Lawrence A. Cunningham

• George Washington University

This is the final chapter of The AIG Story, a book about the growth of a large international insurance company that pioneered the opening of new markets and helped forge milestone international trade agreements, followed by an account of its near-destruction, first at the hands of an overzealous state attorney general and underwhelming board of dir...

When evaluating how to proceed against a corporate investigative target, law enforcement authorities often ignore the target’s governance arrangements, while subsequently negotiating or imposing governance requirements, especially in deferred prosecution agreements. Ignoring governance structures and processes amid investigation can be hazardous an...

Lucrative pay to corporate managers remains controversial yet continues to evade judicial scrutiny for legitimacy. Although many arrangements likely would pass the most rigorous scrutiny, it seems equally clear that some would not. Some agreements are not the product of arm'slength bargaining, can rivet managers on short-term stock prices at the de...

Supreme Court rhetoric about the role of contracts and contract law in arbitration jurisprudence differs sharply from the reality of its applications. In the name of contracts, the Court administers a self-declared national policy favoring arbitration, a policy directly benefiting the judicial branch of government. This often puts the Court’s prefe...

Theory can have profound effects on practice, some intended and desirable, others unintended and undesirable. That's the story of the influence the field of law and economics has had on the domain of law and accounting. That influence comes primarily from agency theory and modern finance theory, specifically through the efficient capital market hyp...

This Article contributes a new approach and evidence to the longstanding debate concerning the relative merits of traditional legal analysis compared to contemporary economic analysis of law. It evaluates prominent opinions of two judicial exemplars of the contending conceptions, the traditionalist Benjamin Cardozo and the economist Richard Posner,...

Unprecedented interest in financial regulation reform accompanies the nearly-unprecedented scale of financial calamity facing the world. Dozens of elaborate reform proposals are in circulation, most determined to revolutionize financial regulation. No doubt, the crisis makes reevaluation essential, but we contribute a cautionary analysis amid the e...

Could a preemptive federal incorporation law today assume the enabling character of traditional state corporation law, instead of the mandatory flavor typical of much federal securities regulation? Does global competition mean that the US should both preempt state corporation law and adopt a flexible, principles-oriented approach to business regula...

The Securities Exchange Commission has introduced a Roadmap that describes a process leading to mandatory use of IFRS by domestic issuers by 2014. The SEC justifies this initiative on the grounds that global standardization yields cost savings and an ultimate gain in comparability, facilitating the search for global opportunities by U.S. investors...

In the most revolutionary securities law development since the New Deal, the SEC is poised to jettison rules requiring companies to apply recognized US accounting standards by inviting use of a new set of international ones created by a private London-based organization. This radical shift follows decades of gradual movement towards international s...

This is a short review of Gatekeepers by John C. Coffee, Jr.

Congress passed the Sarbanes-Oxley Act to restore investor confidence, which had been deflated by massive business and audit failures, epitomized by the demise of the Enron Corporation and Arthur Andersen LLP. The Act altered the roles and responsibilities of auditors, corporate officers, audit committee members, as well as other participants in th...

This paper reviews and draws insights from recent empirical research in financial accounting on the value of director expertise for financial reporting quality. Among important consequences of Sarbanes-Oxley is an increase in the percentage of accounting experts on boards of directors, particularly on audit committees. The research reviewed here do...

This Article adds to the emerging literature on rewards to promote effective capital market gatekeeping. Capital market gatekeeping theory traditionally relies heavily on threats of legal liability for failure to perform legally mandated functions (along with a presumed constraint imposed by reputation effects). The ineffectiveness of many gatekeep...

This Article corrects widespread misconception about whether complex regulatory systems can be fairly described as either "rules-based" or "principles-based" (also called "standards-based"). Promiscuous use of these labels has proliferated in the years since the implosion of Enron Corp. While the concepts of rules and principles (or standards) are...

For several decades, policy analysts have debated whether to establish ex ante caps on damages that audit firms face for violating state or federal law in their audits of public companies. A common argument supporting caps is a claimed inability of audit firms to obtain requisite external liability insurance and need to resort to self-insurance pro...

