One thing that many people in the public do not understand is that corporate counsel does not work for management; corporate counsel works for the board of directors, which in turn should tell corporate counsel to work with (not for) management. And all too frequently neglects to point this out to counsel, to management, and often even itself. If, however, the relevant legal ethics rules were enforced in this context, this would not be necessary.
(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law.
(e) When a lawyer knows that a client expects assistance not permitted by the Rules of Professional Conduct or other law, the lawyer shall consult with the client regarding the relevant limitations on the lawyer's conduct.
Model Rule of Professional Conduct 1.2; cf. Code of Professional Conduct DR 2-110(C), DR 7-102(A), DR 7-106, ED 7-5; California Rules of Professional Conduct 1-120, 3-200, 3-210.
Since management is not corporate counsel's client, it can expect only limited privilege. In any event, ask yourself a question: How many lawyers at WorldCom, at Enron, at Global Crossing, or at any of the other corporate-finance trainwrecks of the last few years have been even censured by their state bars for their roles in the fraud? (Not many.) I do not mean to imply that every lawyer at, say, Enron was culpable under these standards. But some clearly were; and some outside counsel clearly were. Had the bar disciplinary authorities been awake and active all along, more lawyers would have had their eyes open—and quite possibly have prevented some of these fraudulent acts.
All of this is merely speculative, of course. Professor Bainbridge's comments concern an attorney's power to reveal plans for and execution of fraudulent conduct. Attorneys have always had that power (see above, and compare to the "crime-fraud exception" to attorney-client privilege). What they instead need is motivation. The conduct is so serious, and reflects so greatly upon the core of the profession—a transactional lawyer's job is to enable his clients to comport their conduct with the requirements of the law (I know that's inelegant, but it's a quotation)—that it seems to me that the appropriate motivation is a stick, not a carrot. The carrots that a large fraudulent scheme can dangle in front of a lawyer with large student loans yet to repay—or even small carrots like continued employment and keeping off blacklists for future employment—outweigh anything that one might reasonably expect short of outright bounties, which certainly have their own problems. In my experience, con artists tend to continue fraudulent conduct if they are not adequately disciplined early on; I have no reason to believe that lawyers whose practice involves assisting those con artists are any different.
Sarbanes-Oxley § 307 is an example of outsiders to the profession coming in to regulate an area in which self-regulation has abjectly failed. If the bar wants to continue with the illusion of self-regulation, it had bloody well better start cleaning house of miscreants… if, of course, deterrance really means anything in the first place.