by Sean McManus
Staff Writer
As the term “corporate governance” becomes ubiquitous in media reports about the post-Enron landscape, corporate counsels have assumed greater responsibility for navigating the sea of reforms being written by Congress and the Securities and Exchange Commission.
The law firm Foley & Lardner, along with accounting firm PriceWaterhouseCoopers, held a corporate governance workshop at The River Club last week to help directors, officers, corporate counsels and other boardroom advisors better understand their “heightened” duties.
At the same time, general counsel offices at public and private companies across the U.S. are enacting strict new reforms to ensure that upper management doesn’t find itself on the phone with people such the state attorney general or the feds.
“Being a publicly held company brings with it an intense amount of scrutiny,” said Mike Abel, an associate general counsel who is head of the Litigation and Environmental section of CSX’s law department. “And now more than ever, we are dealing with heightened compliance issues.”
The legal department at CSX has instituted aggressive new training programs for its managers and regularly briefs the board on issues ranging from the new 130-page Sarbanes-Oxley Act to the most up-to-date protocol for the board’s audit committee.
“We think we’ve already made strong inroads in terms of education,” said Abel. “The entire company has higher expectations and is demanding intense and comprehensive policies. We take this stuff very seriously.”
In addition, CSX’s 27-attorney, in-house legal department is streamlining the way it does business with its outside counsel, who it relies on consistently for specialized legal work.
“We are taking a hard and serious look at the number of lawyers who do work for CSX,” said Abel, “and we’re going to make some serious reductions.”
Abel said his office will strengthen the ties they have with about 10 law firms, who he said know his company well, and connect them via the Internet to share training techniques, ideas and practice ideas. CSX will also retain about 30 or 40 small, regional firms who are available when legal issues arise in the small towns where errant trains sometimes make the local news.
“You can underscore the word ‘general’ when you’re talking about the general counsel,” said Bob Rhodes, who holds the title of executive vice president and general counsel of the St. Joe Company, the Florida mega-developer that has 25 lawyers working in-house.
Rhodes, who was general counsel for one of the Disney Corporation’s divisions and worked at Steel Hector & Davis in Tallahassee before joining St. Joe, said corporate counsels often seize the opportunity to keep one foot in business and one foot in law.
“I’d say our focus recently has been to formalize what were relatively informal processes,” said Rhodes. “Most of what the S.E.C. is asking for, we were already doing voluntarily.”
But Rhodes said the amount of communication between him and the board has increased exponentially, as has the dialogue between the legal department and the audit committee.
One of the major functions of the general counsel’s office continues to be management of outside counsel. For a company like St. Joe, which owns a considerable amount of real estate in Florida, complex real estate transactional work along with environmental litigation and corporate securities law keeps in-house lawyers and teams of outside lawyers busy.
“The typical cases, some of which have to do with compensation and benefits, we keep in-house,” Rhodes said. “The exotic and sophisticated cases, we usually farm out to outside counsel.”
And the outside counsel, Rhodes said, is managed very carefully.
Jill Witter, who is the general counsel at Rayonier, has been practicing law for 25 years, almost entirely as inside corporate counsel for publicly traded companies. She said her team of four in-house lawyers hasn’t been affected as much by new corporate scrutiny because Rayonier has always considered corporate governance their highest priority.
“But the reporting mechanisms have changed and so there’s additional work from that end,” said Witter. “And we are continuing our education every day to stay focused on current rules of compliance.”
Rayonier, which supplies timber internationally, deals with environmental issues, intellectual property and employment law that all big companies handle.
“Ultimately, every legal issue that we face filters down from this office,” said Witter. “Then an in-house lawyer is placed in charge of each case and they are responsible for coordinating with outside counsel. Much of what we do is a collaboration.”
Linda Kelso, a partner at Foley & Lardner who coordinated the corporate governance workshop, said that the Sarbanes-Oxley Act, which is designed to place tighter controls on accounting and governance inside corporate America, is the most sweeping set of reforms since the 1930s.
“We are getting a tremendous amount of questions from our clients about the nature of the legislation and what specific solutions can implemented to make sure companies are in compliance,” said Kelso. “There’s lots to digest.”
And according to Kelso, one size doesn’t necessarily fit all, so it’s important that each corporation individually evaluate their own systems.”
“Foley & Lardner has put together an informal task force to review these changes as they come in,” she said. “Then we send out bulletins and e-mails to advise our clients on how to comply.”
CSX’s Abel said that putting the puzzle pieces together is the reason why he likes working inside the legal department of a big company as opposed to a private firm. “This is an opportunity to see the big picture of how complex, sophisticated businesses run and remain close to management on the decisions of the company,” he said. “We get an inside look at how it all works.”