Riding a Tiger without Being Eaten - RePub - Erasmus Universiteit ...

270
with standards or procedures. And on the basis of their professional and/or legal
standards, gatekeepers can withhold consent or necessary cooperation.
An essential ingredient of gatekeepers in the corporate world is that they are ‘repeat’
players – they act therefore as so-called ‘reputational intermediaries,’ adding some
sort of assurance value to the information signals sent by corporations and their
executives. Gatekeepers can function only when they have sufficient reputational
capital at risk. This, however, leads precisely to our argument that gatekeepers, in
order to protect their capital, will throw up barriers of professional rules to augment
their immunity from attacks on their reputational capital. Gatekeepers function as
reputational intermediaries, and according to Coffee (2006) they can only operate
effectively if their reputational capital is both considerable, and surrounded by strong,
reliable defences. However, as noted earlier, these protective devices also result in an
overly inward-looking attitude, which can easily lead to ‘groupthink,’ and irrational
behaviour (Janis, 1982).
Consequently, the chances of contagion from within-group predispositions and/or
biases increase, as is also evidenced by this study. Changes in rules and regulations,
particularly those dealing with updating corporate governance systems after a
corporate scandal has emerged, only contributed to this inward and group-focused
protection. For example, the Sarbanes-Oxley Act led to increasing demands for all
gatekeeper groups (auditors, independent board members, legal counsel, and
analysts), around technical competencies, objectivity, and independence and
professional standards. These enhanced ‘professional’ requirements, while indeed
leading to higher-quality gatekeepers, at the same time lead to thicker protective
immune-system layers, impenetrable by most non-professionals and lay-persons.
Herding and informational cascading within these gatekeeper groups only serves to
further exacerbate the situation.
Proposed solutions to gatekeeper failures:
After considerable deliberations, Coffee (2006) suggests the appointment of an
attorney, or an investment banking firm, as a firm’s disclosure counsel, reporting
directly to the audit committee – ultimately preferring an attorney to take on this new
gatekeeper function. He also suggests additional rules for the existing gatekeepers,
mainly to resolve possible hidden conflicts of interests and independence issues,