The Chinua Achebe novel “Things Fall Apart” and the unfolding tale of Promontory Financial seem to have little in common. The idea of an independent corporate body performing a compliance-type audit would not have a role in pre-colonial Nigeria as depicted in the novel. The idea of removing authority from African villages to a centralized authority in London would seem an alien and perhaps unjust notion to such villagers, preferring self- or home-rule.
Currently, Promontory too does not seem enamored of disagreeable external regulators. However, the path of social organization from home-rule to adherence to central authorities setting standards and deciding upon conflicts regarding compliance (for example, the SEC) is well worn and applied to an expanding list of various disciplines (for example, education). The absence of corporate bodies performing independent assessments in the novel to the presence of corporate bodies allegedly failing to perform required independent assessments in the case of Promontory highlights a modern dilemma: There is a great distinction between independence in law and independence in fact. In brief, independence in law (for example, independent contractors) is not a sufficient basis from which to reason that a required assessment has been performed as demanded. Individual financial interests (and other biases) may impair judgment and credibility.
Social organizations requiring independent assessments in lieu of home-rule are manifestations of distrust, asymmetry of information, goal divergence, etc. For example, investors presumably need the expert opinions of independent registered public accountants before deciding whether to invest in a public filer. However, a plausible argument may be constructed that alleged exercises of deficiencies in independent judgment and practice in fact are the manifestation of deep-rooted, historically necessary obedience to home-rule modified to conform with the modern U.S. economy. That is, just as villagers in the Achebe novel depended on social cohesion adjudicated under home-rule, consultants and gatekeepers in the modern U.S. economy recognize their own real dependencies; specifically, their clients. These clients form the village of the consultants and gatekeepers. The regulators, whether their authority is derived in venues such as Albany, NY or Washington, D.C., are the neo-London to these private sector independent contractors, though the social organization presently seems more complex and covert than Achebe’s pre-colonial Nigeria.
In the modern U.S. economy regulators perform an invaluable service for the indirect financial and reputational benefit of the consultants. Without the legal requirement for audited financial statements, without the inspection and oversight of regulators such as the SEC and NY’s Department of Financial Services, without the practical and legal needs for credit rating agencies in public finance, etc., there would be far fewer discoveries of conditions requiring correction and remediation and far fewer highly remunerative opportunities. An open secret: The consultants need those regulators on the wall. This is the neo-village.