In a recent survey of selected Fortune 100 corporations⁽²⁾ the Evidence Project of the American University Washington College of Law discovered that many corporate agents--including officers and directors--know too little about the attorney-client privilege and do not appreciate that they are not personally protected when they communicate with corporate counsel. This, in the opinion of virtually everyone surveyed, was the result of too little information being disseminated within corporations about both the nature and scope of the corporate attorney-client privilege and the company's policies relating to the creation, dissemination, and storage of confidential corporate communications.

While 72% of those surveyed knew that only communications between an attorney and client that relate to legal advice are protected by the attorney-client privilege, only 58% knew that the communications had to be confidential and that the confidentiality of communications subsequently has to be maintained by allowing distribution of them within the corporation only on a 'need to know' basis. This lack of knowledge about the requirement of confidentiality could have two significant consequences. First, the confidentiality could be destroyed, thereby losing the privilege protection. Second, even if confidentiality were preserved, without established circulation procedures that are known and followed by employees, the preservation of confidentiality would have to be proven for each communication through the costly and time-consuming procedure of filing affidavits from each recipient, attesting to the propriety of receipt and further distribution.

One of the most surprising results was that officers and directors generally are no better informed about the privilege than other employees. This is particularly troublesome because, unlike the average employee, officers and directors have far greater access to confidential communications. Almost half of those surveyed did not think it was necessary either to segregate privileged documents or clearly label them as "attorney-client communications" so as to alert potential readers to their confidential nature. While neither is theoretically required, when both are absent, there is an increased risk that unauthorized people with access to unsegregated documents will have inappropriately read them, and thus destroyed the privilege.

From the perspective of corporate officers and directors the most alarming fact uncovered in this survey was that over half (55%) of the corporate executives erroneously believe that corporate counsel personally represents them when they speak with corporate counsel on matters relating to their corporate responsibilities, which could give rise to personal liability. While this is of little legal consequence to the corporation and to the viability of its attorney-client privilege protection, it would certainly be of consequence to the individual executive if the corporation waives its privilege protection to disclose evidence of the executive's culpability; he would have no standing to object on his own behalf. This erroneous belief was widely held by other employees too. Consequently, corporate counsel may be confronted with an ethical dilemma when eliciting incriminating information from individuals. This dilemma is exacerbated by survey results indicating that most of the employees expressing a willingness to continue to be candid (even in the face of potential personal liability) do so on the belief that the corporation will use its privilege to protect them. This, of course, is only true as long as protecting the individual is in the corporation's best interests.

In the corporate setting the client is the corporate entity, the legal fiction that can only speak and act through its agents. Regardless of whether a corporate agent (executive or otherwise) personifies, and therefore speaks for, the corporation in communications with corporate counsel, no employee has the right to use the corporate privilege on his own behalf. This, coupled with the fact that the corporation's fiduciary duty to its shareholders precludes it from using its privilege for the benefit of individual employees when that action would not be in the best interests of the corporation, can lead to employees being offered up in sacrifice to the greater corporate good. For example, internal corporate investigations of fraud (bribery of foreign government officials), which have contained many candid statements from corporate employees, have been disclosed to the Securities and Exchange Commission in exchange for an agreement to drop all investigations of the company and approve stock actions pending before the Commission. In each instance, of course, the losers were the employees who were exposed to civil and criminal liability through their own words

This places corporations in somewhat of a dilemma. While knowledge of the privilege's requirements is important to its preservation, if employees are accurately informed about the limits of its protection, they likely will be less inclined to communicate candidly with corporate counsel. Fear of personal repercussions, however, should not pose a significant problem for two reasons. First, officers and directors are often insured against such exposure. Second, most communications with corporate counsel do not involve transactions that could give rise to personal liability.

When their personal liability is at stake, half of all employees expressed the desire to speak first with their own attorney, and 28% of this group indicated that they would be less candid when speaking with corporate counsel. The study did not inquire into whether this likelihood of deception was before or after consulting with their private attorneys. While these statistics may be a bit discouraging to corporations, there is reason for some optimism. Only two percent of employees indicated that they generally are not candid with corporate counsel. Of the 98% who are usually candid, the most frequently given reason, by a substantial margin, is the corporation's need for sound legal advice. Concerns for personal liability and position within the company were the least important influences on candor.

Regardless of what corporate employees are told about the scope of the corporation's privilege protection, corporations must protect themselves and their attorney-client privilege by informing employees about the privilege's requirements and of the corporation's storage and dissemination policies regarding confidential communications. This must be given immediate attention. Surprisingly, the attorney-client privilege was explained to less than one-third of the officers and directors. Over half of the survey respondents were unaware of any corporate policies on the creation, storage and distribution of privileged communications, 70% did not know that those policies were in writing, and an astounding 90% expressed the view that corporate policies were not adequately communicated.

1. Mr. Rice is a professor of law at the American University Washington College of Law in Washington, D.C. and the Director of the American University Evidence Project. He is the author of two leading treatises on the attorney-client privilege, Attorney-Client Privilege in the United States (Lawyers Cooperative 1993) and Attorney-Client Privilege: State Law (Rice Publishing 1998)

2. Responses were received from 175 individuals, 31% officers or directors and 69% other employees. This represents a response rate of 50%.