Professor Bainbridge...on law, politics, religion, culture & food

Applied Economic Analysis: Can a Board Meet Online?

The Wall Street Journal (subscription required) has a good article in Monday's technology section on how corporations are using dedicated board of directors websites to let directors communicate with management and each other. But here's the part that caught my eye:

The main functions of a directors' Web site are simple enough: easy online access to briefing papers and internal company data, so directors can do their homework at home or on the road a few days before board meetings and show up fully informed; the ability to fine-tune a document online, so directors can hold a brief but urgent committee meeting online from different locations; and an exclusive e-mail system.

Can they really meet online? It depends on whether they use Internet telephony or a real-time text-based mechanism (like a chat room). Delaware General Corporation Law sec. 141(i) provides that directors may conduct a meeting:

by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other....

Web-based supplements to a telephone conference call thus are fine, but real-time text based messaging is OUT. To conduct a meeting exclusively online, in a Delaware corporation at least, you must use Internet telephony. I wonder if any Delaware corporations have held invalid text-based board meetings online? I emailed this post to the reporter who wrote the story and asked him. I'll report back if he answers. In the meanwhile, I once wrote an article motivated by DGCL section 141(i)'s requirement that directors be able to hear one another. Why a Board? Group Decision Making in Corporate Governance, 55 VANDERBILT LAW REVIEW 1 (2002). To be clear, the article's not about online meetings -- its a theoretical inquiry (neoinstitutional and behavioral economics with a dose of social norms theory) into why corporations are run by a board rather than an individual autocrat (of course, in practice, many CEOs are individual autocrats). But section 141(i) was what got me thinking about the theory issues. I excerpt the relevant discussion, which explains why I think section 141(i) is correct, in the extended post below for those interested in more information.

UPDATE: The WSJ reporter (Geroeg Anders) have given me permission to blog his response: "As far as I can tell, boards (either deliberately or inadvertently) are staying within the bounds of the Delaware code as currently written. Even when computer-to-computer interactions are a meaningful part of a remote board/committee meeting, there usually are parallel phone lines that are open, so that people can ask questions the old-fashioned way."

The requirement that members be able to �hear� one another seems quaint in an era of electronic mail, instant messaging, and internet chat capabilities. Yet, when Delaware recently amended its corporation statute to permit much greater use of electronic forms of communication, it retained the requirement that board meetings be conducted in such a way that all members may hear one another. As it turns out, this appears to have been the right choice. Research on decision making has found that groups linked by computer make fewer remarks and take longer to reach decisions than do groups meeting face to face. Kiesler and Sproul, for example, not only found that meetings conducted through computers result in greater delays, but also that the decisions made in such meetings were more likely to exhibit the risky shift phenomenon. Sara Kiesler and Lee Sproul, Group Decision Making and Communication Technology, 52 Org. Beh. & Human Decision Processes 96 (1992). They also found that time-constrained groups exchanged much less information when meeting electronically than when meeting face-to-face.

Electronic communication takes place mostly through text-based mediums. For many people reading and typing are slower and require greater effort than verbal communication. Text-based communication also deprives participants of social cues, such as body language and tone of voice, that may be important signals. Social norms constraining behavior apparently function less well in text-based communication, as illustrated by the flame wars that plague Usenet newsgroups.

As with other aspects of the rules governing board meetings, accordingly, there seems to be a legitimate basis for otherwise formalistic rules. Even such housekeeping rules as notice requirements prove to be consistent with the research on group decision making. Unless the articles of incorporation require otherwise, no notice of regularly scheduled board meetings is required. Special meetings require at least two days notice. As a matter of statutory law, the requisite notice need not announce the purpose of the meeting. Because the directors� duty of care requires them to make an informed decision, however, it is advisable whenever possible to provide directors of advance notice of the reason for calling a meeting and any relevant documentation. As with other requirements relating to board meetings, the notice rules are intended to ensure that the board functions as a collegial body, all of whose members participate and get the benefit of the participation by all other members. MBCA � 8.23 cmt.

That notice requirements effectively carry out that function is suggested by research on group performance. Michaelsen et al. conducted a study in which individuals were pre-tested and then re-tested as members of a group. Under those conditions, groups outperformed individuals. Michaelsen et al. analogize this testing order to organizational decision-making processes in which �group members prepare a position paper and circulate it to other group members prior to problem-solving discussions.� Larry K. Michaelsen et al., A Realistic Test of Individual Versus Group Consensus Decision Making, 74 J. App. Psych. 834, 834 (1989). A board meeting conducted after meaningful notice likewise replicates this testing order.

