Search

The settlements in WorldCom and Enron, together with enforcement actions by the SEC and the new remedies under Sarbanes–Oxley, indicate that independent directors will face very real financial, regulatory and criminal liability if they fail to execute their duties properly. This paper, written by two attorneys with the SEC, reviews some of the recent cases concerning independent directors. In recent years, the SEC and the private plaintiffs’ bar have indicated a willingness to hold independent directors accountable for essentially negligent or reckless supervising by pursuing enforcement actions. In addition, the SEC has brought cases against other public companies to enforce the public’s right to know any facts that might compromise the director’s independence, particularly when directors receive undisclosed compensation at the direction of management. The paper concludes by noting that early indications suggest that independent directors are taking action and exercising their powers in the face of government investigations of the public companies they serve. [ABSTRACT FROM AUTHOR]

External auditing is promoted as a trust-engendering technology. Recurring audit failures, however, undermine confidence in corporate governance. The traditional response to the crisis is to manage it by tweaking the regulatory structures: revising accounting or auditing standards, ethical guidelines and arrangements for disciplining accountants and accountancy firms. Such responses do not appear to check the incidences of real or alleged audit failures. Since audit failures are the product of the values governing accountancy firms, this paper encourages a focus upon such values, providing some evidence of their nature. The paper concludes that accountancy firms are firmly focused upon the need to make a profit, possibly at the expense of wider social obligations. [ABSTRACT FROM AUTHOR]

This paper provides an argument that corporate managers co-opt the allegiance of their board members. Though owners elect board members, if the board is controlled by management the nominating process tends to guarantee a continuation of that control. Though board members operating with a managerial bias might violate a duty to shareholders, directors and officers (D&O) insurance assists managers in co-opting board support by eliminating the financial consequences of violating that duty. Corporate social responsibility and stakeholder movements, by increasing the number of stakeholders whose interests are likely to be violated by a continued managerial bias, are likely to increase the price of D&O coverage. This price effect and other recently proposed governance-linked coverage changes alter, but do not eliminate, the benefit of a continuing managerial bias. [ABSTRACT FROM AUTHOR]