INSIDE THE CORPORATE LEGAL DEPARTMENT: RESOLVING THE ... · • “The legal department and the new...

© 2018 Eversheds Sutherland (US) LLP

INSIDE THE CORPORATE LEGAL DEPARTMENT: RESOLVING THE COMPETING ROLES OF LEGAL GUARDIAN, CORPORATE LEADERSHIPAND COMPANY CONSCIENCE

May 7, 2018

Association of Life Insurance Counsel2018 Annual MeetingHalf Moon Bay, CA

Eversheds Sutherland


Issues Confronting Today’s Legal Department

Today’s Discussion

─ A review of recent investigations and their commentary on the corporate legal function

─ The evolution of the roles of the legal department and more specifically the General Counsel

─ Hot-button issues for today’s in-house function

─ How to manage it all in the client’s best interest

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The Wells Fargo Matter

Wells Fargo and Sales Practices

─ April 2017: Committee of Independent Directors release Sherman & Sterling Report detailing root causes of alleged improper sales practices at Wells Fargo Community Bank. The underlying allegations involved the opening of significant numbers of deposit accounts and credit card accounts without customer knowledge or consent.

─ This investigation followed regulatory settlements announced in Fall of 2016 with CFPB, OCC and the City and County of Los Angles.

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Wells Fargo and Sales Practices (cont.)

─ The Report concluded that the sales culture and performance management system, when combined with aggressive sales management created “extreme pressure” on employees to engage in improper sales practices.

─ In particular, the Report analyzed the bank’s internal legal department failed to prevent the scandal even though they’d “warned” of risks before:

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─ Wells Fargo lawyers were not unware of the risks posed by the bank’s aggressive sales goals. For example, as early as 2011, members of the bank’s in-house legal team warned that sales pressure was a “root cause” of the frequent employment terminations for “sales integrity” issues. Attorneys in the Employment Section began to recognize the potential for significant reputational risk to Wells Fargo arising out of the sales integrity issue, particularly mass gaming cases.

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─ Despite this “recognition”, the perception persisted in the Law Department that the sales integrity issues involved gaming incentive programs and was not conduct that affected customers—a serious underestimation of the issue.

─ Despite attempts at warning management, that the practice carried high risks—the risks were simply not put in the correct context—it was viewed as an employment issue, not a consumer issue.

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─ Ultimately, the internal procedures failed to prevent the growth of the problem because of the transactional—case-by-case approach to the issue. They simply could not see the forest for the trees.

─ The Law Department, “particularly at the senior levels” did not discuss and did not fully consider the patterns of behavior and their ultimate consequences. Its practice of advising on discreet legal problems as they arose and managing specific litigation risks blinded the bank to the greater problems it faced.

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─ The focus was on specific employee complaints and/or individual lawsuits--the Law Department’s focus was “principally on quantifiable monetary costs – damages, fines, penalties, restitution.” And, “[c]onfident that those costs would be relatively modest, the Law Department did not appreciate [the resulting] systematic breakdown of Wells Fargo’s culture and value and the ongoing failure to correct the widespread breaches of trust in the misuse of customers’ personal data and financial information.

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─ Recommendations included• Centralizing Corporate Structure• Centralizing an Independent Control Function• Mandated Board/Senior Management Responsibility to

Investigate Red Flags and Require More Detailed Reports• Bolstering Ethics and Compliance Culture• Greater Consideration of Systemic Causes• Take a Broader Approach to Risk and Consumer Harm

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─ Legal Department Issues – although not addressed in the Report, the matter raises the following ethical issues for in-house counsel:• Duty of Competency (MRPC Rule 1.1)• Keeping the Client Reasonably Informed (MRPC Rule 1.4)• Organization as the Client (MRPC Rule 1.13)• Duty of Supervision (MRPC Rule 5.1)

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The Uber Technologies Matter

Uber Technologies: Corporate Culture

─ In 2017, Uber Technologies was the subject of an alarming blog post by a former engineer, Susan Fowler, detailing allegations of harassment, discrimination and retaliation during her employment at Uber and the ineffectiveness of Uber’s policies and procedures.

