Innovative Clinic Creates Pro Bono Opportunities for In-House and Law Firm Attorneys

I have been proud to participate in the creation of a “virtual” pro bono business law clinic, representing an innovative partnership between Medtronic, Inc. and Maslon Edelman Borman & Brand, LLP. This clinic, one of several that are sponsored by the Minneapolis nonprofit LegalCORPS, is the first program of its kind to be created jointly by an in-house legal team and a law firm.

Our pro bono clinic serves low-income small businesses and non-profits in the furthest reaches of northern Minnesota, giving the clients access to the advice of skilled business lawyers at no charge. The clinic also creates valuable pro bono opportunities for Medtronic’s in-house attorneys and Maslon’s business lawyers.

In a recent article in the Minneapolis St. Paul Business Journal, “LegalCORPS expands business pro-bono work,” Jim Hammerand described the virtual clinics:

Through Minneapolis nonprofit LegalCORPS and regional small-business development centers, lawyer volunteers from Best Buy Co. Inc., Medtronic Inc., Target Corp., U.S. Bancorp and Minneapolis law firm Maslon Edelman Borman & Brand hold 30-minute video-conference sessions with small-business owners through clinics in Marshall, Hutchinson, Bemidji, Brainerd, Moorhead and Virginia every month.

‘What we’re trying to do with the clinics is preventative medicine: spotting what can get you in trouble, what you need a lawyer for and what you need to be careful about,’ Maslon lawyer Marty Rosenbaum said.

. . . ‘We were looking for an opportunity for our lawyers to do transactional pro bono work,’ said David March, senior counsel for commercial transactions at Target. . . . The program matches business lawyers, who sometimes have a hard time finding non-litigation pro bono work in their areas of expertise, with small businesses that don’t know what to look for in a lawyer, if they can even find one.

‘In some parts of Minnesota, it’s difficult for people to find attorneys even to pay for business law,’ LegalCORPS Executive Director Michael Vitt said. Clinic participants get ‘a sense of what they need to ask a lawyer to do and feel more comfortable and more confident dealing with lawyers.’

As Chair of Maslon’s Pro Bono Committee, I have had many discussions with law firm business attorneys and in-house lawyers about the benefits of doing pro bono legal services for those who cannot afford to pay legal fees. The LegalCORPS business law clinics, unlike many pro bono activities that are litigation-focused, give business attorneys like me a way to apply our hard-earned skills in a way that really benefits the clients and also fosters economic development.

And there is another major benefit to performing pro bono service – it gets us out of our comfort zone and gives us an avenue to develop our skills in ways that conventional practice might not allow. In the LegalCORPS clinics, we have the challenge of explaining basic concepts of company organization, tax law or other types of business law to clients who may not be as sophisticated as our regular corporate clients. For example, I often have to explain the advantages of forming an LLC vs. a corporation or a partnership, breaking down the concepts for a client with no previous corporate experience, or even someone for whom English is a second language. I have often brought young associates to observe the clinics, and in some cases these associates have gone on to become valuable volunteers.

The many benefits of doing pro bono work have caused many groups of in-house attorneys to participate, and Medtronic has been a leader in this trend. An article in Inside Counsel highlights the emphasis placed by Cam Findlay, Medtronic’s General Counsel, on pro bono work since he joined the company. Medtronic’s legal staff deserves a lot of credit for getting involved in these important activities.

"I Am Not a Crook"

budkroghphoto1I attended a compelling legal education program this week, taught by Egil "Bud" Krogh. Political junkies know that Krogh was a young assistant White House counsel in the Nixon years. As a leader of the "Plumbers" unit, he authorized the 1971 break-in of the offices of Daniel Ellsberg's psychiatrist after the leak of the Pentagon Papers. After the break-in came to light in the Watergate hearings, Krogh pleaded guilty, served time in prison, was disbarred and later reinstated.

Bud now lectures on the topic of legal ethics, based on his recent book, Integrity: Good People, Bad Choices, and Life Lessons from the White House. His premise: in a pressure-filled environment such as the White House, intense loyalty to individuals can blind you to your higher principles. This is compounded by fear, inexperience, pride and other factors.