Can you be a Competitive Federalist and still want Spitzer to shut the #@!% up?

Elliot Spitzer, the attorney general of New York, whom the Economist calls "publicity hungry," recently ramped up his crusade of suing financial institutions by going after the mutual fund industry. (Relatedly, in a move that irked federal prosecutors, the Oklahoma attorney general indicted a slate of ex-WorldCom executives.)

I am an unabashed proponent of competitive federalism -- i.e., the idea that having corporate law regulated at the state level promotes competition between states seeking to attract corporations to incorporate in their state, which competition tends to lead to efficient legal rules. Does this mean I am ideologically constrained to support Spitzer's crusade even if I think he is more concerned with raising his profile for a widely-predicted future gubernatorial campaign than cleaning up the corporate swamp exposed by Enron et al.? I've been puzzling about that question for a while, and have finally concluded I can be a competitive federalist and still want Spitzer to shut down.

The basic idea behind competitive federalism is that both efficiency and liberty are promoted when jurisdictions compete for the opportunity to regulate you. According to the high priestess of competitive federalism (Roberta Romano) and its elder statesman (Ralph Winter), this condition is satisfied with respect to corporate law. Corporations pay franchise taxes to the state that incorporated them. The more corporations a state incorporates, the more the state earns in franchise taxes. (Delaware, which is the run away winner of state competition in corporate law, historically earned 15-20% of its annual revenues from corporate franchise taxes.) As I have explained before, this competition leads to a race to the top in drafting corporate law rules. Rational investors will not pay as much for securities of firms incorporated in states that do not protect investor interests. As a result, those firms' cost of capital will rise, which gives corporate managers an incentive to incorporate in a state offering rules preferred by investors. Accordingly, competition for corporate charters leads states to adopt efficient corporate laws so as to attract incorporations.

What then are we to make of Elliot Spitzer's hyperactive enforcement regime? Must we conclude that Spitzer has raced to the top? NO! A thousand times no! Competitive federalism only works when the entity being regulated has an exit option. So long as firms may freely select among multiple competing regulators, the power of each regulator is limited by the right of exit. In such an environment, if a particular regulator gets eager, firms can exit that regulator's jurisdiction and move to one that is more laissez-faire. In contrast, when there is but a single regulator, such that exit by the regulated party is no longer an option, this check on excessive regulation is lost. The problem we face today is that Spitzer has not limited himself to businesses incorporated in New York. Instead, Spitzer (like the Oklahoma attorney general who went after the WorldCom execs) has assumed jurisdiction over purported wrongdoers without regard to the state in which their firm was incorporated. If his sweeping assertion of regulatory jurisdiction goes unchallenged, Spitzer will have eliminated the exit option that makes competitive federalism work.

Accordingly, even a competitive federalist could (and should) prefer federal to state regulation in this context (bear in mind that arguments for competitive federalism should not be equated with "states rights"). As the Supreme Court plurality in MITE explained, a state has "no legitimate interest in protecting non resident shareholders." Edgar v. MITE Corp., 457 U.S. 624 (1982). For example, what do we do if Spitzer thinks a corporation's board harmed a Delaware corporation's shareholders, but the Delaware courts think otherwise? Who wins? Because Spitzer claims national jurisdiction, there is no exit option and, accordingly, no state competition. Entities cannot escape to a more laissez-faire jurisdiction. In the absence of state competition, federal regulation seems preferable. After all, did not the Founding Fathers adopt a Constitution in large part to avoid the economic Balkanization threatened by the Articles of Confederation?

When firms may freely select among multiple competing regulators, oppressive regulation becomes impractical. If one regulator overreaches, as noted above, firms will exit its jurisdiction and move to one that is more laissez-faire. In contrast, when a single regulator can reach all firms, such that exit by the regulated is no longer an option, the essential check on excessive regulation provided by competitive federalism is lost.

Of course, a hard core competitive federalist would prefer a regime in which firms could choose not only their corporate governance regime but also their securities regulation rules by incorporating in a specific jurisdiction. This is, for example, the argument made by Roberta Romano in her book The Advantage of Competitive Federalism for Securities Regulation. But that is, perhaps, a subject for another day. In the meanwhile, cant we at least get Spitzer to shut up?

