Symposium Examines Effects of Sarbanes-Oxley Legislation
Professor Harvey J. Goldschmid ’65 spoke to a lunchtime audience assembled for the symposium Gatekeepers Today: The Professions After the Reforms.
“I don’t want to see lawyers hanging from every tree, but enforcement is essential to ensure good conduct... and no one was watching the watchers,” said Prof. Goldschmid, whose talk summarized the mood of “cautious optimism” following the massive changes wrought by the Sarbanes-Oxley Act of 2002. He highlighted the sense that the legal and financial world is “dealing with a young, vulnerable, and still-new sense of accountability.”
The symposium, held at Jerome Greene Hall on September 29, was organized by Professor John C. Coffee, Jr., director of the Center on Corporate Governance and author of the newly published Gatekeepers: The Professions and Corporate Governance. The event analyzed the effects of the Sarbanes-Oxley Act and addressed questions that have ricocheted throughout the financial and legal professions since the Enron scandal: How were the executives able to mislead their regulators and stockholders about company finances? Participants also spoke about the evolving roles of lawyers and general counsel and whether securities analysts are better or worse off since Sarbanes-Oxley.
(Left to right) Daniel Goelzer of the Public Company Accounting Oversight Board, Prof. John Coffee, Joseph Floyd of Huron Consulting, and William Ezzell of Deloitte & Touche
Prof. Coffee began the day by noting the symposium’s difference from traditional academic conferences: It was to be an “interaction of practitioners and academics” with a focus on gatekeepers as “reputational intermediaries, though with practitioners I’ll say it in English – they serve the shareholders.” In other words, in a post-Sarbanes-Oxley world, “no board of directors can outperform gatekeepers, and most boards are prisoners of gatekeepers,” he added. But what have reforms done to the gatekeeping professions themselves?
Robert W. Gordon of Yale Law School provided an historical perspective, noting that a lawyer’s post-Sarbanes-Oxley role is more proactive than before and asks lawyers to do what is “fundamentally inconsistent to their traditional roles,” though there is now an incentive “for the lawyer to double- check.”
Justice Jack B. Jacobs of the Delaware Supreme Court reiterated the need for organized investigation and offered ideas. They included ensuring that counsel certifies their responsibility and creating a sub-category of platonic guardians by requiring lawyers to qualify as counselors. He also suggested providing incentives for those lawyers functioning as gatekeepers.
Dean David M. Schizer focused on the role of tax lawyers as gatekeepers. He observed that there is a mismatch between the government and the private bar and urged Congress to invest in better government administration as a way to enhance the system’s efficiency and equity.
Michael E. Patterson ’67, a former general counsel and vice chairman of J.P. Morgan Chase, noted that “deep pockets make banks juicy targets.” Consequently, banks should function as gatekeepers because “reputational risk is the biggest risk financial institutions run.” George W. Madison ’80, general counsel at TIAA-CREF, added that the general counsel also must function as a wise adviser to the CEO and the board, though the relationship as gatekeeper and adviser must be balanced by a “willingness to walk out the door rather than compromise character or integrity.”
The gatekeeping duty for analysts has become more complicated since Sarbanes-Oxley.
“Wall Street fundamental research is losing lots of money,” said David Weild, the former chief officer of Nasdaq.
Dan Reingold, author of Confessions of a Wall Street Analyst, in pointing out the difficulty for analysts to form truly independent opinions when under financial pressure from their companies, said that further reform is needed to “scare the daylights out of Wall Street with regard to insider trading,” which is reported to have risen by 65 percent in 2005 and 25 percent in 2006.
The international effects of Enron were addressed in the final panel of the day by Professor Paul Davies of the London School of Economics. He noted that Enron-type scandals were not the sole province of the United States.
“The discovery of gatekeepers’ errors could have taken place anywhere in Europe,” he said, while Christopher McKenna of the Said Business School at Oxford University agreed that the disclosure problems at Enron are part of international “systemic problems of gatekeeping that are yet to be solved.”
These problems, as Prof. Coffee noted during the concluding panel, can only be resolved with a widespread recognition of the inherent flaw within the traditional concept of gatekeeper as protector of a CEO or board. A careful balance must be struck between the gatekeeper’s obligations to the corporate managers who hired him and the gatekeeper’s more basic duty to the investors who are relying on him.
