The Conference of Chief Justices said disclosing information about a client is justified if it stops a crime that would hurt investors. The group, which unanimously passed the resolution last week in San Juan, Puerto Rico, wields influence over standards for lawyers because state courts in many states must approve legal ethics codes drafted by bar associations.
An American Bar Association task force on corporate governance also has recommended the waiver in response to corporate scandals at Enron Corp., WorldCom Inc., Tyco International Ltd. and other companies where lawyers were criticized for tolerating misconduct.
The waiver represents a break from the tradition that lawyers keep information received from their clients confidential. Some lawyers say having them alert regulators to potential frauds would discourage executives from fully disclosing problems and thus prevent lawyers from giving the most informed advice to their clients.
The justices’ backing for a confidentiality waiver comes as the ABA, the nation’s largest organization of lawyers, prepares to vote next week on adding similar language to the ABA’s model ethics code.
“Public opinion has demanded that lawyers play a greater role in promoting corporate responsibility,” the ABA task force said in a report urging that the confidentiality waiver be approved. In supporting the waiver, the ABA task force retreated from an earlier position favoring a rule that company lawyers be compelled, not just permitted, to report wrongdoing to regulators.
That stronger position was similar to a proposal before the U.S. Securities and Exchange Commission that would compel company lawyers to quit if a company was not addressing evidence of fraud and then to report the withdrawal to regulators.