Behavioral Economic Analysis of Law

Law and economics remains the most successful example of intellectual arbitrage in the history of corporate jurisprudence. It is virtually impossible to find serious corporate law scholarship that is not informed by economic analysis. Even those corporate law scholars who reject economic analysis spend much of their time responding to those who practice it.

As with any model claiming predictive power, law and economics rests on a theory of human behavior. Specifically, neoclassical economics is premised on rational choice theory, which posits decisionmakers who are autonomous individuals who make rational choices that maximize their satisfactions. Critics of the law and economics school have long complained that rational choice is, at best, an incomplete account of human behavior. The traditional law and economics response to this complaint is that rationality is simply an abstraction developed as a useful model of predicting the behavior of large numbers of people and, as such, does not purport to describe real people embedded in a real social order. Until quite recently, moreover, empirical research tended to confirm that the rational choice model of human behavior is a good first approximation of how large numbers of people are likely to behave in exchange transactions.

Over the last 10-15 years, however, a new school of economic analysis has emerged that challenges the rational choice model precisely on its predictive power. Empirical and laboratory work by cognitive psychologists and experimental economists has identified a growing number of anomalies in which behavior appears to systematically depart from that predicted by rational choice. A good example is the so-called status quo bias: All else being equal, decisionmakers favor maintaining the status quo rather than switching to some alternative state. The status quo bias can lead to market failure where decisionmakers� preference for the status quo perpetuates suboptimal practices.

My thoughts on this topic were prompted by hearing my colleague Russell Korobkin -- a member of the Volokh Conspiracy (albeit a rarely seen one) -- give a presentation to a faculty workshop on behavioral economic analysis of form contracts; his presentation was based on an excellent paper, by the way, which he has posted to SSRN. (Strongly recommended.) I got to thinking some more about behavioral economics after having lunch last Friday with my colleague Victor Fleischer of A Taxing Blog. Behavioral economics is something of the flavor of the month in legal education, especially on the part of those with an ideological disposition against the free market connotations of neoclassical economic analysis. After a brief flirtation with it myself, I have become much more skeptical, for the reasons developed at length in the Extended Post below.

Empirical demonstrations of this decisionmaking bias have focused on the so-called endowment effect. Subjects commonly place a higher monetary value on items they own than on those that they do not own, even if the two items have the same market value. Accordingly, subjects must be paid more to give up something than they would be willing to pay to acquire the same object. The classic demonstration of the endowment effect variant of the status quo bias was a laboratory experiment in which students were initially endowed either with a coffee mug or six dollars cash. Mug holders were asked to identify the minimum amount they would accept to sell the mug, while cash holders were asked to specify the maximum amount they would be willing to pay to purchase a mug. Subjects were told that a market-clearing price would be determined and trades executed between mug holders willing to accept that amount and cash holders willing to pay that price. It turned out that the price demanded by mug holders was about twice that cash holders were willing to pay, so that very few trades took place.

I do not deny that there is considerable empirical evidence for the endowment effect and the status quo bias. More generally, I also do not deny that behavioral economics is a potentially useful tool that any legal scholar should have in his toolkit. As the Economist explained:

[I]f the endowment effect is real, people's economic decisions are fundamentally different from what economists have assumed. The implications of this are profound. To take one example, the Coase theorem, which argues that initial allocations of wealth do not matter as long as markets allow people to trade their stakes�the rationale for government auctions of everything from radio spectrum to mobile-telephone licences�would no longer be valid. To take another, although economists have shown that you need only a few sharp traders for prices in financial (and other) markets to become efficient, the volume of trade with an endowment effect will be below what it might be without one.

But it is one that must be used cautiously; too many legal scholars are using it far too glibly. Consider, for example, the evidence that the endowment effect appears to vanish when people do not physically possess the commodity in question. Subjects trading tokens or vouchers demonstrate only a weak endowment effect. Because capital market transactions more closely resemble the token or vouchers context then experiments involving physical possession of a tangible commodity, for example, these results call into question the extent to which one can rely on the endowment effect as evidence of a capital market failure. [Update: Korobkin passed on one of his articles, which presents a more nuanced account of this evidence. The money quote is "Money itself does not create an endowment effect, but the effect does appear to exist for financial instruments that are valued only for the money they are worth (i.e., have no intrinsic value themselves) if the value of the instrument is uncertain. These results suggest that securities and other financial instruments can create an endowment effect even though they are held as stores of wealth rather than for their intrinsic or 'use' value." The Endowment Effect and Legal Analysis, 97 Northwestern University Law Review 1227, 1236-37 (2003). Is not clear to me, however, why the results Korobkin discusses are not better characterized as mere risk aversion as opposed to an endowment effect.]

