Professor Griffith is an expert in corporate and securities law. Currently, he serves as T.J. Maloney Chair in Business Law; Director, Fordham Corporate Law Center. He has taught at the University of Connecticut School of Law and at the University of Pennsylvania Law School. A graduate of Sarah Lawrence College, Professor Griffith received his law degree magna cum laude from the Harvard Law School, where he was an editor of the Harvard Law Review and a John M. Olin Fellow in Law and Economics. Prior to entering academia, Professor Griffith worked as an associate in the corporate department of Wachtell, Lipton, Rosen & Katz in New York, focusing on public company mergers and acquisitions.
Corporate Governance and Compliance
Over the past decade, compliance has blossomed. The compliance department in many firms is very important and, often, very large. Yet much of what compliance does—for example, the core function of monitoring and overseeing the firm—might once have been referred to generally as “corporate governance.” But what is the relationship of compliance to other organs of corporate governance, such as the board of directors?
This is the basic question in my new article, Corporate Governance in an Era of Compliance. In it, I make a number of arguments that challenge the structure of compliance as we now know it. First, I argue that compliance is the new corporate governance. Yet unlike other governance structures, the origins of compliance are exogenous to the firm. The impetus for compliance does not come from shareholders, managers, employees, creditors, or customers. It comes from the government. Compliance is a de facto government mandate imposed upon firms.
Second, I argue that the contemporary compliance function subverts the notion that corporate governance arrangements both are and ought to be the product of a bargain between shareholders and managers. The implicit vision of the firm underlying the rise of compliance conflicts with mainstream accounts of the firm and implicitly favors older theories that reify the firm as an entity subject to punishment and rehabilitation.
Third, I argue that because government interventions in compliance come primarily through prosecutions and regulatory enforcement actions, a different set of interests and incentives are at play. Compliance thus begs fundamental questions of what the firm is and who the author of corporate governance arrangements ought to be. It also raises the question whether the authorities pressing for corporate reforms have the right incentives and the right information to do so. If they do not, the development of compliance may merely result in the imposition of inefficient governance structures on firms.
My basic goal in the article is to frame these arguments in order to start a conversation on compliance and to provide a framework for a debate on where we want compliance to go. I hope readers of this column will take a look at the article. Any and all comments are most welcome.
The full article is available here.