Milhaupt Named Hastings Visiting Professor At Hong Kong University
Hong Kong University named Professor Curtis J. Milhaupt ’89 the Paul Hastings Visiting Distinguished Professor in Corporate and Financial Law. The appointment will begin at the end of Columbia’s spring semester. Prof. Milhaupt will teach aspects of U.S. corporate law with special focus on how U.S. corporate law handles agency costs – malfeasance by board members and conflicts of interest posed by controlling shareholders. He also will address the ongoing controversy over Sarbanes-Oxley in the United States and the role of cross-listing on foreign stock exchanges as a means of improving corporate governance. Prof. Milhaupt chose these topics for their “relevance to contemporary developments in mainland China and Hong Kong, where there is an ongoing process of experimentation with legal rules and market incentives to improve the governance of Chinese corporations.”
Scientific American Names Professor Tim Wu in Top 50
Professor Tim Wu was named a policy leader in the Scientific American 50, the magazine’s prestigious annual list recognizing outstanding leadership in science and technology. Prof. Wu’s advocacy for network neutrality – the principle that Internet service providers should carry all information equally, regardless of the content source – earned him a spot in the category “Of Brain Maps and Saving the Internet.” Recent Scientific American honorees include stem cell researcher Douglas A. Melton and Apple CEO Steven Jobs.
Prof. Wu has articulated the value of net neutrality in many venues, including before the House Judiciary Committee. In a recent appearance on the PBS special “The Net at Risk” with Bill Moyers, Prof. Wu explained that, since its earliest days, the Internet has operated neutrally, without preference to users large or small. Net neutrality advocates fear that service providers will turn the “information superhighway” into a toll road that favors big companies that can pay for access to “fast lanes,” which could hurt smaller companies.
“Today a blog can compete for a cable news network’s customers based on quality, based on merit...because the network isn’t discriminating, isn’t picking favorites,” explained Prof. Wu. If net neutrality is abandoned, Prof. Wu warned, “...a couple [of] entities with the resources to do so will have more access to consumers.”
Nasdaq Grant Awarded to Columbia's Law and Business Schools
Columbia Law School and Columbia Business School received a $715,000 grant from the Nasdaq Stock Market Educational Foundation, Inc., to support research and educational programs on capital markets.
Professor Merritt Fox and Professor Lawrence Glosten of the Columbia Business School, who will share the Nasdaq Chair of the Law and Economics of Capital Markets, plan to use the grant to develop new interdisciplinary courses that will be taught at both the Law and Business Schools. This initiative will leverage Columbia’s prestige and New York City’s position as the world’s financial capital and lead to workshops with academics and practitioners, and a textbook that would define this emerging field.
The grant will unite for the first time the study of the economic forces affecting capital markets and research into the rules and regulations that are primarily designed to address other investor or institutional needs (but nonetheless have an impact on the capital markets’ overall operating efficiencies).
Columbia Law School will guarantee summer stipends for domestic and international public interest work to all students who apply, beginning in the summer of 2008.
“Public service is a critical component of a legal education and the professional development of our students,” said Dean David M. Schizer. “This new guarantee supports a core principle of our school, as we aspire to train lawyers who view pro bono work as central to their commitment to our system of justice.”
The Guaranteed Public Service Summer Funding Program ensures that the opportunity to explore careers in public service will continue for future generations of Columbia Law students, according to Dean Schizer.
The initiative builds on current public interest programs at Columbia Law School, such as the Human Rights Internship Program, which provides students with opportunities to work for human-rights groups, criminal tribunals, environmental law offices, and other organizations around the world. Columbia is also one of the few law schools in the nation to require 40 hours of pro bono work for graduation, a requirement sparked by a student-led initiative in 1993. Since then, Columbia Law School students have logged almost 300,000 hours of pro bono service.
The Guaranteed Public Service Summer Funding Program is made possible in part through the efforts of the Public Interest Law Foundation (PILF), which raises funds for summer public interest internships and grants to non-profit legal organizations.
Professor Michael Doyle Delivers Lectures on Preemptive War
Professor Michael Doyle delivered the 2006 Tanner Lectures on Human Values at Princeton University on the politics of preventive and preemptive war. His first lecture critiqued current standards for such military actions, while his second proposed improved standards, which he used to evaluate key events such as the 1962 Cuban Missile Crisis, Israel’s 1981 attack against Iraq’s Osirak nuclear plant, and the 2003 U.S. invasion of Iraq. (An excerpt of his talk appears in Faculty Forum.)
The Tanner Lectures are a multi-university series delivered by scholars who work in the field of human values.