Pushing For A Repeal Of Sarbanes-Oxley

from the about-frickin-time dept

It's been over six years since we began banging the drum around here to get Congress to repeal Sarbanes-Oxley, the law that was hastily written post-Enron to try to prevent such collapses again, but instead simply added a huge compliance tax, without doing much of anything to actually prevent corporate fraud. Corporate fraud is still rampant, and the law did absolutely nothing to prevent the financial collapse we see ourselves in today. There were, instead, massive unintended consequences, leading companies to go public elsewhere, go private or avoid the public markets altogether. The lack of IPOs, especially in the tech space over the past few years, even as the economy was looking strong, is incredibly telling.

So, it's good to see a renewed effort to get Congress to repeal Sarbanes-Oxley, which simply created a massive tax in terms of compliance, with awful unintended (though, totally predictable) consequences -- all while doing almost nothing to cut down on actual fraud.

I am a strong believer in the idea that fraud should be punished heavily -- but Sarbanes-Oxley didn't do that. It just moved the loopholes and punished the honest companies by dumping a huge compliance tax on them. It's been bad for the economy, bad for startups and bad for innovation, and it's time to go.


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    Anonymous Coward, Nov 6th, 2008 @ 7:16am

    But what about the poor SOX compliance consultants? How will they be able to make their BMW payments?

     

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      matt, Nov 6th, 2008 @ 10:03am

      Re:

      I work for insurance carriers. All companies I've been at have huge obligations with regards to SOX compliance. We have had dedicated SOX compliance managers, we have full-time outside SOX compliance auditors (re: anonymous-- one drives a BMW and other drives a Range Rover), and we get written up for SOX violations, which are generally meaningless procedural "gotchas" (if you're thinking wrong cover sheet on your TPS report, you're thinking along the correct lines).

      All I see from my perspective is a lot of red tape, extra hoops to jump through, and more vulnerabilities/potential to be "in violation". I do not see ANY benefit to the consumer, to the industry, or really any benefit at all.

       

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    NullOp, Nov 6th, 2008 @ 7:21am

    Repeal SOX

    I contend that the real way to deal with corporate shenanigans is to slap the corporate officers in the clink. Jail time works wonders for CEO types! There will always be a way for a company to ripoff its clients/customer and employees. Yep, jail time! No exceptions!

     

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      Anonymous Coward, Nov 6th, 2008 @ 8:37am

      Re: Repeal SOX

      Not when they go to minimum security federal resorts.

      I think that federal "pound me in the ass" prison is a good choice though.

       

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      Crabby (profile), Nov 7th, 2008 @ 5:32am

      Re: Repeal SOX

      I'd rather not send them to jail so they can lounge at my expense. Make them work nasty jobs and garnish their pay for the rest of their lives so they can pay back some of the money.

       

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    Anonymous Coward, Nov 6th, 2008 @ 7:41am

    The following was original written as a response to a Australian/British Tabloid on the US election. It will not be posted there due to their posting rules. Surprisingly the same things that made newspapers great in print appear to be some of the most restrictive and stupidity ways of doing thing on the internet which is to some degree explains why their political insight is equally as limited.


    It is truly suppressing just how many including reporters and pundits that simply do not grasp the basics of what has happened but then again it should not be suppressing as the event is quite extraordinary and most unusual. We can speak of Hillary, Obama, and McCain as if they are people or we can instead choose to let thee names represent what they really are the names of groups. If Hillary had been elected then her petticoat-train would have been composed predominately of NOW (National Organization of Women) supporters. For McCain his long-coat-tail would have included former supporters Bush hence the comparison of this being Bush’s third term. For Obama the train includes people like Rev. Jeremiah Wrigh. And! This is correct even if they disavow, refuse to nominate, socialize snub, or have any contact direct or indirect with these groups since in the public’s mind that is their support group.

