ABSTRACT
The reputational intermediary model of corporate governance is put to question when accountants, lawyers, and board directors engage in reputationdepleting activities to a degree not predicted by the model. Standard economic theory on choice behaviour would especially appear to conflict with observed behaviour where the potential damage to reputation and wealth far exceeds expected rewards. With regard to recent corporate scandals, neither reputational concerns nor potential penalties prevented reputational intermediaries from engaging in activities which caused damage to themselves and investors. A lack of rationality in agent behaviour is not the only reason for this. Rationality may in part prevail, but individuals take into account factors that lead them into not fulfilling their role as gatekeepers. While it might be possible to reconcile some of these factors with a rational decision-making framework by suitably modifying the utility function, it has been stressed in the preceding text that judgement and decision-making may systematically depart from the predicted outcomes of standard economic choice theory because of the subjective nature of perception and updating.
