Center for Law and Economic Studies
Center on Corporate Governance
Section 307 of the Sarbanes-Oxley Act authorizes the SEC to prescribe "minimum standards of professional conduct" for attorneys "appearing or practicing" before it. This brief statutory provision frames a much larger question: What is the role of the corporate attorney in securities transactions in the public markets? Is the attorney's role that of (a) an advocate, (b) a transaction cost engineer, or, more broadly, (c) a gatekeeper - that is, a reputational intermediary with some responsibility to monitor the accuracy of corporate disclosures? The bar has long divided over this question, with the bar associations resisting any such obligation. Yet, Section 307 now "federalizes" this issue. Skeptics of a gatekeeper role for attorneys have long argued that (a) such a role conflicts with the traditional obligations of loyalty that the attorney owe their clients; and (b) imposing gatekeeping obligations on attorneys will chill attorney/client communications and thereby reduce law compliance. Thus, they have resisted a pending SEC proposal that would require an attorney to make a "noisy withdrawal" when the attorney is unable to stop or prevent certain ongoing material violations of law by the corporate client. This comment examines these arguments that attorneys make inferior gatekeepers and replies that (i) securities attorneys can and do perform a "gatekeeping" function; (ii) the differences between attorneys and auditors are less fundamental than bar associations maintain; (iii) in some respects, it is easier to impose gatekeeper obligations on attorneys than on auditors; and (iv) imposing such obligations on attorney should neither chill socially desirable client communications nor reduce the attorney's influence over the client (and probably will increase that leverage). Finally, this comments examines specific standards and obligations that the SEC might adopt to recognize the securities attorney's role as a gatekeeper. Going beyond the narrow "noisy withdrawal" issue, it proposes both limited certification and independence standards.
John C. Coffee,
The Attorney as Gatekeeper: An Agenda for the SEC,
Columbia Law and Economic Working Paper No. 221
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1284