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Advising a Corporate Client? Think Ethically, Not Just Legally

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By Casey C. Sullivan, Esq. on July 01, 2015 1:44 PM

When advising a corporate client, lawyers may be tempted to limit their inquiry into the legality of a particular business practice or matter. Instead, they should also consider the ethical implications of their advice.

There are codified ethics guidelines, laws and regulations, all of which attempt to establish minimal levels of good behavior. But there are also individual ethics, a personal commitment to what is right, not just what is legally required.

Personal ethics may foreclose classic "gray area" arguments and may require a lawyer to counsel clients against suspect behavior. When it comes to advising business clients, legality is an attorney's main concern. But it should not be the only one.

Lawyers Are Advisors, Both Legally and Ethically

Forgetting about ethical obligations can be a disservice to one's client. Take, for example, the use of multiple LLPs, LLCs, and other entities to obscure transaction histories. While perhaps legal, the practice is often done with fraudulent intent. It is something that a commitment to business and personal ethics, as opposed to simple legal responsibility, might force a lawyer to counsel against.

After all, this was one of the many suspect business practices Enron engaged in to cover up debts and dissatisfied customers. Though lawyers and auditors were involved throughout the process, no one took action to stem the deceptive practices.

Ethical Failures Can Have a High Cost

Failure to act ethically can also come at a cost, for both the attorney and the client. For another example, compare General Motors' 2014 recall with Johnson & Johnson's 1982 Tylenol recall. In the first case, GM failed to disclose faulty ignition switches linked to over 100 deaths -- the defect was publicly revealed only after documents were discovered in a wrongful death suit. The cost of the ensuing damage, reputational and otherwise, can't be fully calculated just yet, but it includes several criminal investigations, the recall of over two million vehicles, and several billion dollars.

When Johnson & Johnson discovered cyanide-tainted Tylenol, however, it quickly recalled the pain killers, its best selling product. Their quick reaction made a hero of the company, according to The New York Times. Each company attempted to limit its liability in the face of a crisis -- Johnson and Johnson was simply smart enough to consider reputational costs alongside direct losses.

There's a reason business schools refer to the Tylenol as model of how to respond to a crisis -- and it's not because of simple legal compliance.

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