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Why Don’t General Counsels Stop Corporate Crime?

46 Pages Posted: 8 Jul 2016 Last revised: 17 Aug 2016

Sureyya Burcu Avci

University of Michigan, Stephen M. Ross School of Business

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: July 3, 2016

Abstract

Corporate fraud is costly, involving hundreds of billions of dollars in lost reputational and out of pocket costs for stakeholders and hundreds of thousands of job losses for employees, suppliers and customers as well as loss of lives. To prevent fraud, general counsels (GCs) are charged as the gatekeepers for the corporation. They understand the law and they are expected to use their legal expertise to advise, intervene and report whenever they are suspicious of fraud. In spite of their legally-mandated central role, however, corporate counsels typically do not appear to discover any corporate wrongdoing. In this paper, we analyze the potential reasons why corporate counsels keep silent in the face of potential wrongdoing in their own firms and propose policy recommendations to better protect shareholders’ interests against self-dealing by top management.

Keywords: General Counsels, Corporate Governance, Corporate Fraud, Gatekeepers

JEL Classification: G34, G38, K22, K41, K42

Suggested Citation

Avci, Sureyya Burcu and Seyhun, H. Nejat, Why Don’t General Counsels Stop Corporate Crime? (July 3, 2016). Ross School of Business Paper No. 1326. Available at SSRN: https://ssrn.com/abstract=2804352 or http://dx.doi.org/10.2139/ssrn.2804352

Sureyya Burcu Avci (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-747-0219 (Phone)

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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