    Lets put McCain and the Republicans aside as much as possible and focus our limited space only mostly on the Democrats. Hillary like McCain represented the establishment. Not only did they represent the establishment they are the establishment. Different sectors of the establishment but the establishment including the thousands of Washington lawyers, lobbyists, pundits, regulators, research tank college professors, late night talk-show host and other cast of supporting characters whose hole existence, jobs, careers, and power rest on one candidate being in power. Obama on the other hand represent a consistence of the US population that does not and never has had a national coat-tail following. The most outrageous and strongest support class, the Rev. Jeremiah Wrigh, class does not represent the entranced Democrat establish in Washington and has very little representation and that only through a very limited number of Black Congressmen.

    Washington has always been a town equally split between the white Northwest – Georgetown and the black Southeast – Anacostia. Most large American governments be that federal, state, county, or city have long had a majority of workers that are minorities. The clerk that one goes to pay taxes, the supervisor of the clerks et in almost all US cities has for 20 or 30 years or so been a minority. These are highly undesirable low paid, bureaucrat job with little advancement potential. Upper level jobs were simply held by whites who have increasingly abandoned cities and moved to suburbs and the country. All this has now changed. Georgetown is now reporting to Anacostia. The last time this occurred was 1865 to 1890 Southern Reconstruction a rather nasty period of US history as 15% of population never controls 85% with out some serious issues. From a social level the culture shift in power is as serious as 15% of Sidney were Moselum and that 15% had taken power of all of Australia. This is not just a selection of a Black as President but a complete power shift dependent on voter disaffection with BOTH existing political parties and is about as stable as any government could be that does not have basic support from more that 15% of the voters while collecting 50% of vote due to belief that the political structure would not change and disaffection with existing structure required a radical change.

    Two aspects of American society that need to fully understood. In locations where there are high concentrations of minorities be that Black or Hispanic the minority relation is just about the same as the relation of Christians to Mosleums is in Australia. Two different societies with two completely different value systems.

    White American psychological thought is bankrupt and has been since the end of WW 1 (and yes that does mean the First World War). Ann Rand the leading architect (Ragan executed Ann Rand’s ideas) of the demise of Communism was Russian not American even though she had US citizenship her thoughts were Russian from her birth to death.

     

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      Anonymous Coward, Nov 6th, 2008 @ 7:47am

      Re:

      wait...what?

       

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      Anonymous Coward, Nov 6th, 2008 @ 8:12am

      Re:

      The following was original written as a response to a Australian/British Tabloid on the US election. It will not be posted there due to their posting rules.

      So, instead you decided to post your spelling error infested ramblings to a completely unrelated web site? OK!

       

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        A. L. Flanagan, Nov 6th, 2008 @ 8:42am

        Re: Re:

        The following was original written as a response to a Australian/British Tabloid on the US election. It will not be posted there due to their posting rules.

        So, instead you decided to post your spelling error infested ramblings to a completely unrelated web site? OK!


        Rats, you beat me to it.

         

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      Anonymous Coward, Nov 6th, 2008 @ 8:24am

      Re:

      What drugs are you on? Not only is this off topic, it isn't even remotely relevant to the topic.

      As for your post, I think you are saying that electing Obama was a protest to established government and that this will cause instability. Obama will do what all liberally mided Democrats do, increase spending on social services, decrease military spending and increase taxes on what they consider "wealthy Americans". If you were thinking that electing Obama would be some revolutionary change, you are going to be very disappointed. If anything, as the first African-American president he will encouraged by the black leadership to refrain from radical changes so as not to ruin the chances for future minority presidents (the thinking will be "don't screw it up for the rest of us"). As Obama has said, he may have a funny name and not look like the presidents of the past, but make no mistake about it, he's a Democrat with strong liberal voting tendencies and his actions will reflect those views.

       

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        Anonymous Coward, Nov 6th, 2008 @ 9:55am

        Re: Re:

        Most people vote anti-democrat (and therefore republican) because they're tired of psudeo-intellectual democrats telling them they're stupid if they feel differently on an issue.

        Well, that particular bash was intended to be humorous. For the record, most people who vote Republican are not dumb (although I think many of them are ignorant).

        In fact, one could make the argument (and I sometimes do) that the Democrats (i.e. the people who actually run the party, not the people who vote for the party) are dumber than the Republicans because they fail to recognize that people vote Republican for reasons other than stupidity.

