Valuing the Waiver: The Real Beauty of Ex Ante Over Ex Post

Abstract

Irony abounds in connection with demands and proposals made, in the wake of the Enron, Worldcom, and other corporate scandals, that firms be required or encouraged to waive attorney-client privilege. Justice Department officials speak to the importance of getting at the truth as trumping firms' interest in confidential internal communications as a prerequisite to compliance with law. They do so notwithstanding their own contrary arguments made on behalf of the secretive Bush administration that employs them. Corporate officers, for their part, speak as though Ralph Nader were the Attorney General when they denounce waiver proposals. They do so notwithstanding the business-friendly nature of the Bush administration. In this essay I suggest that, since what is actually at stake in these waiver debates is value for shareholders, the securities markets, if informationally efficient, are the most apt evaluators of particular firms' waivers of privilege. Provided that the semi-strong form of the efficient capital markets hypothesis is indeed well supported as the literature suggests, share-price response to voluntary ex ante waiver will be the optimal indicator of whether, and how much, waivers of privilege inure to the good or the ill of particular firms.