The most provocative debate in contemporary contract law scholarship concerns default rule analysis or the manner in which courts fill gaps in incomplete contracts. The nineteenth-century scholar Francis Lieber elaborated a comprehensive solution to the default rules puzzle by first distinguishing the judicial acts of contract interpretation and co...

Since the New York Court of Appeals banned nonrefundable retainers, numerous other courts have joined in prohibiting this widespread practice of lawyers charging a fee for services in advance and keeping the fee even if the services are not performed. This may reflect increased judicial recognition of the effect of egregious fee practices on the im...

This Professor Cunningham's Introduction to his edited collection of Warren Buffett's noted letters to shareholders of Berkshire Hathaway Inc. The collection was prepared for a symposium held at Cardozo Law School in New York City in 1997 and originally published in the Cardozo Law Review. The Introduction serves as an encapsulation of the main the...

Symposium: The Next Generation of Law School Rankings held April 15, 2005 at Indiana University School of Law-Bloomington.

Large audit firms may believe that they are too big to fail. Arthur Andersen's 2002 criminal indictment reduced their number from five to four, and the government decided in 2005 to avoid indicting KPMG for crimes it admitted committing. If audit firms interpret the government's reluctance to indict as signaling aversion to tough action against the...

Government increasingly leverages its regulatory function by embodying in law standards that are promulgated and copyrighted by non-governmental organizations. Departures from such standards expose citizens to criminal, civil and administrative sanctions, yet private actors generate, control and limit access to them. Despite governmental ambitions,...

Intellectual tension between the fields of finance and accounting may help to explain explosion of public company frauds. Finance theory diminishes the relevance of accounting information. Enron exploited this consequence while the SEC bought into it. After widespread frauds were exposed, Congress passed laws that address symptoms of finance's futu...

Accounting textbooks for law or business schools invariably provide secondary narrative presentations of materials in the authors' own words. A better approach to learning this subject is to present thematically arranged original accounting pronouncements. In so designing this innovative book, readers appreciate how accounting is a tool that provid...

Controversy surrounding scholastic rankings arises, in part, because of complexities associated with measuring academic contributions. Legal researchers use various methodologies to assess scholarly production and impact but all suffer from inherent limitations and none provides data useful to scholarly self-reflection. The 10-year old Legal Schola...

These articles evaluate using financial statement insurance (FSI) to reduce the frequency and magnitude of audit failure. The FSI concept was pioneered by Josh Ronen, NYU Accounting Professor, who has modeled its economic aspects. My paper examines FSI's efficacy from policy and legal perspectives. I conclude that while the model is not perfect, it...

The common law often is casually referred to as an iterative process without much attention given to the detailed attributes such processes exhibit. This Article explores this characterization, uncovering how common law as an iterative process is one of endless repetition that is simultaneously stable and dynamic, self-similar but evolving, complex...

Positioned in a lively current debate concerning how to design auditor incentives to optimize financial statement auditing, this Article presents the more ambitious financial statement insurance alternative. This breaks from the existing securities regulation framework to draw directly on insurance markets and law. Based on upon an evaluation of ma...

Building on companion work investigating the efficacy of financial statement insurance (FSI) as an alternative to traditional auditor liability (ssrn.com/abstract=554863), this Article presents the terms of a national enabling statute to implement this concept. The Model Financial Statement Insurance Act uses the architecture of the U.S. Trust Inde...

This Article considers the interplay between new auditing standards governing audits of internal control over financial reporting and pre-existing legal standards governing auditor liability for audit failure. The interplay produces skewed liability incentives that, if unadjusted, threaten to impair the objective of this new control-audit regime. T...

The Sarbanes-Oxley Act shook the corporate world beyond US borders more than Enron shook the corporate world within them. This Article goes beyond the prodigious commentary on the Act itself to understand the nature of its reception outside the US. It first develops a hubs-and-spokes account of global corporate life in which corporate purpose, whic...