        As you might imagine, this sentiment doesn't go over very well among my Democrat friends. That's one of the reasons I'm feel pretty confident that my position is correct: I seem to offend both sides more or less equally.


        For the record, let me tell you where I stand politically:

        1. I believe in small (but not non-existent) government. I think the size and power of the federal government has spiraled wildly out of control and it needs to be seriously reeled in.

        2. I believe in fiscal responsibility. We are on a wild spending binge on our children's credit card. It has to stop.

        3. I believe in personal freedom. I think people should be able to say what they want, write what they want, think what they want, worship whomever or whatever they want, eat what they want, smoke what they want, marry whom they want.

        4. I believe in personal responsibility and accountability. If you choose to smoke and get lung cancer, don't come bitching to me (or the government). No one put a gun to your head and forced you to inhale. You did that to yourself.

        5. I believe in free enterprise. The function of government is to provide a level playing field, not to bail out companies or individuals who make poor choices or get unlucky. (I do think that we ought to provide a social safety net, but I think we should do this purely out of self-interest, not as a matter of principle. I think most people don't like seeing their fellow humans living on the street, and the best way to deal with that problem is to make sure everyone has at least one other viable option.)

        Except for the marry-whoever-you-want bit I kind of sound like a Republican, don't I? So why do I bash on the Republicans so hard?

        It's very simple: if you look at what the Republicans actually do as opposed to what they say they are almost exact opposites. Republicans say they are for small government, but in the last 50 years the government has grown more under Republican administrations than under Democratic ones. They say they are for fiscal responsibility, but the federal budget deficit has grown more under Republican administrations than Democratic ones. (The correlation is quite striking:)

        http://www.lafn.org/politics/gvdc/Natl_Debt_Chart_2006-lo.jpg

        The Republicans say they are for personal freedom, but the fact of the matter is that they want to use the force of government to constrain your life just as much as the Democrats do, they just want to constrain it in different ways. The Democrats want to throw you in jail if you're not politically correct, and the Republicans want to throw you in jail if you go over the speed limit, or have an abortion (even if you've been raped) or burn the flag.

        Republicans say they are for personal responsibility. There are so many examples of Republican hypocrisy on this issue that I hardly know where to begin.

        Well, let's start with the weasel-in-chief who takes no responsibility for 9/11, no responsibility for the mess in Iraq (according to Dubya everything is just hunky-dory and he hasn't made any mistakes).

        Then let's go on to Dennis Hastert, who let a child molester go unmolested through the halls of Congress. (They didn't do anything about it because they'd be accused of gay-bashing?

        Oh give me a break. Even if that were true, why should the prospect of a false accusation of gay-bashing stop you from doing what is so clearly the right thing?)

        The Republicans say they are for free enterprise, but in fact they are rife with corruption, giving out billions of dollars in no-bid contracts to the vice-president's former company.

        And as if that weren't enough, the Republicans say they are patriots, but then they pass laws that undermine the very bedrock that this country is supposed to stand on: the rule of law, Habeus Corpus, separation of powers, judicial review, the right of the people to be secure in their persons, paper and possessions from unreasonable searches and seizures. They say they are for freedom, but it is quite clear that there is an influential faction of the Republican party that believes that the United States was founded not as a secular democracy, but as a Christian theocracy, and wants to return to those halcyon days. George the First once said, "I don't know that atheists should be considered as citizens, nor should they be considered patriots. This is one nation under God." He said that despite the fact that the Constitution very clearly states that "no religious test shall ever be required as a qualification to any office" including, one presumes, citizenship.

        I bash Republicans because they believe in second-class citizenship (or worse) for atheists, gays (that's many of my friends), people of color, people without means (those are my brothers and sisters).

        I bash Republicans because they believe that there are witches -- oh, sorry, -- terrorists against whom we can only defend ourselves by giving George Bush the unilateral and unreviewable power to imprison and torture them.

        I bash Republicans because they want to take us back to the dark ages. I bash Republicans because they want to make me "secure".

        I don't want to be secure. I want to be free.

