With the final provision of Sarbanes-Oxley now in effect, lawyers are required to report corporate wrongdoing. Although many lawyers are concerned that this may breach attorney/client privilege, Troy Paredes, associate professor of law at Washington University, says, “The requirement that lawyers report ‘up the ladder’ if they are aware of a material violation is an important part of the Sarbanes-Oxley reforms.”
Paredes notes that lawyers are an important gatekeeper that the market depends on to help oversee management.
“Indeed, lawyers are often the first to suspect that the company or its executives might be engaging in fraud or that the directors and officers are breaching the fiduciary duties they owe to the company and its shareholders,” Paredes says.
“Lawyers have expressed concern that this final provision impinges on the attorney/client privilege or could actually chill insiders from seeking the advice of counsel. The SEC eased some of these concerns by backing away from ‘noisy withdrawal’ [The idea the lawyers would have to disclose to the SEC and possibly the public as a while that they have withdrawn from representing a client after becoming aware of some material violation of the federal securities law]. The bottom line for lawyers is that they are now expected to shoulder a larger share of the burden of ensuring the integrity of our capital markets and the soundness of our corporate governance system.”
Paredes is available to comment.