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Gatekeepers

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Gatekeepers

The Role of the Professions in Corporate Governance

Oxford UP,

15 min read
10 take-aways
Audio & text

What's inside?

Scandals like Enron proved that people must think closely about gatekeepers’ roles. What you still don’t know may surprise you.

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Editorial Rating

8

Qualities

  • Applicable

Recommendation

Although everyone may be fascinated by the corporate scandals of the past decade, figuring out how to make sure they don’t happen again is what’s really important. John C. Coffee Jr. shows how the professions of accounting, law, ratings and securities analysis let investors and consumers down. He is not interested in assigning blame but rather in demonstrating how changing corporate cultures, conflicts of interest, diminishing competition and declining professional standards combined to leave the public vulnerable. After explaining who the gatekeepers are, what their duties were in the past and what they do now, Coffee provides valuable recommendations for creating a viable gatekeeping function for the future. His ideas are sensible and he is modest, admitting that they are not complete or perfect. His writing about this complex subject is surprisingly clear, and his ability to illustrate his points with cogent examples from the headlines makes for an interesting read. getAbstract recommends this book to executives, board members and others with a stake in good corporate governance.

Summary

Who Are the Gatekeepers?

Gatekeepers are independent firms of professionals who evaluate and provide statements about their client firms’ financial reports, legal liabilities, market positions and other areas of public interest. Boards of directors rely on the information and certifications provided by gatekeepers to help them meet their responsibilities of overseeing their companies and assessing the work of their CEOs. When gatekeepers do their jobs well, the public can invest with confidence.

To bring in clients, gatekeepers rely on their reputations for integrity, analytical acumen and independence. They compromise their integrity when they develop business ties to the firms they are supposed to evaluate. In one notorious example, the once venerable Arthur Andersen & Company’s involvement in many financial reporting irregularities, including at Enron, just about destroyed it. Although it is still in business, it employs a few hundred people rather than the more than 80,000 it employed during its heyday.

Gatekeeping firms had provided reliable information for decades before the sudden outbreak of gatekeeping failures in the early 2000s. Their failure to...

About the Author

John C. Coffee Jr. is the Adolf A. Berle Professor of Law at Columbia University. He has been listed as one of the Most Influential Lawyers in the United States and has published widely about securities, takeovers and finance.

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