        I bash Republicans not because I love the Democrats. I think the Democrats are a bunch of self-important morons who can't see beyond their ivory tower. I bash the Republicans because they are a clear and present danger to the principles enshrined in the Constitution of the United States of America. I bash them because as a citizen of the U.S. I am bound to defend the Constitution against all enemies, foreign and domestic.

         

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      Anonymous Coward, Nov 6th, 2008 @ 9:04am

      Re:

      I would guess this post could not be posted where you wanted to post it because it is not intelligible English. If you want to make a (supposedly) intelligent comment on American politics, it usually helps if the text isn't wrought with spelling and grammatical mistakes. I'm sorry if I can't take this post seriously. If English is not your native language, at least use a spell checker.

       

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      Anonymous Coward, Nov 6th, 2008 @ 10:32am

      Re:

      Re: The following was original written as a response to a Australian/British Tabloid on the US election. It will not be posted there due to their posting rules.

      WTF!?!?!?!!?? I'm guessing that their posting rules require the posters to ahve a passing acquaintance with standard English grammar and syntax? It is conceivable that the embedded spell-checker on the site simply shat itself, and the grammar checker was too busy laughing to care.

      Wow. Two quick tips from the ass-end of your drivel: Ayn Rand and Reagan. Oh, and you spell 'trainwreck' the same way it is spelled on your driver's license.

       

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    DB, Nov 6th, 2008 @ 7:43am

    Taking off the SOX

    I wouldn't get overly excited; the New Order that's coming in is not likely to be concerned with making life easier for start ups, small companies, or IPOs. They will be too busy spreading the wealth. :-P

     

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    Ajax 4Hire, Nov 6th, 2008 @ 7:43am

    That should always be an option...

    That should always be an option...if someone commits fraud, breaks the law, then they should be prosecuted.

    I am upset at politicians that feel that more laws are needed when there are current laws that could simply be enforced.

    The problem is not another layer of legal compliance.
    The problem is enforcement of current law.

    More laws will not force compliance or even good behavior.

    Enforcement (Punishment/Reward) will, it always has.

     

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    Overcast, Nov 6th, 2008 @ 7:47am

    I wouldn't get overly excited; the New Order that's coming in is not likely to be concerned with making life easier for start ups, small companies, or IPOs. They will be too busy spreading the wealth. :-P

    Yeah, would have to agree there. If anything, the tax might be increased.

     

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    Pat, Nov 6th, 2008 @ 7:51am

    If a company/industry can devastate then it must ....

    be regulated ....

    Jez ... look at the 1920's unregulated heaven. Stock manipulation. Leveraged to the hilt. AIG, Lehman Brothers, redux.

    If someone dies in a car crash, I bet you are there saying "see seat belts will not always save your life. Seat belts should not be required in cars, because they are not perfect protection."

    BTW, in case you haven't heard the adults have taken control of our kleptocracy -- ZERO change of SOX going away.

    The bit of comedy you link to was written by Newt -- the much-unlamented Speaker of the House.

     

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      Anonymous Coward, Nov 6th, 2008 @ 7:59am

      Re: If a company/industry can devastate then it must ....

      I think you miss the point. SOX gives the illusion of regulation while costing a small fortune and introducing several inefficiencies throughout the company. This means a company committing fraud is still committing fraud, while a company that is not is still not. However, both are now spending money to be SOX-compliant. Seatbelts do save lives, SOX does nothing but add to the cost of doing business.

       

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    John Doe, Nov 6th, 2008 @ 8:09am

    SOX has created the illusion of protection and jobs. Once jobs are created, they cannot be removed so there is little to no hope of SOX going away. The job creation aspect is one reason, though only a minor reason, that we will never see a simplified tax code. As an aside, the major reason we will never see a simplified tax code is governmental control. While they may not be able to force individuals and companies to do or not do something, they can use the tax code to affect this behavior.

     

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    Seth Brundle, Nov 6th, 2008 @ 8:18am

    SOX was designed to deter, provide oversight for, and successfully prosecute illegal corporate behavior.

    Our current financial crisis was more the government and markets all complacently moving in the wrong direction legally.

