Conflicted, and Often Getting a Pass-wsj 3/12 : 월스트리트 독점금융자본과 법률고문의 이해관계(conflicit of interests) 결탁

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NEW ORLEANS— “We are all totally conflicted — get used to it.”

That’s what Robert A. Kindler, vice chairman of Morgan Stanley, boldly acknowledged here five years ago at an annual conference of the nation’s top corporate attorneys who converge on the Big Easy every March to discuss the current state of deal making and, yes, frequent double-dealing inside the boardrooms and executive suites of the Fortune 500.

It was a remarkably candid admission — and one that sadly, five years later, remains too true.

As I listened to dozens of the biggest-name legal consiglieri last week discuss a number of ripped-from-the-headline case studies about outrageous behavior by chief executives, directors and Wall Street investment banks caught up in self-dealing, blatant conflict of interests and other chicanery, a question occurred to me: Why do we so rarely blame the supposedly holier-than-thou lawyers?

Chief executives and bankers may make easy punching bags these days, but for every bad decision they make, there is often a lawyer who approves it — and most likely charges over $1,000 an hour for that brilliant advice.

William Bretzger/The News Journal, via ReutersVice Chancellor J. Travis Laster of the Delaware Chancery Court.

Indeed, it increasingly seems that the lawyers aid and abet the bad behavior of the nation’s corporations, providing them with the cover of legal advice — sometimes knowingly, sometimes not.

“I never thought to ask whether the lead banker owned shares in the other company,” Victor I. Lewkow, a longtime lawyer and partner at Cleary Gottlieb Steen & Hamilton, acknowledged to a packed room matter-of-factly last Thursday, demonstrating the utter lack of checkpoints put in place during a typical merger negotiation by an often seven-figure legal team.

His somewhat shocking acknowledgment came amid a discussion about a top Goldman Sachs banker who was advising the target of a takeover, El Paso. The banker owned about $340,000 worth of stock in the buyer, Kinder Morgan — an absolute no-no to anyone with a modicum of thought. It is also a violation of Goldman’s own rules, which the firm acknowledged. (I wrote a column about this and other conflicts in that transaction last week.)

I’ve known Mr. Lewkow, a skilled and thoughtful lawyer, for many years. Neither Mr. Lewkow nor his firm was involved in the El Paso deal, and he was speaking hypothetically to the crowd as if he had been involved with the deal. It may be unfair to single him out for being so honest, but the idea that one of nation’s top lawyers has not contemplated this issue before is disquieting — and a quick straw poll among his peers showed that he was hardly alone.

Lawyers — even Wall Street lawyers — are supposed to be a different breed from their clients and banker counterparts. They sign an oath when they are admitted to the bar. Their ethical standards are supposed to be beyond reproach. And yet that seems to be shifting. For many years, if a lawyer was called “commercial,” that was considered a pejorative. Today, it is increasingly a badge of honor.

Indeed, much of the conversation among the top lawyers in New Orleans was not about the rules, but about how far you could push them.

Vice Chancellor J. Travis Laster, a judge on the Delaware Chancery Court, chided the lawyers in the room about all the ways they sometimes rationalize conflicts as simply “an appearance of a potential conflict” as opposed to acknowledging the truth of a real, plain conflict.

“The denial factor is a credibility undercutter,” Chancellor Laster said.

Perhaps the most talked-about idea of the conference was this: If a company’s adviser has a conflict, the “best practice” for a corporate board is to hire a second unconflicted adviser to help cleanse the first adviser. This conversation went on for nearly a half-hour. Not once did anybody raise the idea that the entire idea of a need to cleanse an adviser is backward on its face — it implicitly means the original adviser is horribly conflicted and shouldn’t have been hired in the first place. The goal, you would think, shouldn’t be to patch up a shoddy process but to find a way to avoid the conflict from the start. But that wasn’t even part of the discussion.

Francis Specker/Bloomberg NewsKevin Genirs, a managing director at Barclays Capital.

At best, the lawyers offered excuses about why the process can become flawed, suggesting it is often beyond their control.

“There’s a misperception that we have access to the board,” Kevin Genirs, the general counsel for Barclays Capital’s investment bank. “We don’t.” If that’s true, then it is a sad commentary on the role of the lawyers in the first place.

In the halls of the conference, one of the frequent refrains I heard was that Wachtell Lipton Rosen and Katz, which represented El Paso in its sale to Kinder Morgan, had actually advised El Paso about the conflicts that Goldman’s relationship with Kinder Morgan would pose and was overruled.

It seems El Paso and Goldman Sachs’s hubris or stupidity is likely to cost Kinder Morgan — which acquired El Paso — several hundred million dollars in payments to shareholders for the chicanery. Of course, no executives or bankers will probably pay out a dollar. The shareholders will be paid out with their own money.

Wachtell wouldn’t talk about it when I asked, but if it is right that they were overruled by their client, Wachtell should have considered resigning the account. (Ditto for Sullivan & Cromwell, which represented Goldman Sachs.)

But, of course, that would have meant losing out on millions of dollars in legal fees and credit on league tables — those “commercial” rankings of the firms that they now use to market themselves.

An update: Two weeks ago, I wrote a column questioning why the Treasury Department allowed American International Group to use more than $25 billion in net operating losses from the financial crisis to offset its tax bill — which means the company probably won’t pay taxes for the next decade. On Monday, a group of four members of the Congressional Oversight Panel for the Troubled Asset Relief Program, including Elizabeth Warren, the committee’s former chairwoman, released a statement seeking to end the tax exemptions given to A.I.G.