Legal Ethics

Ex-IRS Commissioner Links Financial Crisis to Lawyers, Says Privilege and Pay Part of the Problem

The basis for the financial crisis is still being analyzed, but a former commissioner for the Internal Revenue Service suggests tax and corporate lawyers may have been partly to blame.

In an op-ed for the New York Times, former IRS commissioner Mark Everson points to law’s evolution as a business. He chides tax lawyers and advisers in particular, who are paid “not just to find the lines, but to push them ever outward.” Another example, he says, is lawyers’ role in documentation problems in bank foreclosures.

“Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention,” Everson says. “Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners.”

Everson suggests a change that would make it easier for prosecutors and regulators examining the role of lawyers in significant corporate failures: Do away with the attorney-client privilege for many corporate communications.

“Communications pertaining to patents, or threatened or actual litigation, should remain protected,” he writes. “But communications about, say, commercial transactions and financing and even government-mandated filings and disclosures might not. Simply stated, lawyers will be less likely to stretch the acceptable to earn a high fee or secure repeat business if their counsel is subject to more outside scrutiny.”

He also suggests a second change: Eliminating compensation tied to corporate stock for top financial and legal officials at corporations. “This would mean paying handsome, multiyear fixed salaries to the chief financial officer, the general counsel and their top deputies—but without offering the opportunity for equity participation,” he writes. “Such an approach would sharply limit the temptation to inflate shareholder value at the expense of business substance.”

Everson is currently the commissioner of the Indiana Department of Workforce Development.

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