This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about seven percent. This translates to about $400 million per firm. By contrast, we estimate that the average potential gain from backdating to all executives in these firms is about $500,000 per firm annually. We suggest some remedies not only for backdating, but also for other dubious practices such as springloading.

Although debate persists as to whether the costs of Sarbanes-Oxley’s Section 404 regulations exceed their benefits, there is broad consensus that the rules have been inefficiently implemented. Substantive and procedural factors contribute to the rules’ inefficiency.

From a substantive perspective, the terms “material weakness” and “significant deficiency” are central to the implementing regulations and are easily interpreted to legitimize audits of controls that have only a remote probability of causing an inconsequential effect on the issuer’s financial statements. As a quantitative matter, the literature suggests that a control with a remote probability of causing an inconsequential effect has an expected value of only five one-hundredths of one percent of a firm’s net income.

While they often rely on the threat of penalties to produce deterrence, legal systems rarely use the promise of rewards. In this Article, we consider the use of rewards to motivate director vigilance. Measures to enhance director liability are commonly perceived to be too costly. We, however, demonstrate that properly designed reward regimes could match the behavioral incentives offered by negligence-based liability regimes but with significantly lower costs. We further argue that the market itself cannot implement such a regime in the form of equity compensation for directors. We conclude by providing preliminary sketches of two alternative reward regimes. While this Article focuses on outside directors, the implications of our analysis extend to other gatekeepers as well.

Following the recent spate of corporate scandals, government enforcement authorities have increasingly relied upon corporate monitors to help ensure law compliance and reduce the number of future violations. These monitors also permit enforcement authorities, such as the Securities & Exchange Commission and others, to leverage their enforcement resources in overseeing corporate behavior. However, there are few descriptive or normative analyses of the role and scope of corporate monitors. This paper provides such an analysis.

The language of the Sarbanes-Oxley Act (“SOX”) leaves no doubt that Congress intended whistleblowing to be an integral part of its enforcement mechanisms. The Act attempts to encourage and protect whistleblowers in a variety of ways, including providing for anonymous whistleblowing, establishing criminal penalties for retaliation against whistleblowers, and clearly defining whistleblowing channels. Unfortunately, these provisions give the illusion of protection for whistleblowers without effectively providing it. There is increasing evidence that virtually no whistleblower who has suffered retaliation and pursued remedies under SOX has been successful. Additionally, social science research and studies of whistleblowing laws indicate that SOX is unlikely to increase reports.

This Article assesses the ability of Sarbanes-Oxley and other recent changes in the law and stock exchange listing requirements to reduce the incidence of fraud and to increase the reporting of financial misconduct. It begins by examining the individual decision-makers within a corporation and analyzing their intentions and behaviors under the Theory of Planned Behavior. It then examines the ability of the organization to influence the employees’ intentions and behaviors through codes of ethics and compliance programs, and finds growing support for the usefulness of integrity-based compliance programs. 

The meaning of the Sarbanes-Oxley Act (“SOX”) is still being contested even though it is now nearly five years since its enactment. This is not to say the words and phrases that make up the statutory mandates and implementing regulations are hopelessly muddled. Though there are plenty of ambiguities for lawyers and their clients to worry over, most of the requirements are clear enough as “law on the books” to expect at least formalistic compliance with them. But simply because something is enacted into law does not tell us much about how strongly it will influence economic behavior.

This article tests whether the Sarbanes-Oxley Act (“SOX”) affected the premium that investors are willing to pay for shares of foreign companies cross-listed in the United States. I find that from year-end 2001 (pre-SOX) to year-end 2002 (after SOX adoption), the Tobin’s q and market/book ratios of foreign companies subject to SOX (cross-listed on levels 2 or 3) declined significantly, relative to Tobin’s q and market/book ratios of both (i) matching non-cross-listed foreign companies from the same country, the same industry, and of similar size, and (ii) cross-listed companies from the same country that are not subject to SOX (listed on levels 1 or 4), whose Tobin’s q and market/book ratios declined only slightly and increased in some specifications, compared to matching non-cross-listed companies.

The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on “whistleblower information,” that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized.

In this Article, I contend that the Sarbanes-Oxley-inspired nonprofit reforms currently being put forward in seven states, particularly the costly disclosure requirements, will be of little value in the effort to improve ethical nonprofit board governance. After providing a primer on the oversight of nonprofit organizations and highlighting the unique difficulties facing the nonprofit sector, the Article reviews the recent Sarbanes-Oxley-like nonprofit reforms introduced in seven states. It then contends that the disclosure-focused reforms that form the bulwark of these initiatives will not foster improved ethical nonprofit board governance. It also argues that this failure stems from the inappropriate application of a stockholder-based normative perspective in the nonprofit sector. The Article concludes by noting that appropriating a normative construct more tailored to the non-profit community, namely stakeholder theory, is essential to drafting effective nonprofit sector reforms in the future.

Well after the end of the Civil War, the abolition of slavery, and the passage of the Fifteenth Amendment, many African Americans were still unable to effectively exercise their right to vote. Finally, in 1965, Congress sought to remedy this situation by passing the Voting Rights Act (“VRA”). The bill was dramatic and controversial, but commentators hail it as one of the most effective pieces of legislation of the civil rights movement.

Discounting, “[t]he procedure for determining the present value of a future dollar,” has long been recognized as a crucial element in the calculation of tort damages. Following decades of application by state courts in the late nineteenth and early twentieth centuries, the notion that future economic losses must be discounted to present-day value first received express endorsement from the U.S. Supreme Court in 1916. In the ninety years that followed, the use of discount rates in computing tort damages became firmly established in American jurisprudence and widely practiced by courts