Circle Round the Wagons: An Institutional Theory Examination of the Reaction to the Recent Crisis in Accounting and Corporate Governance

Timothy J. Fogarty
Case Western Reserve University

Abstract: Institutional theory posits that organizations engage in considerable effort to accommodate environmental forces. The decline and fall of Enron Corporation, WorldCom, Andersen and others triggered a rapid response that included the Sarbanes-Oxley Act, and a shakeup at the Securities and Exchange Commission. This enactment was regarded by most to be the most significant change since the introduction of federal regulation of the equity markets. This paper employs institutional theory as a means of understanding the strategic choices that were presented in the wake of a generalized collapse of confidence. The paper develops expectations about what will work, what are the limits of the response and how this episode changes our understanding of the organizational field.

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