ProfessorBainbridge.com: "In a very real sense, giving institutions this power of review differs little from giving them the power to make management decisions in the first place. To quote Arrow again: “If every decision of A is to be reviewed by B, then all we have really is a shift in the locus of authority from A to B and hence no solution to the original problem” of allocating control under conditions of divergent interests and differing levels of information."What Nobelist Kenneth Arrow fails to reckon with is human nature. [Note: I recognize I'm critizing a quote without reading the source material. But this is a blog.] In my experience, if B always reviews A, the issue becomes one of the quality of A's action. If A is capable, you end up with a "pro forma" review. If A and B share trust, A will try to alert B to any problematic issue where B may have different interest or different information (a different "take" on the situation) and B, under conditions of too much work and too little time, will rely on such judgment. If A is neither capable nor trustworthy, the situation will not usually last.
What may happen is two parties, nominally separate and each with their own interests and sources of information, merge over time, blending their interests and information so that the legal organization does not reflect the reality. This might account for some of the failures by auditors during recent years.
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