SEC Enforcement Director: Gatekeepers and the Virtue of “Professional Courage”

At the 27th Annual Ray Garrett, Jr. Corporate and Securities Law Institute of 2007, Linda C. Thomsen, Director of the SEC Division of Enforcement, gave a keynote speech that addressed several important issues to corporate law departments and the office of general counsel.

Director Thomsen’s remarks include an extensive discussion of the SEC’s principles-based approach for gauging cooperation in corporate investigations. Her speech emphasizes the agency’s respect for the attorney-client relationship and says the SEC will remain judicious with circumstances in which it would ask for privilege waiver.

Perhaps more important, however, is Director Thomsen’s discussion of the critical role attorneys play as gatekeepers in organizations. Quoting from the New York City Bar Association Report of the Task Force on the Lawyer’s Role in Corporate Governance (Nov. 2006), Director Thomsen reminds us that it “may take genuine professional courage to provide unwelcome advice and stick to it.”

As she continues, “[t]hese acts of courage can be dramatic—resigning for example. But more often, there will be less dramatic, but just as important, opportunities for lawyers to effect good. Encouraging a client to step back from a line rather than help the client squeeze as close to it as possible. Once you’ve figured out whether a particular course of conduct can be taken, encouraging everyone to think about whether it should be taken. When going through the process of looking back over events, whether in an internal investigation or otherwise, not only figuring out whether the conduct is legally defensible but also asking, the quieter questions, is it in the business’s long term interest? Is it behavior we want to encourage? Is it something we should be proud of?”

For a full copy of Director Thomsen’s speech, see www.sec.gov.