Krogh's description of an environment that can put pressure on decision-making is familiar to anyone called on to say yes or no to any proposal by a corporate officer. Whether the proponent is the client of an outside attorney or the boss of an in-house attorney, there is a lot of pressure just to nod approval, as Bud Krogh nodded to Howard Hunt when the Plumbers break-in was discussed. I think the situation is especially acute for in-house attorneys. Of course, most proposed actions are legal, and the advice is often about the level of risk involved in two alternatives. And most in-house attorneys do a great job of balancing the competing pressures of giving sound advice while also being part of the team. But how do some decisions, even decisions by good people, go astray?

A great example can be found in the options backdating scandals. An article in the Financial Times in November 2006 reported that the backdating scandals had resulted in at least twelve major US companies replacing their general counsel, and a March 2008 speech by the SEC's Director of Enforcement reported that at least seven former general counsel had been charged by the SEC in connection with the scandals. Backdating, even though not necessarily illegal in itself, in these cases represented falsification of documents and involved misleading accounting and tax fraud. I know many attorneys said "no" to the practice, but these counsel simply nodded as backdating was pushed by other corporate officers. It might not have seemed like such a big deal at the time.

I asked Krogh how to advise an attorney (maybe a younger in-house attorney) how to avoid the pitfalls of losing perspective in a pressure-filled situation. He steered me toward a Top Ten List provided by Hank Shea, a former Assistant U.S. Attorney in Minnesota who teaches ethical leadership at the University of St. Thomas Law School, including the following two lessons learned from the misconduct of others:

    When faced with a right versus a wrong decision, guard against that first intentional misstep.

    When faced with an ethical dilemma, seek advice and counsel from others.

After an interesting program, Bud entertained us with a great Nixon impression, including, at the request of one of my colleagues, the famous phrase "I am not a crook". Bud proved that we can all learn lessons about how to be able to make that statement, and mean it.

It's Just An IP Thriller - One More Comment

Bud Krogh also told a great story about Elvis, the King of Rock and Roll, who came to visit President Nixon in a meeting engineered by Bud. I just saw a great film about another King - the King of Pop. "This Is It" chronicles the rehearsals for Michael Jackson's planned comeback concert tour. I recommend it to anyone who wants to see the combination of pure genius and meticulous attention to detail shown by MJ. If you didn't see it before, it's worth reading my previous post, reporting that Jackson was actually one of the named inventors in an issued patent.

More Risky Business; Blogging Lawyers Gone Wild!

risk1More Risky Business - A Case Study in the Risk Aspects of Compensation

There was a fascinating article in the New York Times on Thursday about Merrill Lynch's 2006 bonus program, which resulted in large payouts to top management even as the company was sold to Bank of America in a distressed sale. The author of the article provides more in-depth analysis in a post in the Times' DealBook Blog. Of course, these pieces probably attracted my attention because the DealBook post starts with "Calling all compensation nerds".

The Times article lays out the ways in which the Merrill plan was supposed to align top management pay with long-term performance, but concludes that the plan "did not keep workers from taking risks that nearly sank the brokerage giant. And some of its senior executives still stand to collect millions of dollars in stock under the plan." The Blog post discusses the features of the plan that put a portion of the employees' bonuses at risk, provided for a partial clawback if return on equity was not adequate, and invested the bonus amounts in stock that was locked up for a year past the three-year term of the plan.

While the article itself focuses attention on the failings of the Merrill plan, the Blog post provides a more nuanced view of the effort put into structuring the program, and the reasons it may not have been fully effective:

The Bottom Line: Talk to people who were in the plan, and they will tell you it worked because Merrill executives lost money in the clawback in 2007 and also because of the sunken stock price. However, the executives all did better than regular investors who put in money at the same three points but did not have the firm's leverage to help. Of course, the executives work at the company, and the plan was meant to compensate them in part for that work.

Why did the plan fail to save Merrill? Some compensation experts suggested it should have been applied to far more people. Others said a single year's return on equity might not be the right metric. And others said risk management and capital rules also contributed to Merrill's problems.

