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Securities Lawyers as Gate-Keepers and the Economic Incentives of Modern Legal Practice

Securities Litigation Watch blogged on a talk by Columbia University law professor John Coffee at which Coffee advanced his argument that outside legal counsel should take on an auditor-like role in certifying the accuracy of the client's financial disclosures. Mike O'Sullivan at Corp Law Blog picked up on that post, linking the report about Coffee's talk to Coffee's recent law review article The Attorney as Gatekeeper: An Agenda for the SEC, 103 Columbia Law Review 1293 (2003). Mike does a typically excellent job of explaining why Coffee's proposal should "die a quick death and be quietly buried in the academic legal writing cemetery." Ouch.

I don't disagree with anything Mike said, but my take on the problem would start by thinking about incentives. Some might say I am too cynical about my fellow lawyers, but I can't help thinking that people respond to incentives (and cognitive biases). And, as I see it, the incentives of lawyers are such that they would not do a very good job at the task Coffee wants to assign them. The remainder of this post is derived from my article, The Tournament at the Intersection of Business and Legal Ethics. (You might also be interested in Managerialism, Legal Ethics, and Sarbanes-Oxley Section 307.)