesting that increased enforcement might fail to increase compliance if it leads to a decreased sense of duty and thus a lower perception of risk).
86. Lederman, supra note 56, at 1508.
87. Id. at 1508-10.
88. See generally id.
89. See generally William S. Laufer, Corporate Liability, Risk Shifting, and the Paradox of Compliance, 52 VAND. L. REV. 1343 (1999).
90. For an overview of these practices, see Kimberly D. Krawiec, Organizational Misconduct: Beyond the Principal-Agent Model, 32 FLA. ST. U. L. REV. 571, 584 (2005).
91. See also William S. Laufer, Integrity, Diligence, and the Limits of Good Corporate Citizenship, 34 AM. BUS. L.J. 157, 163-66 (1996).
92. See generally Laufer, supra note 73.
93. On the difficulty of evaluating the effectiveness of these programs, see Krawiec, supra note 74, at 580 ("[C]ourts and agencies are unlikely to possess the ability to differentiate effective internal compliance structures from cosmetic ones - that is, those structures designed to create the illusion of compliance for purposes of avoiding legal liability, rather than for the purpose of deterring misconduct."); Donald C. Langevoort, The Behavioral Economics of Corporate Compliance With Law, 2002 COLUM. BUS. L. REV. 71, 112-14 (arguing that after an illegality is discovered, there is a bias toward determining that monitoring was insufficient and that an effective inquiry into the compliance program "would require extensive and subjective expert research into the culture and operations of the firm"); Laufer, supra note 73, at 1417-18 (questioning the capacity of courts to evaluate the effectiveness and authenticity of compliance programs and noting corporations' awareness of this deficiency). In determining which formal features to adopt, companies may look to sources such as the Committee of Sponsoring Organizations of the Treadway Commission, which publishes guidelines for programs focused on matters such as Enterprise Risk Management and Internal Controls. See http:// www.coso.org (last visited Mar. 10, 2006).
94. Laufer, supra note 73, at 1415.
95. See N.J. RULES OF PROF'L CONDUCT R. 5.1(a) (2006) (law firms must make "reasonable efforts to ensure that member lawyers conform to the Rules of Professional Conduct");
96. N.Y. CODE OF PROF'L RESPONSIBILITY DR 1-104(a) (2006) (law firms must "make reasonable efforts to ensure that all lawyers in the firm conform to the disciplinary rules").
97. Paine, supra note 39, at 106.
98. See id. at 111 (differentiating the compliance regimes from the integrity-based approach that holds organizations to a higher standard).
99. Id.
100. See id. at 112 (presenting "The Hallmarks of an Effective Integration Strategy").
101. See Lawrence E. Mitchell, Cooperation and Constraint in the Modern Corporation: An Inquiry into the Causes of Corporate Immorality, 73 TEX. L. REV. 477, 478-80 (1995) (noting that the constraining power of the state and institutionalized corporate relationships result in "an abrogation of moral autonomy and a corresponding denial of moral responsibility").
102. WILLIAM SIMON, THE PRACTICE OF JUSTICE: A THEORY OF LAWYERS' ETHICS 74 (1998) (asserting that a lawyer's mechanical adherence to rules "categorical" norms as opposed to "contextual" norms).
103. See id. at 7 (describing the "Dominant View" as one in which counsel zealously represents any client interest).
104. See, e.g., id. at 8 (describing the "Public Interest View"); see also DAVID LUBAN, LAWYERS AND JUSTICE: AN ETHICAL STUDY xvii (1988) (asserting that a lawyer's role is to make laws "more just" and clients "more public spirited");
105. DEBORAH L. RHODE, IN THE INTERESTS OF JUSTICE: REFORMING THE LEGAL PROFESSION 2 (2000) (arguing for an increased adherence to public interest in the legal profession).
106. Robert W. Gordon, A New Role for Lawyers?: The Corporate Counselor After Enron, 35 CONN. L. REV. 1185, 1207 (2003).
107. See REGAN, supra note 33, at 322-24 (stating that various external influences pushed Gellene away from the required disclosure).
108. Id. at 333-34.
109. See id. at 333-38 (describing noncompliance with Rule 2014 as a "calculated gamble").
110. See id. at 334 (noting that Gellene rationalized his nondisclosure despite knowing the "letter of the rule" required it).
111. See generally Milton C. Regan, Jr., Teaching Enron, 74 FORDHAM L. REV. 1139, 1238-43 (2005) (providing the details of Enron's dealings with Chewco).
112. See id. at 1238.
113. Id.
114. Id.
115. Id.
116. Id. at 1239.
117. Id.
118. Langevoort, supra note 76, at 106.
119. Id. at 107-10.
120. Id. at 107.
121. Id.
122. See id. at 107-10. Some firms may in fact benefit from a culture of risk-taking that sometimes flirts with the edge of legality and will not want to constrain agents unduly from engaging in such behavior. See, e.g., Kimberly D. Krawiec, Accounting for Greed: Unraveling the "Rogue Trader" Mystery, 79 OR. L. REV. 301 (2001). Securities trading firms may be an example of companies that benefit from such an entrepreneurial culture. See generally id.
123. Langevoort, supra note 76, at 111 n.86.
124. See text accompanying notes 11-14.
125. See text accompanying note 17.
126. See text accompanying notes 17-20.
127. MODEL RULES OF PROF'L CONDUCT pmbl.,
128. reprinted in REGULATION OF LAWYERS, supra note 11, at 9.
129. Id. at 11.
130. For a discussion of the role of corporate liability in shaping incentives for legal compliance, see Deborah A. DeMott, Organizational Incentives to Care About the Law, 60 LAW & CONTEMP. PROBS. 39 (1997).
131. See text accompanying notes 11-14 (discussing aspirations as basis for regulating lawyer's conduct).
132. See text accompanying notes 52-56.
133. See text accompanying notes 33-39.
134. For one effort to analyze the respective contributions of these and other approaches, see Linda Klebe Trevino et al., Managing Ethics and Legal Compliance: What Works and What Hurts, 41 CAL. MGMT. REV. 131 (1999). The authors concluded that both integrity-based and compliance-based approaches were significantly associated with positive behavioral outcomes in the six companies they studied and that the two were not mutually exclusive. See id. at 138-39. An integrity-based focus, however, had a stronger relationship to such outcomes than a compliance focus. See id. at 138.
135. See supra Part II.A.
136. See, e.g., ANTHONY T. KRONMAN, THE LOST LAWYER: FAILING IDEALS OF THE LEGAL PROFESSION 11-162 (1993).