89 Cornell L. Rev. 269 (2003-2004)
What Caused Enron - A Capsule Social and Economic History of the 1990s

handle is hein.journals/clqv89 and id is 283 raw text is: WHAT CAUSED ENRON? A CAPSULE SOCIAL
AND ECONOMIC HISTORY OF THE 1990S
John C. Coffee, Jr. t
I. THE PRIOR EQUILIBRIUM: AMERICAN CORPORATE
GOVERNANCE   AS OF  1980  ................................  272
II. THE OLD ORDER CHANGETH: THE NEW GOVERNANCE
PARADIGM  OF  THE  1990s .................................  275
III. THE CHANGING POSITION OF THE GATEKEEPER DURING
THE  1990s  ..............................................  279
A. The Auditing Profession During the 1990s .......... 281
B. Security Analysts During the 1990s .................. 286
IV. EXPLAINING GATEKEEPER FAILURE ........................ 287
A. The Deterrence Explanation: The Under-deterred
Gatekeeper  .........................................  288
B. The Irrational Market Story ......................... 293
C. Allocating Responsibility Among Gatekeepers,
Managers and  Investors .............................  297
1.  The Role of Managers  ............................  297
2.  The Role of lnvestors ..............................  298
3.  The Role of  Gatekeepers ...........................  300
a. The Absence of Competition .................... 300
b. Principal/Agent Problems ...................... 301
V. IMPLICATIONS: EVALUATING CONGRESS'S RESPONSE ........ 302
A. Congress's Response: The Sarbanes-Oxley Act ....... 303
B. The Unused Lever: Shareholder Power ............. 305
C. Curbing Excessive Optimism ........................ 307
CONCLUSION   ...................................................  308
The sudden explosion of corporate accounting scandals and re-
lated financial irregularities that burst over the financial markets be-
tween late 2001 and the first half of 2002-Enron, WorldCom, Tyco,
Adelphia and others-raises an obvious question: Why now? What ex-
plains the concentration of financial scandals at this moment in time?
Much commentary has rounded up the usual suspects and placed the
blame on a decline in business morality,' an increase in infectious
t Adolf A. Berle Professor of Law, Columbia University Law School.
1 See William H. Widen, Enron at the Margin, 58 Bus. LAw. 961, 962-63 (2003) (The
problem is that corporate and legal culture has lost all sense of right and wrong.). I hope
that Professor Widen has overstated the matter, but I cannot prove him wrong.

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