New England Biz Law Update
Michael D. Cahn has devoted much of his legal career to securities law. He joined Providence, R.I.-based Textron, Inc. in 1976 and is the multinational conglomerate’s principal in-house attorney on issuing securities, Securities and Exchange Commission reporting obligations and corporate governance.
Cahn says he has never in his career seen the flurry of changes in securities law that has occurred over the past couple of years.
Of course, those changes – most notably the Sarbanes-Oxley Act – came about because of the rampant corporate fraud that seeped out of the woodwork in the late 1990s.
While the burdens of complying with Sarbanes-Oxley are well known to in-house attorneys, many of whom are scrambling to keep pace with the dizzying changes, Cahn says it was a necessary reaction to the corporate abuses.
Cahn has the luxury of working in the 55-lawyer legal department at Textron – a global company with numerous divisions, including Bell Helicopter and Cessna Aircraft – which allows him to “specialize” somewhat, although he’s called upon to work on mergers and acquisitions and anti-trust matters as well.
But he’s sensitive to the plight of in-house lawyers in small legal departments.
“They are responsible for all legal matters, and they have to keep up with what I have to know just on Sarbanes-Oxley, stock exchange listing standards and the like. It has to be tough.”
His advice is to talk with as many in-house lawyers as possible to pick up tips on how to efficiently meet the requirements of the new laws.
An active leader in the Association of Corporate Counsel America (he was chair of the organization’s Securities Law Committee at the time Congress passed Sarbanes-Oxley in July 2002), Cahn also points out that ACCA has a “wealth of information” to help small legal departments manage the demands of the vast array of new rules and regulations.
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Q. At the end of the day, do you think the Sarbanes-Oxley Act was an overreaction, or will it encourage real reform and preventative measures beyond the extra paperwork?
A. After Enron and similar scandals, it was imperative that significant steps be taken to restore the confidence of the public in corporate America. While there have been some missteps in the rush to reform, I think the act has significantly helped to restore that confidence.
Q. What are the practical difficulties of complying with Sarbanes-Oxley?
A. There have been more SEC law developments in the past 18 months than I have ever seen in my career. Just keeping up with the new regulations, the new accounting rules and the new stock exchange listing standards takes a very significant effort. And the SEC is accelerating the filing deadlines for periodic reports, and increasing the amount of information to be reported. Law departments have to find a way to fully comply with the rules, while at the same time many companies are trying to reduce costs and increase efficiencies.
Q. How is Textron addressing those problems?
A. We involve all corporate departments and business operations in making sure we obtain and report all required information. It takes a lot of effort, but it’s absolutely necessary. It’s so important to have accurate, clear and complete information.
Q. You’re part of a large legal department. How can smaller legal departments efficiently meet the demands of Sarbanes-Oxley?
A. It can be quite difficult for lawyers in smaller departments to keep up with all the changes while handling all the other legal work for their companies. One excellent resource is the Association of Corporate Counsel, which provides a number of ways for in-house lawyers to keep up with the latest developments. The ACC provides opportunities on the national and local level to discuss the evolving law and practice with other in-house lawyers, and it has a wealth of information on its website. The ACC annual meeting provides a great opportunity to attend CLE sessions and to network with other lawyers facing the same issues.
Q How can in-house lawyers avoid the stigma of being a “snitch” in the post-Enron era and remain closely integrated in the management “inner circle.”
A. Intelligent, thoughtful legal advice designed to keep managers out of trouble while fulfilling a company’s business goals will almost always be welcomed, particularly so in the post-Enron era. The rules requiring attorneys to “report up” evidence of wrongdoing through the legal department are consistent with this. However, I am concerned that the SEC’s proposed “reporting out” or “noisy withdrawal” rules may undermine the attorney-client privilege and could affect the ability of attorneys to get full access to the information they need to provide good advice.
Q. Most companies haven’t adopted a Qualified Legal Compliance Committee. Why? Should in-house attorneys push for this as a way to minimize their reporting obligations?
A. A QLCC is a committee of independent directors that can be established by the board of directors to review attorneys’ reports of evidence of wrongdoing. If a QLCC has been established, the company’s attorneys can fulfill their “reporting up” obligations by reporting evidence of wrongdoing directly to the QLCC. So far, very few companies have appointed a QLCC. I think most companies want to give management the opportunity to give management the opportunity to work through an issue before it goes to the board of directors. Of course, if management doesn’t respond appropriately, the reporting attorney then has the duty to report the issue to the audit committee of the board. If the SEC does adopt the “noisy withdrawal” rule, a QLCC might be more attractive because the “noisy withdrawal” obligations may not apply if a QLCC is in place.
Q. Describe the typical day-in-the-life on the job for Michael Cahn.
A. I could be reviewing the latest securities law developments, working on a disclosure issue or talking with lawyers in other companies about the latest SEC proposals. But one of the great things about being a lawyer, and especially an in-house counsel, is that no two days are the same. I never know what will unfold, and that helps keep life interesting.
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Cahn Bio
Age: 57
Residence: Lincoln, R.I.
Hobbies: “I’m no longer running marathons, but I still run a few miles every day. I also help organize road races.”
Currently reading: “Pompeii,” a novel by Robert Harris.
If I weren’t a lawyer, I’d be: “Probably in the communications field, either in publishing or advertising.”
People would be surprised to know that: “I enjoy cooking, especially creating my own dishes. I even surprise my wife sometimes, although she’s the better cook.”
