Lawyers in the Perfect Storm

Abstract

The multiple corporate collapses and scandals of recent years, for which "Enron" is a convenient shorthand, resulted from a perfect storm in which regulatory oversight, the law of fiduciary duty, gatekeepers, market discipline, and contractual incentives all failed to prevent gross self-dealing, conflicts of interest, and deception, or themselves produced perverse consequences. The story of this simultaneous failure of the structures in place since the New Deal and before, has received considerable attention in both the popular and scholarly literature, but is summarized here to provide a context for consideration of the contributions that lawyers made to the perfect storm. The contribution of lawyers has received less attention than that of gatekeepers such as auditors and research analysts, perhaps because their complex role as both advocates and gatekeepers does not lend itself to a relatively simple morality tale, as did the failures of the auditors and analysts. This article attempts to identify the various types of failures by lawyers in these cases, and argues that there is no single way to describe or explain them; lawyers contributed to the perfect storm in at least several different ways. This complexity suggests that the SEC's new professional standards for lawyers, while perhaps helpful, do not provide a comprehensive solution to the problems that produced a significant contribution by lawyers to the perfect storm.