More important, in light of the above update, as the Economist also reported, there is emerging evidence that market actors can learn their way out of biases like the endowment effect:

John List, an economist at the University of Maryland, recently tested the existence of the endowment effect in a new way. Instead of using callow students, he went to a real market with traders of varying degrees of experience: a sports-card exchange, one of many such, where Americans trade pictures of their favourite athletes. There, traders dealing in hundreds of cards mix with browsers who might buy only one.

List found:

[E]vidence for an endowment effect�but also that long experience as a card trader spilled over into his experimental mug-and-chocolate market. Only novices, like the students in earlier experiments, tended to be swayed by what they had been given. This implies that prospect theory can capture the behaviour of inexperienced people, of which the world has many in all sorts of markets. But experienced buyers or sellers in well-established markets get over their psychological �flaws�. They can even transfer their trading skills from one market to another. The neoclassicals, it seems, have scored a point.

I would add a different, but I think equally significant reservation: The claim that law can correct market failures caused by decisionmaking biases or cognitive errors treats regulators as exogenous to the system. Once the state is endogenized, however, regulators must be treated as actors with their own systematic decisionmaking biases. It thus becomes evident that behavioral economics loops back on itself as a justification for legal intervention. Public choice theory provides still another reason market failure is not a sufficient justification for government intervention. Again, the problem is one of treating an endogenous factor as exogenous. A welfare economics model that posits legal intervention as a solution to market failure ignores the fact that regulators are themselves actors with their own self-interested motivations.

In sum, there is a strong temptation to use behavioral economics too glibly. Advocates of government intervention are akways tempted to jump from positing the status quo bias, citing the coffee mug experiments, to an assertion that the government needs to shake up the status quo, without demonstrating that the bias is truly valid in the specific setting at hand. In addition, a certain degree of skepticism about the power of law to effect social change seems warranted. Indeed, behavioral economics itself offers additional reasons to doubt the capacity of law as agent for social change. Finally, one cannot justify government intervention without asking whether the case for it survives endogenizing the state.

You can read an even more extended version of my argument, with application to the longstanding debate over mandatory disclosure in securities regulation, in my article Mandatory Disclosure: A Behavioral Analysis, 68 University of Cincinnati Law Review 1023 (2000).

Even on Wall Street, It Seems, the Fine Print Goes Unread

The NY Times (registration req'd) reports:

How did successive boards of the New York Stock Exchange, filled with senior executives from every major Wall Street firm and such companies as Viacom, Ford, Philip Morris and AOL Time Warner, allow the exchange to pay its chief executive, Richard A. Grasso, a king's ransom? The answer seems to be that most board members saw the post as an honor, but not one that required much attention. Last week, board members were angrily saying that they had no idea that Mr. Grasso had been owed $48 million over the next four years, in addition to the $139.5 million lump-sum payment he took in deferred compensation, savings and retirement benefits a week earlier. Unfortunately for their reputations, those payments had been spelled out in the employment contract with Mr. Grasso that the board had authorized only weeks earlier. But not even H. Carl McCall, the former New York State comptroller, who is the chairman of the board's compensation committee, had understood how much money was involved. And he had signed the contract on behalf of the board.

Have they not read Van Gorkom? Granted, I don't think even Delaware supreme court Justice Randy Holland (author of, inter alia, Omnicare) expects directors to slog through a 100+ page contract of dense legalese -- thats what boards pay lawyers like us to do -- but the Delaware courts have been steadily ratcheting up the pressure on directors to make informed decisions, especially in high profile matters like executive compensation (see, e.g., Chancellor Chandler's opinion in the Walt Disney litigation). Directors must be able to document that they knew and understood the key terms of the contracts they approve, which requires (at a bare minimum) guidance by legal counsel and, if appropriate, other experts (like compensation consultants). Not for naught was Van Gorkom termed the "Investment Banker and Lawyer Full Employment Act." The problem here, of course, on which I have blogged before, is that the NYSE is neither fish nor fowl -- neither a public corporation nor a government agency. I'm not saying that becoming a public corporation is a panacea for all corporate governance ills, but I am saying that if the NYSE were a private-sector publicly-held for-profit business corporation, whose directors were subject to market discipline and the threat of being hauled into Delaware chancery court, they would be less likely to ignore their responsibilities. And wouldn't that be a good thing?

