Larry Ribstein comments on an article by law professor James Fanto:
A disturbing new vision of the corporation has just appeared on SSRN: Fanto, Paternalistic Regulation of Public Company Management: Lessons from Bank Regulation January 4, 2006. Here's a piece of the abstract:
The Article proposes that the SEC appoint a corporate governance monitor for certain of the largest public firms who would have a role like that of an examiner of a large bank or financial holding company. The SEC would hire, train, and oversee the performance of, these monitors, who would be supervised by that part of the SEC?s Division of Corporation Finance responsible for their firms and industry.
Wow! What an idea. Turn what?s left of dynamic American enterprise into banks. The article?s theory is that group psychology prevents realistic monitoring by people who have been socialized to be part of the group, which is all of the gatekeepers and monitors we rely on today ? outside directors, lawyers, auditors, etc. So we need an outsider ? namely the SEC.
Do go read the whole thing; it's an excellent critique. And it includes a comment by Fanto in defense of the paper. As somebody who lived through the S&L crisis while I was in practice, however, I think commenter Robert Schwartz nicely captured by gut reaction:
And it worked so well with the Savings & Loan business.
Update: See also Matt Bodie's (partial) defense of Fanto's proposal.
