Lessons from Lehman

As the legal bills for the Lehman Brothers restructuring climb toward the billion dollar mark—with more than $210 million for Weil Gotshal alone—what lessons can we draw from the investment bank’s demise?  Corporate Counsel checks in with a half dozen former Lehman in-house counsel to see what they insights they might share to help others avoid the same fate.  In addition to thoughts on the challenges of monitoring and risk management, the former Lehman lawyers caution against falling in love with your employer: “Institutions come and go and they ‘can't love you back’”:

Emotional distance should come naturally to lawyers. “Being an attorney gives you the ability, because of your analytical training, to take a step back." What's more if a lawyer is going to exercise independent judgment and provide independent advice, it's also necessary.

But here again, the trick is to strike the right balance. This can be especially sticky for in-house lawyers, who, unlike their law firm brethren, are totally dependent on one client.

This total dependence on the one client is a significant barrier to independent advice (as opposed to “blind implementation of what management wants”).

On Friday, the SEC voted unanimously to propose that financial firms increase disclosure about debt, as some companies have used accounting shenanigans to mask leverage and risk levels. The Commission is reacting to the “balance sheet cosmetology” (e.g., “Repo 105”) that Lehman’s leadership demanded and no lawyer was willing or able to oppose.  As one of the former Lehman counsel puts it, "[The lawyers] are the skeptics. [The lawyers] are the cops on the beat. And we've lost sight of that."

-posted by brian