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http://ssrn.com/abstract=429304
 
 

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The Tournament at the Intersection of Business and Legal Ethics


Stephen M. Bainbridge


University of California, Los Angeles (UCLA) - School of Law

July 28, 2003

University of St. Thomas Law Journal, Forthcoming

Abstract:     
Prepared for a symposium on the role business and legal ethics played in the Enron, WorldCom, and other recent corporate governance scandals, and the relationship (if any) between business ethics and the legal profession's rules of professional responsibility, this paper examines the changes effected by Section 307 of the "Public Company Accounting Reform and Investor Protection Act" (popularly known as the Sarbanes-Oxley Act). Section 307 commanded the Securities and Exchange Commission to develop rules of professional conduct for lawyers appearing and practicing before it. The paper argues that Section 307 and the SEC's rules thereunder do too little to address the strong incentives lawyers have to refrain from antagonizing the corporate managers who hire and fire them. The paper uses tournament theory to explore the incentives of lawyers in large corporate law firms and in-house legal departments. (The paper is deliberately agnostic on the much debated question of whether tournament theory is a valid model or simply a useful metaphor.) Lawyers who win the tournament develop a set of skills, attitudes, and cognitive biases that systematically skew their analysis of client conduct. Hence, both rational choice theory and behavioral economics predicts that such lawyers will turn a blind eye to client misconduct.

Number of Pages in PDF File: 22

Keywords: tournaments, business ethics, legal ethics, corporate governance, securities regulation

JEL Classification: K22

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Date posted: July 31, 2003  

Suggested Citation

Bainbridge, Stephen M., The Tournament at the Intersection of Business and Legal Ethics (July 28, 2003). University of St. Thomas Law Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=429304 or http://dx.doi.org/10.2139/ssrn.429304

Contact Information

Stephen Mark Bainbridge (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)
HOME PAGE: http://www.professorbainbridge.com
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