Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance and Kant : Toward a Moral Theory of Good Governance

The governance rules mandated by Sarbanes-Oxley, and the SEC regulations thereunder, were in direct response to many of the specific misdeeds of the Enron, WorldCom and other scandals, leaving corporate lawyers scrambling to keep their clients in technical compliance, but wondering whether it would create better governance. In this paper, I contend first that the frustrations with Sarbanes-Oxley have their basis in the jurisprudence underlying Sarbanes - the presence or absence of articulated policies and principles underlying the specific rules. I assess the law under modern positivist and naturalist theories, and point out ironies in its ultimate application. Second, I contend there is a more fundamental issue. Neither the law, nor one of the most cogent theories of non-legal norms - Eric Posner's application of game theory and signaling to principles - accounts fully for the moral aspect of corporate board service and ethical decision-making. I critique the economic model with a real world example of a wealthy director's assessment of his potential gain versus potential exposure. I suggest there is a moral theory that explains compliance outside of law or economics, and that the directors operate simultaneously under moral, legal and economic dictates. Finally, I contend social policy and legal training that in turn fail to recognize the importance of moral bearing on corporate governance will very likely miss the intended objective of good governance: more thoughtful, independent focus by boards on their fiduciary obligations to corporate stakeholders