Our Role in Corporate Malfeasance

Two classes of culprits contributed to the recent corporate scandals but have not been touched by the scandals or even mentioned in connection with misdoings. One group is us, the financial analysts; the other is the independent directors who are elected and paid by shareholders to represent the shareholders' interests. When we reform the performance we expect from these two groups—analysts and independent directors—we can say we are fixing the system. The numerous and large-scale corporate scandals uncovered in the past five years are not surprising; the end of a bull market has historically unearthed corporate hanky-panky. What is surprising this time is who we have selected for prosecution and who has escaped. Some corporate officers, accountants, and advisors have been brought to the bar of justice, but two types of culprits who contributed to the recent corporate scandals have not been touched by the scandals or even mentioned in connection with misdoings. One group is us, the financial analysts; the other is the independent directors who are elected and paid by shareholders to represent the shareholders’ interests. In several recent scandals, analysts were complicit in rather than preventive of corporate misbehavior. Our excuse is that “we did not know” or “we accepted the numbers.” Yet, we are supposed to ask the questions, to probe, and independently assess the job corporate managers are doing.Where was the second group—the independent directors—when malfeasance was going on under their noses? They are elected and paid by shareholders to represent shareholder interests; they have intimate access to company information. Yet, not one has been charged with not doing the job. Both groups must be held to account. Only when we reform the performance we expect from these two groups—analysts and independent directors—can we say we are fixing the system.