To Avoid Corporate Ethics Debacles, Reporting up Essential

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By Susan Bokermann

April 24 — Encouraging personal responsibility for reporting corporate wrongdoing should be on a company's to-do list, said panelists during a Securities Industry and Financial Markets Association webinar on corporate ethics April 23.

The panelists spoke about the lessons learned from the missteps of General Motors Co. in handling its ignition-switch related recall, as well as the subsequent internal investigation and lawsuits.

“Escalation, escalation, escalation” is the key to avoiding the same kind of ethical debacle, said Cynthia Adams, managing director and general counsel for litigation, regulatory and employment legal at Jeffries LLC.

Lessons From GM

After the recall of the Chevrolet Cobalt in February 2014, the largest U.S. automaker commissioned Anton Valukas, an attorney at Jenner & Block LLP, to investigate the company’s delay in ordering the recall.

Jenner & Block issued a 300-page report discussing GM’s lag in response time between notice of the defect and issuing the recall—more than 11 years.

“Although everybody had responsibility, nobody took responsibility” to address the problem, Adams said.

She said there are three main lessons that companies can take away from the GM investigation.

First, there are real world implications and costs that flow from how corporate attorneys choose to practice law. In the case of GM, individual decisions not to take action resulted in numerous injuries and deaths.

Second, it is important that employees not retreat into their own silos. “Silos are good for farms, they aren’t good for people,” Adams said. There is no real accountability when employees step away because it is “not their problem.”

Third, companies should be aware if they are promoting a company culture that fosters resistance to escalation. “It’s important to have a culture where employees act without fear of retaliation.”

“Operating with integrity is a platinum standard,” Adams said.

Attorneys Reporting

As an attorney in an organization, there is a “recipe” set out, in both the ABA Model Rules and most jurisdictions, regarding the reporting of suspected wrongdoing, said Sarah Jo Hamilton, partner at Scalise Hamilton & Sheridan LLP.

If the action the attorney is concerned about is in violation of a legal obligation to the organization, or a violation of law, and it is likely to result in injury to the organization, then the attorney has to proceed “as is reasonably necessary in the best interest of the organization,” she said.

The problem is determining whether the action constitutes a violation of law, Hamilton said. If it can be determined that it is a violation of law, she said, the lawyer next needs to decide what is “reasonably necessary.”

Hamilton said that the rules generally require the employee to report up to the highest authority that can act on behalf of the organization. She noted that it is permissive under the Model Rules to report out, but that there are different requirements in various jurisdictions. For example, in New York, “an attorney may not report out if the reporting out involves an impermissible disclosure of confidential information under Rule 1.6.”


In other comments, the panelists noted that whistle-blower awards are getting a lot of attention as the Securities and Exchange Commission continues to pay out large bounties for tips under its whistle-blower program. While an attractive incentive, this may pose problems for attorneys, according to Hamilton.

If there is a potential whistle-blower award, Hamilton said the reporting attorney needs to be particularly careful. There is a clear conflict between an attorney’s personal interest in the offered bounty and the attorney’s duty to report out. If the reporting out is for the purpose of obtaining a bounty, “there is a clear ethical violation there,” she said.

To contact the reporter on this story: Susan Bokermann in Washington at

To contact the editor responsible for this story: Kristyn Hyland at