ABSTRACT
Corporate malfeasance and misfeasance on the scale witnessed in the late 1990s and early part of this century in the United States cannot be reduced to a single factor. Rather a multiplicity of internal and external checks failed simultaneously: within the corporation; the self-regulated professions and exchanges; the research analysts; the rating agencies; and the regulatory agencies and their political masters. Despite having one of the most codified securities markets in the world, with a plethora of interlocking federal, state and self-policing mechanisms, the regulatory system proved incapable of either insuring against market failure or instilling credible ethical restraint. This has been underlined by a recent address by the Chairman of the Federal Reserve, Alan Greenspan at a meeting of the Federal Reserve of Atlanta in which he warned that ‘rules are not a substitute for character’ (Greenspan, 2004). It was recognition that ethical shortcomings within the governance of the financial markets play a major contributing role in facilitating scandal. Yet, the United States policy response has been conditioned by the continued power of two interlocking mechanisms: market-based self-regulation, which has demonstrably and repeatedly failed, underpinned by more detailed proscriptive rules, which are mostly tangential to the root causes of scandal.