    Also, you cannot measure the success of SOX unless you can quantify the amount of corporate malfeasance which has not occurred since its inception because of its existence.

    Its similar to the argument that most of history's violence is sourced in religious beliefs - this cannot be quantified as there is no control involving a history without religion.

     

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      oldphoneguy, Nov 7th, 2008 @ 2:03pm

      Re: wait Seth

      I was following and mostly agreeing with the first paragraphs, but came to a dead halt with the last one. Ever hear of the Crusades?? ;o)

       

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      Ron Cannon, Nov 13th, 2008 @ 11:03am

      Re:

      Succinctly stated Seth. I couldn't have expressed it any better. I have been doing SOX / IT Governance work since 2003 and I am keenly aware of the good, bad and ugly. Cheers, Ron C

       

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    Mizchief, Nov 6th, 2008 @ 9:07am

    Your crazy if you think there is a chance

    There is no chance that Democratic majority congress with a Democrate president will repeal any law that would reduce tax on corporations and/or reduce government oversight. Obama's entire campaign, if you ignore "savior" aspects, was that he would tax the wealthy and give it to the poor and that the "Failed Bush economic policies" were what ruined this country.

     

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      Anonymous Coward, Nov 6th, 2008 @ 11:03am

      Re: Your crazy if you think there is a chance

      I'm pretty sure the word "tax" used in the article did not address an actual tax, but rather referred to the cost of doing business under this law i.e. paying for compliance administration, etc.

       

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    Somebody, Nov 6th, 2008 @ 10:58am

    S-O

    the amount of overhead, especially in my business of banking, is over whelming at best. I have seen nothing in it that alerts anyone of fraud. What it does do is create new compliance departements in companies and makes the other departments work like hell to get all the reporting done to be in compliance. Basically the grunts do all the work, for nothing, and the elites still commit fraud. It should be scraped!

     

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    Ted M., Nov 6th, 2008 @ 11:32am

    SOX raises barriers

    ..to entry and adds new operational costs for mid-sized companies.

    I remember an article from a year or two back that mentioned that SOX adds some $3-6M to the overhead costs of a medium to large company. The article had a discussion of floating a company on a foreign exchange to get around compliance, but this was a nil when the company had 1,000 US shareholders. SOX stints small and midsized businesses as they look for ways to raise capital. I've read that many companies who decided not to pursue an IPO route, the main detractor is SOX.

    Agreeing with #24, SOX adds a new level of operational complexity which prevent the small and midsized businesses from growing, and produces a heavy reliance on VC to grow the business. And, it's not that VC is bad, but it prevents more traditional routes (such as the IPO) for companies to grow.

    It would be difficult to "repeal SOX" all together, perhaps a good middle ground would be make SOX compliance applicable to businesses which have market capitalization over a certain amount, such as $2B. This would be open to discussion of course, but the concept of making it applicable to all publicly traded companies hinders the smaller, more nimble companies as they try to grow in their niche market.

     

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      Aaron W., Nov 6th, 2008 @ 12:46pm

      Re: SOX raises barriers

      I agree completely with Ted. I work in finance for a small high-tech company with sales of $15 million and 60 employees. SOX costs us over $1 million PER YEAR to comply. That $1 million goes to overhead: auditors, oppressive processes, unnecessary policies, extra people for compliance and accounting, etc. None of the $1 million is spent on productive work. If we did not have SOX to deal with, that's money we would put into R&D, creating new products, and creating useful jobs.

      The sad thing is that SOX costs a small company just about as much as a much larger mid-sized company. It not only kills IPOs, it also means that small companies almost have to either grow extremely rapidly or get acquired. There's no longer any reasonable way to grow slowly.

       

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        Mark Cummins, Nov 17th, 2008 @ 10:56pm

        Re: Re: SOX raises barriers

        Aaron, I am amazed that Sox costs over $1 million for your company. IMHO it should not cost more than $100,000, which is still pretty high. How do I know? I do Sox consulting for small firms. And 100k should only be the 1st year costs. Anyway, I am not disputing you, but man, if you want to talk to me about how to drop the costs significantly let me know (I have some efficient streamlined ways to do SOX without affecting quality)....anyway.....so much for my pitch, have a good day!

