- Proposed Part 205.3(a)’s Requirement that "[A]n Attorney
Appearing and Practicing Before the Commission in the Representation
of an Issuer…Shall Act in the Best Interest of the Issuer and
its Shareholders
Proposed Part 205.3 sets out what the proposing release terms "the core" of the proposed rules. 6 205.3(a) states that an attorney who represents an issuer represents the issuer "as an organization" and must "act in the best interest of the issuer and its shareholders." The first proposition is consistent with an attorney’s recognized ethical obligations under United States notions of professional responsibility; 7 the second is inconsistent with the first and misstates what attorneys do.
Attorneys for an organization represent only the organization and not the individual owners or managers. Boards of directors, managers and other employees, and shareholders are each "constituents" of the corporate organization who, to differing degrees and in differing situations, may act on behalf of the corporation and give instructions to the corporation’s attorneys. 8 Attorneys owe their professional duties to the corporate entities that retain them, not to any of the corporation’s constituents. 9 Indeed, attorneys are required to inform constituents of this basic fact when it is apparent that the corporation’s interests may be adverse to those of the corporate constituents with whom the attorney is dealing.10In addition, contrary to the Commission’s assertion, attorneys do not have an obligation to act in the best interests of their clients. Instead, attorneys are obligated to zealously represent (that is, act on behalf of) clients. Applicable rules make clear that it is the client that chooses the objectives the attorney must pursue, no matter how unwise, unwarranted, or unsound those objectives may be. 11 These are choices for the client, not the attorney, because it is the client, not the attorney, who bears the consequences of actions taken in the client’s name. 12 Indeed, if instructed by the client to take any lawful action, an attorney generally is obligated so to act, even if contrary (in the attorney’s judgment) to the client’s best interest. Where the attorney’s client is an organization, an attorney takes ultimate instruction from the board of directors, not because the board is more likely than management to do what is best for the corporation, but because the board, as to all but a few issues, has the ultimate legal authority to bind the corporation and instruct the attorney as to what to do.
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