Congress responded in similar ways to 2001's major national crises: bolstering internal controls in corporate America under the Sarbanes-Oxley Act in response to Enron's debacle and imposing internal controls on its financial services industry under the USA PATRIOT Act in response to 9/11's terrorism. These reflexive legislative responses to nation...

Cash is king. As countries struggle to develop accounting standards that translate across borders, the cash flow statement is a promising place to look. This essay reviews global accounting practices in several countries, showing how angst expressed in concepts such as semiotics and hermeneutics are both fascinating and unnecessary. In doing so, it...

A thorough examination of the much ballyhooed Sarbanes-Oxley Act reveals dominantly a federal codification of extant rules, regulations, practices, and norms. Despite advertising it as "the most far-reaching reforms of American business practices since the time of FDR," a soberly apolitical view sees the Act as more sweep than reform. Important are...

Enron-type accounting debacles illustrate that prevailing professional cultures create a crevice between law and accounting that resolute fraud artists exploit, rather than an intersection of law and accounting that should foil would-be fraudsters. The increasing significance of accounting matters in business law practices demands that competent bu...

The efficient market hypothesis is a special case in finance. It explains only tiny fractions of observed phenomena. Perhaps its major contribution is a formal definition of an ideal market world, to which policy formulations may be directed and against which they can be measured. Indeed, it seems unlikely that the infirmities of market action ever...

Discussions of comparative corporate governance have renewed the old question of corporate social responsibility, for whose benefit is the corporation to be operated? It is customary to think that US and UK law require that corporations be operated primarily for the benefit of shareholders. It is equally customary to think that German and other con...

The most influential judicial voices on the parol evidence rule are Roger Traynor and Richard Posner. Traynor pieced together aspects of positions championed by the antipodal titans of contracts, Arthur Corbin and Samuel Williston. Posner cuts through tangled doctrinal webs to show how the unifying talisman of the doctrine is credibility. Everythin...

This article critically evaluates the major judicial opinions on the law of contracts written by Judges Benjamin N. Cardozo and Richard A. Posner. Respectively, these judges are the first and third most influential judges on the subject measured by the frequency with which contemporary contracts casebooks reproduce their opinions. Exploring dozens...

This Article seeks to analyze and understand Paramount Communications, Inc. v. QVC Network, Inc. and Cede & Co. v. Technicolor, Inc. as part of a movement in Delaware fiduciary law toward a single, more unified standard, away from doctrinal fragmentation. In addition, the Article considers Delaware law leading up to QVC and Technicolor, tracing bot...

This Article argues that chaos theory, noise theory and behavioral finance mandate opening a new chapter in a voluminous corporate and securities law debate revolving around the efficient capital market hypothesis (ECMH), which for decades has been the context for debating corporate and securities law and policy. The debate has been defined by inte...

Audit committees of corporate boards of directors are central to corporate governance for many corporations. Their effectiveness in supervising financial managers and overseeing the financial reporting process is important to promote reliable financial statements. This centrality suggests that it is likewise important for investors and others to ha...

The term "market timing" was little known outside the arcane world of mutual funds until state attorneys general from across the country popularized it. The term's innocuous-sounding ring assumed a more pernicious note when the mysterious ways of mutual funds became more transparent. In its pernicious sense, market timing denominates mutual fund in...

This Article contributes a novel idea to the literature on capital market gatekeepers: positive incentive systems for gatekeepers to perform functions not required of them in exchange for rewards if they perform the functions successfully. Capital market gatekeeping theory relies upon the reputations that gatekeepers are assumed to command and prot...

In this pioneering book, Boston College Law School's Academic Dean, Lawrence Cunningham, arranges selected contributions of his faculty's scholarship into a meditation upon justice. The book weaves a combination of theory and practice to articulate moral and ethical values that facilitate rational application of law. It envisions legal arrangements...

eXtensible Markup Language (XML) structures information in documentary systems ranging from financial reports to medical records and business contracts. XML standards for specific applications are developed spontaneously by self-appointed technologists or entrepreneurs. XML's social and economic stakes are considerable, especially when developed fo...

Speech delivered to the Federation of European Securities Exchanges' 7th European Financial Markets Convention in London in June 2003.