{"id":32286,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/why-sarbanes-oxley-act-merits-independent-counsel-for-corporate.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"why-sarbanes-oxley-act-merits-independent-counsel-for-corporate","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/corporate-governance\/why-sarbanes-oxley-act-merits-independent-counsel-for-corporate.html","title":{"rendered":"Why Sarbanes-Oxley Act Merits Independent Counsel for Corporate Officers and Directors"},"content":{"rendered":"
\n
\n

This article was edited and reviewed by FindLaw Attorney Writers<\/a><\/em><\/p>\n\n | Last reviewed\n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

Increased Liability<\/u><\/b><\/p>

Sarbanes-Oxley and proposed SEC regulations increase the potential for individual liability of corporate officers and directors for alleged corporate wrongdoing or breaches of fiduciary duty, in civil, regulatory and criminal claims, investigations and enforcement actions.<\/p>

New Requirements<\/u><\/b><\/p>

Sarbanes-Oxley requires attorneys and employees to report possible wrongdoing or breaches of fiduciary duty "up the ladder." It requires the CFO and CEO to certify the accuracy of the company's financial statements. It also requires the CFO or CEO to investigate whistleblower reports and take appropriate action. If they fail to do so, the audit committee must step in and investigate. The audit committee is also responsible for ensuring the accuracy of the company's financial statements and for hiring and overseeing outside accountants. Failure to perform these responsibilities gives rise to personal exposure for officers and board members. These responsibilities raise complex issues of privilege and conflicts of interest that corporate counsel may not be able to resolve.<\/p>

Conflicting Interests<\/u><\/b><\/p>

This complexity arises from the relationship among corporate management, directors and shareholders. Corporate counsel represents the corporate entity, not the individual managers or directors with whom they have substantial contact. Because corporate counsel represents the company, they may have a conflict of interest if they advise directors and officers concerning their individual exposure, rights and duties. Counsel's advice must put the interests of the corporate client first, and those interests may differ from the best interests of the individual officers and directors.<\/p>

Indemnification Issues<\/u><\/b><\/p>

Officers and board members also need independent legal advice when reviewing the indemnification provisions of a corporation's articles or bylaws. These provisions raise a number of issues, including:<\/p>