The Recurring Governance Crisis: Director Independence and the Disconnect Between Structural Reform and Conduct

Governance reform, introduced after the corporate scandals of the 1980s and 1990s, failed to significantly improve corporate conduct and accountability. That much is evidenced by the accounting and other scandals that have held us captive since the first word on Enron hit the street. With what confidence should we then embrace the post-Enron reforms introduced by the same reformers, such as the SEC, Congress, the Federal Accounting Standards Board (FASB), The Conference Board, the NYSE and NASDAQ, and the courts in Delaware? In a short history of what they call the "revolutionary idea of the company," Micklethwait and Wooldridge describe the Sarbanes Oxley Act of 2002 (SOX), as "arguably the toughest piece of corporate legislation since the 1930s" (2003:151).1 Their assertion about the far-reaching effect of SOX should pique our interest about whether recent reform initiatives will have the same staying power as did the 1930s initiatives; such staying power likely based on the ability of SOX to produce the corporate conduct intended by reformers. Have reformers finally managed to settle the disconnect between structural reform and substantive conduct, or does the "recurrent crisis in corporate governance" (Mac A voy and Millstein, 2003) remain unresolved?2