I think the Merrill plan had many worthy features that should command the attention of compensation professionals, especially in the financial services industry where risk management will become the Holy Grail of compensation programs. The Blog analysis above points out that some adjustments in the Merrill program could have made it much more effective - for example, the plan should have applied to far more people. In the financial services industry, bonuses to employees at all levels fueled excessively risky practices. But just because the program didn't perfectly match investor losses with executive losses, that doesn't mean the Merrill program wasn't a worthy effort.

In-House Lawyer Bloggers - What's Next?

Here's a new one - The Corporate Counsel Blog reports that in-house corporate attorneys have joined the blogging world. For example, Doug Chia, Senior Counsel at Johnson & Johnson, is posting on J&J's corporate blog. Chia reports that he is encouraging other in-house attorneys to blog. One of his goals is to get relevant information to retail shareholders, in preparation for the next proxy season when brokers will not be able to vote without instructions from these shareholders.

What's next? I haven't seen any GC's tweeting - yet.

Save Money On Your Legal Budget!

Occasionally, we will include guest columns with topics of interest to public companies and those that serve them. Here is a guest column by my colleague, Doug Holod. Doug is a partner in our Business and Securities Group and a member of Maslon's Governance Committee. Please let us know your thoughts about Doug's column - post a comment below or send me an e-mail. Doug's list will continue to be posted as one of the Resources on the home page of the Blog. - Marty Rosenbaumholoddoug_blog

One universal theme that has become more pronounced during the current (past?) recession is the demand by businesses for value; everyone wants more for less. On the legal front, in-house counsel are being pressured to: 1) reduce their reliance on outside counsel; 2) lower their own internal costs (which may include eliminating some in-house positions); and 3) minimize risk and exposure. Businesses without in-house counsel are also focusing on cutting costs while still minimizing risk and exposure.

In response, some law firms have become more resourceful with alternative billing arrangements such as fixed fees, including monthly retainers for corporate work, fixed prices for private placements, stock option and compensation plans and the like. Section 16 filings have become commoditized as well. Lawyers in firms will have to continue innovating in line with this trend, even after the recession subsides.

Attached you will find a list that I prepared for businesses to reduce legal costs and maximize value. Much of it is common sense (e.g avoid lawsuits) . . . but some of it shakes the foundation of the way corporate law firms have traditionally practiced over the past few decades (give clients standardized forms for them to customize). By applying some principles from this list, a business should be able to reduce legal costs and maximize the value of the services it receives.

"Don't Get Caught Cheating"

I've been working on my outline for an upcoming continuing legal education program on how in-house practitioners can avoid or minimize securities fraud liability. I talked to Maslon's securities litigation partner extraordinaire, Rich Wilson, about the topic, and we came up with the following tips:

    justiceThe simple rule is to disclose material information in a way that's not misleading. However, Rich cautions that a higher standard of disclosure may be required now. As Rich puts it, "There is a growing public skepticism that will make its way into the jury pool and even into the judiciary. In a dispute, a tie may no longer go to the company." SEC enforcement also poses new dangers, because the agency has a beefed-up enforcement staff and new energy. In other words, business as usual may not be the best course in the current atmosphere.
    Also, in the current climate, process and consistency become increasingly important. Companies should take a fresh look at their disclosure controls and procedures. The CEO and CFO have to certify the adequacy of these procedures every quarter in the 10-K and 10-Qs, but now is the time to make sure the procedures still make sense and are being followed consistently. This increased emphasis on compliance has to be maintained, even at a time when a lot of companies are cutting back on their in-house legal and compliance staffs due to economic considerations.

    It is also important to minimize the possibility of inconsistent disclosures by multiple individuals, and leaks of material non-public information. The company should have a clear written communications policy to ensure that corporate disclosures are made consistently by authorized spokespersons, and to prevent leaks. Again, the company should monitor and enforce consistent compliance with the policy.

    It is also very important to consistently monitor and enforce compliance with the company's insider trading policy. If insiders appear to be trading in the company's stock before allegedly material information is disclosed, this will greatly increase the risk of a lawsuit or SEC enforcement proceeding, compared to a disclosure-based claim alone.

All good tips. Although, maybe not as good as the tip my law school buddy used to give me: "Don't get caught cheating". Yes, he was kidding. Or maybe not - he ended up getting elected to Congress.