| Description |
In my title, I suggest, like many others, 14 that fraud is banal, although I make no claims to quantify the extent of fraudulent conduct.15 I do suggest, however, that the few in a few bad apples does not adequately estimate the size of the problem. 16 Such a conclusion should not surprise anyone familiar with the decades of psychological research that show how cognitive biases triggered by powerful situational forces distort our ethical judgments and direct our actions. In Part I, I discuss two models of fraud: the venality hypothesis advanced by many, and my alternative banality hypothesis. I assert that the banality hypothesis more adequately explains the problem of inside counsel's acquiescence in fraud. I orientate the focus on inside counsel by describing an undeniable trend: the ascendance of inside counsel as the dominant provider of legal services to corporate America. I recount the role of Tyco's general counsel in one of the largest white-collar crime cases in history to illustrate how these psychological forces may come to play in any individual case. In Part II, I seek an alternative explanation, other than venality, for why inside lawyers countenance managerial wrongdoing. Drawing heavily from the work of social and cognitive psychologists and organizational behavior literature, I suggest and explore several factors that play an important role in the ethical decision making of inside counsel. In Part III, I criticize the Securities and Exchange Commission (SEC) regulations under section 307 of Sarbanes-Oxley and the 2003 amendments to the Model Rules of Professional Conduct for relying on an underdescriptive model of fraud, which fails to take the situation of inside counsel seriously and thus sets them up for failure under the new, congressionally mandated gatekeeper regime. In Part IV, I propose an alternative structural reform that transforms the ethical ecology of inside counsel through independence and empowerment rules, 17 so that they can actually carry out their imposed gatekeeping responsibilities. (Description from Source) |