Sometimes it takes something bad to instigate something good. A hard lesson — a scandal, a breach, a product failure — can make us look at a problem head-on and ask ourselves how to fix it. More often than not, we knew the problem was there but didn’t act. For example: In 1938, the SEC discovered that pharmaceutical firm McKesson & Robbins had made up the 2020 equivalent of more than $300 million in inventory and receivables. Although it was among the most brazen scams of its era, the McKesson & Robbins saga followed numerous schemes of accounting fraud during the Great Depression. In response to them, Congress passed the Investment Company Act of 1940, which recommended that companies form audit committees on their boards to oversee financial reporting and disclosure — a safeguard that later became a requirement. The mandate was clear: Corporate boards must oversee the accounting function to ensure reliable financial reporting, thus protecting free markets and...
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