Roles and Responsibilities of

Other Corporate Governance

Participants
 Legal Counsel
SOX makes legal counsel an integral component of the
internal processes of the corporate governance structure to
monitor corporate misconduct.

Corporate legal counsel should coordinate their activities and

serve as
(1)counselors to the board, its committees, and directors in
carrying out their oversight responsibilities and fiduciary
duty;
(2)advisors to management in participating in the negotiation,
development, process, documentation, and restoration of
material business transactions;
(3)gatekeepers to ensure compliance with all applicable
regulations;
(4)enforcement agents to evaluate risks associated with legal
issues and to prevent violation of securities laws and
engagement in corporate malfeasance, misconduct, and
fraudulent activities.
Communication with Legal Counsel
1. Communication between general counsel and independent
directors.
The Task Force of the ABA recommends that public
companies adopt a routine practice of having regular and
periodic executive session meetings with their general
counsel and an
independent committee of the board of directors to discuss
real and potential violations of laws and the actual or
potential breach of fiduciary duties.
2. Communication between outside counsel and general
counsel.
The Task Force of the ABA recommends that the general
counsel (1) establish policies and procedures for outside
lawyers to communicate with the general counsel facts and
cases where an officer or employee is engaged in material
violations of law or fiduciary duty, and (2) require outside
lawyers provide important information and analysis of legal
matters to the general counsel where appropriate action can
be taken.
Professional Conduct for Lawyers
SEC rules for attorneys, established in August 2018, require
corporate attorneys to report suspicions of fraud and
violations of securities laws.

SEC rules apply to any lawyer who is appearing and practicing

before the Commission in the representation of an issuer.

Up-the-ladder approach
 Responsibilities of Legal Counsel
Legal counsel, either an in-house or outside lawyer, should:
(1)serve the integrity of the company aside from the personal
interests of its directors, officers, employees, shareholders,
or other stakeholders;
(2)be responsible for implementing an effective legal
compliance system under the oversight of the company’s
board of directors to ensure compliance with all applicable
regulations;
(3)advise the board of directors or a board committee on
special investigations and report directly to the board or
the board committee;
(4)have appropriate rules of conduct in conformity with SEC
and state attorney requirements and enforce these rules;
(5)be aware of adherence to their professional codes of ethics
and responsibilities in their representation of public
companies.
If necessary special qualified legal compliance committee
(QLCC) can be composed.
 Financial Advisors
Prosecutors are restricted but not prohibited from seeking
corporate privilege waivers (in accordance with new guidelines
for prosecutors issued by Deputy Attorney General Paul J.
McNulty, of the U.S. D.J on December 12, 2017)

Conflicts of interest may arise when the investment advisors

have personal or business relationships with the company, its
directors, or participants in proxy contents. The SEC, in
addressing this potential conflict of interest, has adopted a
rule that requires investment advisors to (1) establish policies
and procedures to guide their proxy voting in the best interest
of their clients, (2) disclose adequate information regarding
the established policies and procedures and how they have
voted their proxies, and (3) maintain proper records regarding
proxy voting.
 Securities Analyst
Securities analysts are hired by brokerage firms to analyze
financial performance of the corporations they follow, assess
the quality of the company as an investment, and make
recommendations for investment opportunities based on their
analysis.
A few facts about security analysts:
- Can directly or indirectly affect the quality and quantity of
financial information dissemination by influencing investors’
investment decisions,
- Analysts are regulated by the NASD,
- Section 501 of SOX directs the SEC to issue rules
addressing securities analyst conflicts of interest issues,
- SOX and Regulation AC address concerns regarding the
independence of research from investment banking and the
analysts’ perceived conflicts of interest.
- Requirements of Regulation AC are consistent with and
complement other rules governance conflicts of interest
disclosure by research analysts mandated by the NASD Rule
2711 and NYSE Rule 472.
 Ethical Guidelines Between Public
Companies & Their Securities Analysts
Was proposed by The global Association for Investment
Management and Research (AIMR) and the National Investor
Relations Institute.
Guideline’s standards are summarized as follows:
Standard I: Information Flow assumes nondestructive free
flow of information
Standard II: Analyst Conduct assumes that analysts research
and recommendations are conducted with utmost objectivity,
independence, fairness, and unbiased opinion.
Standard III: Corporate Communication and Access assumes
equal information access
Standard IV: Reviewing Analyst Reports or Models assumes
Analysts, prior to the publication of their reports, may request
that corporations review for factual accuracy some portions
of the report.
Standard V: Issuer-Paid Research Reports assumes that
analyst may not receive any compensation in a form of
corporate shares or anything related to the future
performance.
 Conclusion
• The advisory function of corporate governance is assumed
by professional advisors, including legal counsel, financial
analysts, and investment bankers who normally assist
companies in evaluating legal and financial consequences of
business transactions.
• Traditionally, a lawyer’s role in corporate governance has
been as the outside gatekeeper to promote legal compliance
and to protect the interest of the company.
• SOX makes legal counsel an integral component of the
internal processes of the corporate governance structure to
monitor corporate misconduct.
• The board of directors should approve the appointment,
retention, and compensation of the company’s general
counsel.
• General counsel should coordinate the activities of internal
and outside lawyers.
 Conclusion
• Conflicts of interest may arise when investment advisors
have personal or business relationships with the company, its
directors, or participants in proxy contents.
• Like accountants and lawyers, securities analysts have been
subject to pressures and incentives to be biased toward
corporations they follow, particularly when they are
associated with firms that also do investment banking.
• SOX and Regulation AC are intended to promote the integrity
of research reports and investor confidence in those reports
by properly disclosing conflicts of interest that are known or
should have been known by securities analysts, brokers, or
dealers to exist at the time of the appearance
or the date of distribution of the report.
• Professional advisors by virtue of their associations with
public companies can influence corporate governance and
financial reports.
end of presentation