         

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    a virtual unknown, Nov 6th, 2008 @ 12:41pm

    SOx Rap

    SOx is mental
    It's lamentable
    And unimplementable
    It would take more than dental
    For me to be willing to try
    To get a corporation by
    The wily auditor's watchful eye
    Allowing authority to supply
    The clients Fortune 500 dreams
    So they'd hand over luscious greens
    Signing on cheques to meet
    The quotas that we keep
    That keep us off the street

    However, now the tender meat
    Of the youthful employee stock
    A progressive, idealistic crop
    Of enthusiastic young minds are caught
    Pressed 'tween collision bound rocks
    Conflicting orders, inversely relational
    Anti-democratic, representational
    Metaphorical shareholder felatio
    Posting record profit to TCO ratio

    We do whatever we're trained
    To ensure perpetual margin gains
    An inflation induced addiction ingrained
    Subversively branded on our brains
    A system impossible to sustain
    In a world where education is business, business is marketing, and marketing is education
    A disturbingly dangerous level of private/public interest integration
    Higher education gradually transformed into social engineering and lobotomization
    Given a shrinking piece of the puzzle through career specialization

     

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    Jim, Nov 6th, 2008 @ 3:25pm

    SOX - not!

    Isn't record archiving part of the SOX rules? I'd like to know how it is that the US Government - the largest public corporation in the US - avoids having all of their email archived? If they don't follow the rules, there's no hope of corporations following them.

    The problem with the US is that we are so damned two-faced:

    - we can have nuclear weapons, but you (fill in the country) can't

    - you bad corporations have to keep pristine records of everything, in case of fraud, but we, the government of the people, don't have to

    - America is all about life & liberty, except it's okay for us to throw suspicious people into a prison without any legal recourse

    - we privatize businesses when there is the potential to make money (mostly for the already-rich), and socialize them when they are losing money to protect the already-rich

    It's no wonder to me that lots of people around the world distrust and even hate America, not for its people or what it stands for, but how it behaves.

     

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      Jim C., Nov 6th, 2008 @ 4:03pm

      Re: SOX - not!

      Comments:

      Most corporate email is not archived.
      Would YOU trust any more countries with nuclear weapons?
      CONGRESS exempts the gov't from record keeping--throww the bums out..
      When enemy combatants become citizens, they can be given constitutional protections. I sleep better knowing where the terrorists are...
      Again, CONGRESS approves the nationalization of businesses...

      Just my $0.02!

      JC

       

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        Anonymous Coward, Nov 6th, 2008 @ 5:06pm

        Re: Re: SOX - not!

        Most corporate email is not archived.
        At every corporation I've worked for it supposedly is.
        Would YOU trust any more countries with nuclear weapons?
        Do YOU trust the countries that already have them? If the US wants to convince other countries that they don't need nuclear weapons then perhaps it should promote that idea by getting rid of its own first.
        CONGRESS exempts the gov't from record keeping--throww the bums out..
        By blaming Congress you aren't exactly exonerating the government. Cogress, in case you didn't know, is actually part of the US government. (No, George Bush is not "The US Government")
        When enemy combatants become citizens, they can be given constitutional protections. I sleep better knowing where the terrorists are...
        How do you know they're terrorists? Should people sleep better if YOU were locked up? Further, I find your reasoning repulsive. It reminds me of how Japanese soldiers excused themselves while committing atrocities during WWII because the victims weren't Japanese citizens and so deserved no "protections".

         

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          Anonymous Coward, Nov 6th, 2008 @ 6:51pm

          Re: Re: Re: SOX - not!

          " CONGRESS exempts the gov't from record keeping--throww the bums out..

          By blaming Congress you aren't exactly exonerating the government. Cogress, in case you didn't know, is actually part of the US government. (No, George Bush is not "The US Government")"

          So, how does "Congress did it, elect someone else if you don't like it" equate to exonerating the government, and when did he mention Bush? It seems you are the once confused, or simply too stupid to get it.

