July 28, 2022

WorldCom: Lessons for Lawyers, 20 Years On

In remarks yesterday to the Center for Audit Quality, SEC Chair Gary Gensler marked the 20-year anniversary of the Sarbanes-Oxley Act, as well as the Enron and WorldCom debacles that preceded it. Among other SOX-related initiatives that are still a work in progress, Chair Gensler’s speech highlights current PCAOB initiatives – e.g., updating almost all of its remaining interim standards – the ongoing importance of auditor independence, the recently reopened comment file on proposed clawback rules, CEO & CFO certifications, and the commitment to the Holding Foreign Companies Accountable Act of 2020.

The SOX/Enron/WorldCom era yielded wide-ranging and enduring lessons for auditors – but there were also plenty of takeaways for legal counsel. This blog from Bryan Cave Leighton & Paisner pulls out findings by the Examiner in the WorldCom bankruptcy and explains why they’re still relevant today. It’s worth reading the blog in it’s entirety – here’s the high-level guidance:

1. Remember when advising clients that attorney-client privilege can be waived or lost

2. Avoid fragmented reporting lines in law department

3. Ensure appropriate advice to board on fiduciary duties for material transactions

4. Confirm receipt of proper corporate approvals before executing material agreements

5. Build an appropriate record when directors act by written consent, and limit its use to appropriate circumstances

6. Apply independent judgment and consider yellow flags when clearing stock trades instead of deferring to management

Liz Dunshee