─ Immediately, Uber hired the law firm of Covington & Burling to conduct a comprehensive review regarding the workplace environment at Uber.

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Uber Technologies: Corporate Culture (cont.)

─ The subsequent report, issued in June of 2017, made a number of recommendations for substantial restructuring to encourage fundamental changes in Uber’s corporate culture.

─ Although mentioned only a few times in the report (and such references were not particularly critical of the law department’s performance), it is clear that the law department will play an integral part in addressing the report’s recommendations.

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─ The C & B Report had a substantial number of recommendations, most requiring significant legal resources for designing, drafting, implementing and monitoring of such programs, including:• Use performance reviews to hold senior leaders accountable• Increase Profile of Diversity and Inclusion Efforts• Enhance Independence of the Board/Install and Independent

Chairperson• Create Oversight Committee• Enhance Audit Committee/Internal Controls• Compliance, Diversity and Leadership Training• Establish Effective Complaint Process

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─ The C & B Report had a substantial number of recommendations, most requiring significant legal resources for designing, drafting, implementing and monitoring of such programs, including:

─ from Although mentioned only a few times in the report (and such references were not particularly critical of the law department’s performance), it is clear that the law department will play an integral part in addressing the report’s recommendations.

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The Uber Technologies Matter—Legal Department Impact


─ The implementation of all of these recommendation will require the Uber Legal Department to step up their efforts and effectively become the “epicenter of the new Uber” (quoting Richard Levick of PR firm Levick). They will have to:• Codify rules and procedures for working with HR (and other

areas) and “should be really clear about the hierarchy and who is in charge.”

• Increase resources (particularly in employment law).• “The legal department and the new GC working under the chief

legal officer can play an important role in the organizational challenge of focusing and coordinating the efforts of all of these new personnel, processes and committees . . .

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The Uber Technologies Matter—Legal Department Impact


─ “The legal department and the new GC working under the chief legal officer can play an important role in the organizational challenge of focusing and coordinating the efforts of all of these new personnel, processes and committees that are going to come about as a result of the [C & B ] report”

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Are there parallel issues in our industry

Life Insurance Industry Corollaries

─ Life Insurance and Annuity Sales Practices (and compensation systems)

─ Enterprise Risk Management

─ Diversity and Inclusion

─ The Challenges of New Technologies

─ Emphasizing In-House Ethics and Leadership

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2016 Report from The Centre for Ethics and Law:

In-House Lawyers Ethics Under Pressure??

─ 10% of in-house lawyers will avoid saying “no” tom management even when there is no legally acceptable alternative to suggest

─ 36% said that legal loopholes should be identified when they benefit the business

─ 30% said that a focus on commercial awareness can inhibit them from performing their role as an in-house lawyer

─ 7% had never discussed professional ethical issues with their colleagues

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2016 Report from The Centre for Ethics and Law:

In-House Lawyers Ethics Under Pressure??

─ 7% had never discussed professional ethical issues with their colleagues or superiors, either formally or informally

─ 10-15% of respondents told researchers that they were “regularly or very frequently” asked by their employers to provide legal advice on issues that made them uncomfortable.

─ Survey suggests that respondents “prioritize client interest more often than principles of integrity and effectiveness . . . Independence and legality.”

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What is our role?

The Roles of the Legal Department and the General Counsel

─ Legal Guardian/Gatekeeper?

─ “Close Friend” to the Client?

─ Conscience of the Company?

─ Key Executive Leader?

─ Some or all of the above?

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What Tools Do We Need—What Should We Implement?


─ Centralized versus Decentralized?• Potential Competing Needs of the Business Units and the Client• Lines of Communication• Up the Ladder Process• Who is the Ultimate Master (CEO, Board, other?)

─ Degree of Independence• Again, Who’s in Charge?• Compensation Systems

─ Staying Relevant and Up to Date

─ Legal and “Human” Ethical Core

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What Tools Do We Need—What Should We Implement?


─ Staying Relevant and Up to Date• CLE Plus (that pesky Rule 1.1 again)

─ Legal and “Human” Ethical Core• Legal Ethics• Business Ethics• Setting the tone at the top

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