Review: Mercuro and Medema’s Economics and the Law

What is law and economics? It is the school of jurisprudence in which the tools of microeconomic analysis are used to study law. Those of us who practice economic analysis have a deceptively simple task. We translate some legal doctrine into economic terms. We then apply a few basic principles -- cost-benefit analysis, collective action theory, decision-making under uncertainty, risk aversion, and the like -- to the problem. Finally, we translate the result back into legal terms.

Law and economics unquestionably is the most successful form of intellectual arbitrage in the history of jurisprudence. Why? Traditional forms of legal scholarship were mostly backward looking. One reasoned from old precedents to decide a present case, seemingly without much concern (at least explicitly) for the effect today's decision would have a future behavior. Yet, law is necessarily forward looking. To be sure, a major function of our legal system is to resolve present disputes, but law's main job is to regulate future behavior. The law and economics movement succeeded because it recognized that judges cannot administer justice solely retrospectively. They must also consider what rules their decisions will create to guide the behavior of other actors in the future. Even more important, however, law and economics gives judges systematic mechanisms for predicting how rules will affect behavior.

Mercuro and Medema's Law and Economics offers a comprehensive overview of law and economics. Unlike many texts, it is not limited to the Chicago School (as exemplified by such stalwarts as Manne, Easterbrook, and Posner). They also describe the New Haven school (classically exemplified by Calabresi), the public choice theory of Arrow, Buchanan, and others, as well as both the traditional and new institutional economics. By reminding us that law and economics is not a homogeneous field, and providing a fair commentary on each of the major traditions within the larger discipline, they offer an excellent introduction to this important area of jurisprudence.

One nice touch, which makes the text useful for a wide audience, is that it does not assume familiarity with either economics or law. The introduction offers a brief historical overview of basic jurisprudence, as well as an appendix explaining basic economic principles. Consequently, the book will serve well the interests both of lawyers who need to brush up on economics and economists interested in law.

Criticisms: There is little in the way of critical evaluative judgment. Indeed, Mercuro and Medema disavow any effort at criticism. As a result, the reader is left to his own devices. Second, I am not persuaded by Mercuro and Medema's decision to include a rather lengthy chapter on critical legal studies. Criticism of law and economics has been a major project of CLS scholars, but CLS scholarship has had no influence of any significance on any of the dominant strains of law and economics thinking. In this case, moreover, the failure to exercise critical evaluative judgment means that the generalist reader may have difficulty assessing the (bogus) claims made by CLS. In general, while maintaining facial neutrality on their own part, Mercuro and Medema give far more attention to CLS and Marxist critiques of law and economics than they do to conservative critiques thereof or to law and economics criticisms of CLS.

Review: Williamson’s The Mechanisms of Governance

Oliver Williamson is one of the seminal figures of New Institutional Economics. The Mechanisms of Governance is the third book in which Williamson has collected his principal writings, while working them into a coherent whole. The earlier volumes, Markets and Hierarchies and The Economic Institutions of Capitalism, are justly regarded as the foundational texts of the transaction costs economics school of institutional economics. The Mechanisms of Governance seems certain to join them as essentials for any legally literate economist or economically literate lawyer.

Transaction cost economics focuses on institutions, in contrast to neoclassical economics' focus on individuals, providing simple models that help us understand how institutions function and how they will respond to regulation. We can analogize transaction costs to friction: they are dead weight losses that reduce efficiency. They make transactions more costly and less likely to occur. Among the most important sources of transaction costs is the limited cognitive power of human decisionmakers. Unlike the Chicago School of law and economics, which posits the traditional concept of rational choice, Williamson asserts that rationality is bounded. Put another way, he assumes that economic actors seek to maximize their expected utility, but also that the limitations of human cognition often result in decisions that fail to maximize utility. Decisionmakers inherently have limited memories, computational skills, and other mental tools, which in turn limit their ability to gather and process information. As he demonstrates, this phenomenon, known as bounded rationality, has pervasive implications for understanding how institutions work.

Accordingly, Williamson's approach provides an analytical framework that is useful not only to economists, but also to lawyers and policymakers. Among other subjects, Williamson tackles such subjects as vertical integration, corporate governance, and industrial organization.

