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Three arguments for why the compliance function should not be the responsibility of the law department

Charles James, the general counsel of Chevron, argues that the compliance organization of a company should be kept distinct from its legal function. Writing in InsideCounsel, Oct. 2007, at 8, James puts forward three reasons for the separation he prefers and that exists at Chevron.

(1) The law department would need enough resources. A corporate compliance function must carry out ongoing monitoring, testing, and auditing programs. This takes people, money, and infrastructure and should not be placed on a law department unless its resources are sufficient.

(2) The law department’s lawyers will be forced into two clashing roles. As James writes “will clients who view lawyers as the internal police actively seek out legal advice? And will lawyers in a dual role change the nature of the legal advice they render?”

The attorney-client privilege might be threatened. James believes that compliance has become a business duty, so lawyers jeopardize their legal advisory privilege when they carry out compliance roles.

A point James did not make is that compliance tasks are more in line with what auditors and accountants typically do, rather than lawyers. If those tasks are part of the law department, the people who carry them out often find themselves feeling like second-class citizens. (See my posts of March 26, 2005 on second class citizens; May 20, 2005 on merging compliance and law under the GC; July 31, 2005 on law and compliance housed together; Sept. 27, 2005 #4 on Merrill where the functions are merged; and April 15, 2007 with more on compliance and its reporting lines.).

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