Supreme Court To Review One Small Aspect Of Sarbanes-Oxley

from the this-doesn't-seem-like-a-big-deal... dept

I'm no fan at all of Sarbanes-Oxley, the overly draconian corporate governance law that was passed in the wake of the Enron scandal. Obviously, given the financial messes that we're going through today, it did little to stop financial shenanigans. The reality is that the law did lots of superficial (but extremely expensive) things to basically have someone to pin the blame on, should anything go wrong -- but did little to actually prevent fraud. I'm all for good corporate governance, and efforts to root out fraud -- but Sarbanes-Oxley did no such thing. And, worse, it had pretty massive unintended consequences, such as adding millions to the cost (in pure economic waste) of going public, making it a lot trickier for startups to go public, even if they were completely ready under every other condition. Sure, we had too many IPOs during the dot com boom, but Sarbanes-Oxley made the barrier to going public much greater than it ever should be.

So, I was happy to see headlines suggesting that the Supreme Court is reviewing the law and could possibly throw it out. However, the details are a lot more mundane. Basically, some lawyers are challenging a very narrow part of the law, questioning whether or not it violates the "appointments clause" of the Constitution, which requires that certain officials be appointed by the President or a Cabinet member. So, in this case, officials to a board overseeing Sarbanes-Oxley were appointed by the SEC, rather than a cabinet level representative.

This is nothing to get worked up about.

You may recall, challenging various laws or appointments under this clause has suddenly become popular. We covered a very similar challenge to appointments to the Patent Appeals Board, as well as a similar claim about appointments to the Copyright Royalty Board (and it also came up as an issue during the debate over the TARP program. Of course, with the Patent Appeals Board, all it took was for Congress to make a quick fix to the law, making it so that the law required the Cabinet level member to make the appointment with the "help" of the lower level director who did the original appointments. In other words, nothing really changed other than who signed the appointments.

The only potential "difference" here is that if the Supreme Court sides with those saying this rule is unconstitutional, the entire Sarbanes-Oxley would need to be put back to a vote with any changes, and the thought is that this could open up the law to be fixed. Of course, that may be wishful thinking, as it would also open up the law to be made much, much worse -- and given the populist attacks on corporate governance and corporate malfeasance these days, it seems quite likely that what comes out would be much, much worse in terms of impact... but any oversight board would be appointed at the cabinet level.

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  • identicon
    Tghu Verd, 19 May 2009 @ 4:08pm

    RE: Supreme Court To Review One Small Aspect Of Sarbanes-Oxley

    Fully agree - SOX did more harm than good, loading up costs all through the business supply chain and giving not a whole lot back.

    My experience was managing SOX-support into an ERP package: it was time consuming for us and the customers; did not add anything fundamental to corporate governance that they did not already have; and in the end relied as much on the honesty and integrity of the senior executive as before SOX was enacted.

    In the end it just reinforced, to me at least, that morals can't be legislated.

    reply to this | link to this | view in chronology ]

  • identicon
    Auditor, 19 May 2009 @ 4:50pm

    SOX did some good

    Yes SOX was costly a few years ago, but its not quite as bad these days. There are COTS packages that pretty much go through the process for you. It was a sharp reaction to corruption, but it doesn't stop much of anything these days.

    It was able to get corporate governance thinking about IT security so it did do some good, but spending on security can never be balanced in the books and shown by executives as a cost effective measure. However, how much fraud and ID theft that was prevented from SOX might equal or exceed the costs for SOX implementation. It is difficult to justify prevention and ethics when it cuts directly into your profits and shareholder demands.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 19 May 2009 @ 5:37pm

    Other Bad Regulations

    Obviously, given the financial messes that we're going through today, it did little to stop financial shenanigans.

    Obviously, given that traffic accidents continue to occur, traffic laws do little to stop traffic accidents and should be abolished as well.

    reply to this | link to this | view in chronology ]

  • identicon
    Tracy Coenen, 19 May 2009 @ 6:37pm

    Mike - You are spot on about how ineffective SOX has been in preventing fraud. I call it "feel good" legislation, that appeared to solve the fraud problem, while actually doing nothing of the sort. I submit that SOX has actually done more harm than good, and has actually created more fraud risks.

    reply to this | link to this | view in chronology ]

  • identicon
    Bettawrekonize, 19 May 2009 @ 7:33pm

    It's weird, when I took economic courses I was always taught that the Sarbanes Oxley act was good (for various reasons). I was never once exposed to counter arguments to this. While I'm certainly not one to take what I'm taught in school as true, in this case I didn't realize that there are many who have counterarguments and such strong disagreement. Not that I'm agreeing or disagreeing with Mike or anyone here, it's just upsetting when public schools teach one side of an issue and not any others. I thought I went/go to school for an education only to later find out that so much of what I learn in school as factual has many people who disagree with counterarguments.

    reply to this | link to this | view in chronology ]

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