Document Type

Working Paper

Publication Date

3-3-2003

SSRN Discipline

Delete; PSN Subject Matter eJournals; Political Economy - Comparative eJournals; Test Network; LSN Subject Matter eJournals; Network for Deleted Journals; delete2; Management Research Network; Legal Scholarship Network; PRN Subject Matter eJournals; Corporate, Securities & Finance Law eJournals; Philosophy Research Network; Political Economy - International eJournals; Law School Research Papers - Legal Studies; Law School Research Papers - Public Law & Legal Theory; Political Institutions eJournals; Humanities Network; Political Science Network

Abstract

Following the collapse of Enron Corporation the ethical obligations of corporate attorneys have received increased scrutiny The SarbanesOxley Act of 2002 enacted in response to calls for corporate reform specifically requires the Securities and Exchange Commission to address the lawyers role by requiring covered attorneys to report up evidence of corporate wrongdoing to key corporate officers and in some circumstances to the board of directors Failure to report up subjects a lawyer to liability under federal lawThis article argues that the reporting up requirement reflects a secondbest approach to corporate governance reform Rather than focusing on the actors that traditionally control a corporations activities the statute attempts to solve governance problems indirectly by assigning to the lawyer the role of corporate gatekeeper and information intermediary We demonstrate that the reporting up requirement fails to address the incentives that motivate corporate attorneys directors and managers At the same time the provision threatens to undermine the flow of information between lawyers and corporate actors As a consequence we suggest that the requirement is unlikely to achieve its objective of providing key corporate decisionmakers with early information about potential misconduct Moreover attorney and manager responses to the reporting up requirement are likely to reduce the quality of legal services provided to the corporationBased on this costbenefit analysis we conclude that the SarbanesOxley approach to corporate governance reform is flawed Instead we argue that a demand side approach is most likely to realign corporate attorney incentives and to reinvigorate the business lawyers important role in promoting good corporate governance Toward that end we identify specific reforms tailored to increasing the incentives for corporate officers and directors to demand and obtain better legal advice

Download

Share

COinS