           

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            Anonymous Coward, Nov 7th, 2008 @ 10:05pm

            Re: Re: Re: Re: SOX - not!

            So, how does "Congress did it, elect someone else if you don't like it" equate to exonerating the government...
            Sigh, learn how to follow a thread. That comment was in rebuttal to a previous comment about the government exempting themselves. Yes, Congress originates federal laws, but they're still part of the government so when a law is passed exempting the government from something it really is the government exempting itself.
            ...and when did he mention Bush?
            It has been my experience that when someone starts talking like they think Congress is separate from the government that they have often have the mistaken idea the federal government is made up entirely of the executive branch. Right now, the chief executive is George Bush.
            It seems you are the once confused, or simply too stupid to get it.
            "Once confused"? That's pretty funny coming from someone who can't even follow a thread.

             

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    Jim C., Nov 6th, 2008 @ 4:34pm

    Back to the topic: SOx

    If your management is still spending $1M for a $60M company on SOx--they're idiots! Audit Standard 5 (AS5) reduced a lot of the work by making the controls tested risk based. Most companies are spending a fraction of the amount spent in 2003 and 2004 for SOx complaince due to the changes.

    The issue was that companies and their auditors stopped doing basic internal control work in the 1980's and 90's due to the streamlining of overhead. They took the risk of not having adequate internal controls and lost! The main problem with SOx, in its original form, was that Section 404 was issued without regulations and the external auditors over-reacted to the shifting of risk. This caused companies to docuemnt and test every moving thing and cost millions of dollars.

    The Lord & Benoit Report in 2006 had a study that included a population of nearly 2,500 companies and indicated that companies with no material weaknesses in their internal controls, or companies that corrected them in a timely manner, experienced much greater increases in share prices than companies that did not. The report indicated that the benefits to a compliant company in share price (10% above Russell 3000 index) were greater than their SOX Section 404 costs. Piotroski and Srinivasan published a study earlier in 2008 that examined a comprehensive sample of international companies that list onto U.S. and U.K. stock exchanges before and after the enactment of the Act in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995-2006, they find that the listing preferences of large foreign firms choosing between U.S. exchanges and the LSE's Main Market did not change following SOX. In contrast, they find that the likelihood of a U.S. listing among small foreign firms choosing between the Nasdaq and LSE's Alternative Investment Market decreased following SOX. The negative effect among small firms is consistent with these companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by the Act increasing the bonding-related benefits of a U.S. listing.

    If you go to the DOJ website, the Corporate Fraud Task Force has logged over 1,300 convictions for fraud under SOx provisions, so it is at least partially working.

    Quit your whining and get back to work!

    JC

     

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    Lonnie E. Holder, Nov 7th, 2008 @ 5:57am

    Cost of Sarbanes-Oxley

    Ivy Xiying Zhang published a paper titled "Economic Consequences of the Sarbanes-Oxley Act of @002" in February 2005. In this paper, Zhang estimates the costs of Sarbanes-Oxley by examining the market reaction to Sarbanes-Oxley.

    I am not endorsing Zhang's method. In fact, I think her methodology is fraught with problems and is somewhat akin to determining whether a house needs more food by measuring the weight of family members. However, what I do find fascinating is that Bessen and Meurer did a similar sort of comparison with respect to patent litigation costs and arrived at a number somewhere around $11.2 billion in 1999. I mention 1999 because in previous years the amount was less, and a decade earlier the amount was significantly less.

    To put it a different way, the cost of Sarbanes-Oxley would equate to about 125 years of patent litigation. Actually, the ratio is probably far worse because courts have shown a propensity to reduce or limit awards and investors have realized that in most cases patent litigation generally has few long-term effects, so current markets may be reacting significantly less to news of patent litigation. If the effect of patent litigation on market value returns to more normal historical levels, say $4 billion per year, then the cost of Sarbanes-Oxley in terms of market effect would equal about 350 years of patent litigation.

    Quite a sobering thought.

     

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    Andrew D. Todd, Nov 7th, 2008 @ 9:14am

    Sarbanes-Oxley is Reality.

