Definition Chinese Wall. Description.
A Chinese Wall is a
metaphor for a virtual
barrier to the flow of information between two different functions of an organization,
in order to prevent possible conflict of interest. Typically, the wall is
purely conceptual, although sometimes functions may be divided by physical
barriers (areas of a building, for example) as well as policies.
Such walls were supposed to exist between the auditing function
and the consulting divisions of big auditing firms. However the Enron/Anderson
Consulting case showed that these walls did not work well here.
In banking, a Chinese wall is supposed to exist between the
M&A function in the investment bank section and the brokerage function, advising
clients about investments. Again, passing information through the wall, although
forbidden, has occurred, because it can be extremely lucrative. During the
dot.com rush passing this kind of information through the "wall" was not unusual
and was a major cause of the stock crash in 2000.
Other (better) solutions to prevent conflicts of interest
are to split certain companies, legislation (Sarbanes-Oxley), more attention
for business ethics.
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Compare with:
Initial Public Offering
| Corporate Governance
| Asset Management
| Whisper Number
| Ring Fencing
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Special Interest Group Leader
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