September 23, 2008 6:16 PM

Wall Street Bailout Could Enhance, Expand Role of Law Firms

Posted by Brian Baxter

While Congress mulls the merits of a proposed $700 billion plan proposed by Treasury Secretary Henry Paulson, Jr., and Federal Reserve Chairman Ben Bernanke to prevent a wider economic meltdown emanating from Wall Street, many are wondering what the calls for more regulation and increased transparency mean for corporate governance.

We checked in with Alfred Carlton, Jr., a partner at Raleigh's Allen and Pinnix and a past president of the American Bar Association, to talk about the bailout plan's potential impact on the legal profession.

What does this Troubled Asset Relief Program (TARP) mean from a corporate governance point of view?
Well, it's hard to know exactly where to start right now because there's so much out there. I think that, in general, the plan will have a profound effect on the practice of corporate law because we are going to enter an era of financial structuring in this country which will more closely resemble the European model. That means much bigger banks with a particularly American twist--more regulation, and thus more jobs for lawyers. The effect on the industrial sector and how they finance capital improvements and the effect on the public infrastructure, all that will be quite substantial.

Will greater transparency and oversight mean more work for lawyers? Is this another incarnation of Sarbanes-Oxley?
Actually, it goes beyond Sarbanes-Oxley because that only dealt with transparency. And remember, the underlying congressional jurisdiction is based upon the power to regulate interstate commerce, which gets you to the securities acts [of 1933 and 1934], and the theory of transparency if you're going to trade securities in the public sector.

The theory underlying what we're about to do here is far different. It hearkens back to the Jefferson-Jackson divide of how you run a country and what mechanisms are needed to curb the excesses of an open and free market. I encourage anyone to look at some of the stuff written about the 1907 panic--between J. Pierpont Morgan and John D. Rockefeller, they acted as the Fed. We didn't have a Fed [then], so they were the ones who stepped in and provided the liquidity. Today's restructuring deals with the structure of government and how it regulates the economy itself, not interstate commerce, are much more basic propositions.

Where does the government go from here and what are the implications for lawyers?
Everybody likes to complain about lawyers until you get to their lawyer. You see that now with the negotiations between the Bush administration and Congress, Republicans and Democrats, and the House and the Senate. As a lawyer, I like to deal in invisible risk, but what I see right now is that the government is going to have to re-regulate. Somehow we've got to find a way to pay for this, which means we've got to find new tax revenues. Everyone's loathe to raise tax rates. You put all that together, and if [this bill] comes to pass, it signifies an economic restructuring of how this country works in such a way that it enhances and expands the role of the legal profession.

Do lawyers bear any responsibility for the current state of the markets or is this something that falls squarely on the business side?
I've been practicing law for a lot longer than most lawyers, so I'm sort of old-fashioned. I'm also a former general counsel of a publicly-held bank holding company [North Carolina's Bancshares, now part of Charlotte-based Bank of America]. I believe that lawyers should not only act as lawyers, but as counselors. As general counsel, I always saw one of my primary roles as integrating business and legal decisions. While I'm not going to pass judgment on anybody, I will say that in this era of specialization there's a lot more emphasis on technical competence than there is on counseling. I'd like to think that those running the large firms would say the same thing. You always strive to do your clients' bidding within your ethical responsibilities, but at the same time you have to maintain your independence.

I probably do a dozen law school graduation speeches every year and one of things I always say is, 'Folks, you're getting ready to go into a business where you very often have to tell people things they don't want to hear. And somehow you've got to get them to listen to you. And then you have to get them to pay for it!'

They don't teach that in law school.
That's right! But what we're witnessing is going to change the way a lot of things are done and it's going to have a tremendous effect within the legal profession on the corporate and transactional side. With regards to the structural nature of it, far more than Sarbanes-Oxley did.

Would you still encourage young people to go into law given the economic downturn?
Whenever my friends have their children ask me about law school, my first question to them is, 'Why do you want to be a lawyer?' And then it's whether or not they know what it involves or if they have a passion for it. Because if they don't, they need to be thinking about doing something else. We've got far too many unhappy lawyers. There needs to be a real understanding and passion for what the profession entails [regardless of the economic circumstances]. If you don't like it to begin with, you'll be miserable pretty quick.

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