    Well, I thought that the whole point of Sarbanes-Oxley was that there are certain types of companies which should not be IPO's, because the nature of their business does not involve having much in the way of readily valuable assets, or because an excessively high proportion of their expenditure goes into things like business planning. The point of Sarbanes-Oxley regulations is to chase out the marginal operators, by setting requirements they cannot meet. They are supposed to remain privately held companies until such time as they either fail, or are sold to big companies, or possibly even become profitable and get big enough to easily comply with Sarbanes-Oxley. Of course, in the light of recent events, measures will be taken to ensure that pension funds don't invest in this kind of company either.

    All kinds of custom manufacturing are becoming more and more like jobbing printing as the equipment is automated. There are fewer and fewer niches where specialist electronics are justified instead of software. You obviously do not want to get into a situation where you are competing head-to-head with Intel in the production of basic standard components. If you have a small widget to sell, Amazon will take care of the retail sales for you, on consignment. And so on, across the board. There is less and less justification for actual outside capital investment. However, there is a certain type of IPO which is driven by the management's desire to be wealthy, rather than by any real need for capital to plow back into the business.

    The technical staff are likely to know the product better than anyone else does. If you cannot ask them to work for graduate student wages, plus eventual ownership participation in some form, you've got no business asking the public for money in an IPO.

     

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    The Freedom Thinker, Nov 9th, 2008 @ 10:10pm

    Thanks

    Thanks for a great post.

     

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    Dennis Howlett, Nov 15th, 2008 @ 11:10am

    And replace with...

    Mike - interesting idea but without a replacement proposal it sounds faintly hollow.

     

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    Mark Cummins, Nov 17th, 2008 @ 10:43pm

    Repeal SOX??? No way!!!

    I have a perspective on SOX as an "insider", so to speak, and I definitly have a bias(I have worked as an outside auditor, a corporate finance guy, and now a BMW driving Sarbanes consultant). I think Sarbanes, or something like it, was long overdue. First, it makes the CEO's and CFO's assert that they have effective internal controls to prevent fraud, or tell it like it is if they don't. If they are lying, Sarbanes imposes jail time, they cannot hide behind their auditors, lawyers, consultants or "no one told me anything" excuses. Believe me, the attitude change in the Board room and Presidents offices has been huge, they want the numbers to be the numbers and the urge to fudge them has greatly, I mean greatly, diminished. Sure, SOX cost a bunch the first few years companies had to comply, but now having good financial controls is just "part of doing business" and I think does help reduce(not eliminate) the motivation to lie about corporate profits.

    Reapealing it now might bring us back to the day where the bolder company's might lie about their profits or losses. Hey, when is the last time in the news a company committed fraud? It's been quite a while, the Enron, Globol Crossings, etc. stories have given way to good old straight up bad financial news. The numbers might be bad right now. But at least (for the most part) they are true.

     

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    John Summers, Jan 13th, 2009 @ 4:35pm

    Who can approve an invoice?

    Although I have made a good amount of money being a SOX consultant, I am shocked to see how ineffective the Sarbanes Oxley act is

    What bothers me the most are how the companies that created this mess (what use to be the big5 now the Big 4) are reaping hundreds of millions of dollars in compliance costs. They make a big deal out of the poor souls by asking idiotic questions as "who can approve invoices of $500?" while the big scam artists, the charlatans such as AIG, Bernard Madoff and the many others get away with defrauding the public with the emergence of a shadow banking system that most people in government are too stupid to understand yet alone regulate.
    I also worked first hand at both Freddie and Fannie and let me tell you happens when a person questions the corrupt business practices: they either release you or dimiss you as not smart enough to understand complicated financial instruments that are nothing more than huge pyramid schemes.
    The meltdown on wall street will repeat itself over and over again, we are just seeing the beginning of the demise of this country. Honest corporations are fleeing this country setting up shop in countries such as the United Arab Emirates who at the end of the day have a better understanding of corporate governance than the corrupt politicians in Washington who are in bed with lobbyists representing private interests , interests that have a toxic effect on financial stability of the country.

     

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