In sum, highly recommended. My only hesitation is Williamson's unfortunate writing style. Although The Mechanisms of Governance is largely free of the recreational mathematics that plagues much modern economic writing, which is useful for those of us who flunked Differential Equations, it is very jargon-intensive. Worse yet, much of the jargon is self-created. All of which makes reading Williamson an effort-intensive project. Usually the cost-benefit analysis nevertheless comes out in his favor, but sometimes one puzzles out the jargon to find a rather obvious point that could have been conveyed far more simply.

Review: Easterbrook and Fischel’s Economic Structure of Corporate Law

Easterbrook and Fischel collected a series of law review articles into the classic text on the contractarian theory of corporate law: The Economic Structure of Corporate Law. During the 1980s, Easterbrook and Fischel were two of the corporate law academy's enfants terribles. Their articles were provocative, yet insightful. They raised a lot of hackles, yet did ground-breaking work. Both went on to bigger and better things. Easterbrook is now a judge on the US 7th Circuit. Fischel was a prominent expert witness/consultant and dean of the UChicago law school. The Economic Structure of Corporate Law stands as their legacy for corporate law.

Like other contractarians, Easterbrook and Fischel model the firm not as an entity, but as an aggregate of various inputs acting together to produce goods or services. Employees provide labor. Creditors provide debt capital. Shareholders initially provide equity capital and subsequently bear the risk of losses and monitor the performance of management. Management monitors the performance of employees and coordinates the activities of all the firm's inputs. The firm is simply a legal fiction representing the complex set of contractual relationships between these inputs. In other words, the firm is not a thing, but rather a nexus or web of explicit and implicit contracts establishing rights and obligations among the various inputs making up the firm.

The nexus of contracts model has important implications for a range of corporate law topics, the most obvious of which is the debate over the proper role of mandatory legal rules. As a positive matter, contractarians contend that corporate law in fact is generally comprised of default rules, from which the parties to the set of contracts making up the corporation are free to depart, rather than mandatory rules. As a normative matter, contractarians argue that this is just as it should be. Easterbrook and Fischel devote the bulk of this text to tweaking out these implications across an array of important topics, such as limited liability and insider trading.

Their analysis is not flawless. As but a single example, they consistently opt for the so-called majoritarian default. Their basic thesis is that by providing the rule to which the parties would agree if they could bargain, society facilitates private ordering. Majoritarian defaults are not always desirable, however, even if a potentially dominant one can be identified. Sometimes penalty defaults are preferable. Penalty defaults are designed to impose a penalty on at least one of the parties if they fail to bargain out of the default rule, thereby giving at least the party subject to the penalty an incentive to negotiate a contractual alternative to the penalty default. They force the parties to choose affirmatively the contract provision they prefer. Penalty defaults are appropriate where it is costly for courts to determine what the parties would have wanted. In such cases, it may be more efficient for the parties to negotiate a term ex ante than for courts to determine ex post what the parties would have wanted.

Having said that, however, this remains one of the most significant monographs on corporate law. I highly recommend it for any corporate lawyer's bookshelf.

Sarbanes-Oxley Winners and Losers

Dwight Klingenberg, a business journalist, writes:

A little over a year ago, Congress passed the most sweeping legislation affecting businesses since the creation of the Securities and Exchange Commission in the '30s. Although the Sarbanes-Oxley Act - we'll call it Sarbox from here on - itself is a scant 66 pages, the subsequent implementation rules and regulations will fill numerous hard drives over the next few years. At this stage, who are the winners and losers?

66 pages is scant? Anyway, go read the whole thing. To whet your appetite, here's a summary of winners and losers:

Winners
Treadway Commission
The SEC
Law firms
Software vendors
Outsourcers

Losers
Research analysts
The AICPA
Private companies and agencies

Too close to call
In-house counsel
Public companies [This was the one I was prepared to question, leaning towards putting public companies into the loser category for the reasons stated in thefirst sentence that follows, but I am semi-persuaded by the second sentence. I'll need more data before making up my mind on that one.]

Public firms are now strapped with significant new costs: whistleblower hotlines, expanded internal audit departments, extensive control documentation, higher director compensation, shocking increases in directors' and officers' insurance and bigger fees from their auditors. However, most CFOs we speak to will admit privately that the documentation effort resulted in finding control issues and shortcomings they are fixing.

CPA firms
Directors