TCS Daily

I Found My Issue!

By Stephen W. Stanton - March 18, 2005 12:00 AM

It's not often a young pundit can find fresh new ground to cover. Hundreds of more established personalities battle over the low hanging fruit. Taxes, terrorism, global warming, gay marriage, education... It's all been done to death.

The big boys leave some esoteric crumbs that few people care about. My first professional column was about the negative impact of US international tax policy on the cost of capital. Boring stuff. Frankly, I'm surprised they let me write a second column.

Today is different. There is a huge issue that nobody is talking about: The Sarbanes-Oxley Act. Let me be among the first to publicly say it's broken.

This law affects every public company in the United States. It directly impacts everyone who works in finance and accounting, from the CFO down to the data entry clerks. Indirectly, the law affects everyone with money in the capital markets, and that includes all the teachers, cops, and firemen expecting a pension.

The law was passed as an important "reform", just like McCain-Feingold. And just like campaign finance "reform", Sarbanes-Oxley is rife with unintended consequences. In a nutshell, the law is an expensive distraction from the real issues facing America's for-profit sector. Odds are it will accomplish the exact opposite of its intended goal, harming the investors it was supposed to protect.

This conclusion seems fairly obvious, yet hardly anybody is speaking up. The case against Sarbanes-Oxley is simply not being made.

Why? Two reasons: incentives and distractions. People who care the most legitimately fear the consequences of speaking out. The people who care just a little bit have bigger fish to fry. More accurately, they are hunting their white whale, seeing blood in the water for the very first time.

Who would speak out against Sarbanes-Oxley?

Wall Street? Not after Spitzer's latest crusade. The NY Attorney General gave the big banks a spanking and put them under the microscope. Nobody on the Street is going to risk their seven figure bonuses to speak out against "reform". That's just asking for trouble.

Executives & Directors? No way. They already are catching heat from the misdeeds of Bernie Ebbers, Jeff Skilling, Ken Lay, and more recently, Qwest's Joseph Nacchio. Sarbanes-Oxley was a direct response to the misdeeds of senior executives. Nobody's going to believe these folks if they claim the law is no longer necessary. So why draw all that attention to themselves? The first one to speak up will invite a lawsuit or government investigation.

Auditors? Are you kidding? After Arthur Andersen's ethical implosion, auditors have no standing to complain about the need for reform. That would be like Michael Jackson calling for a repeal of child welfare laws. More importantly, Sarbanes-Oxley is big business for the audit firms. Thanks to this onerous law, their audit fees doubled in the last few years. They make a ton of money from Sarbanes-Oxley, and they are not about to derail the gravy train.

Consultants and vendors? Ha! Even though the audit firms charge a fortune to do some Sarbanes-Oxley work, there are many things they legally cannot do. Armies of consultants and IT vendors fill the gap, exploiting Sarbanes-Oxley to get rich quickly. They cash in each time the regulations get more onerous. No matter how ridiculous their projects become, they will never complain about the law that drives their business.

Politicians? Double ha! The political sensitivity around this law makes the Social Security "third rail" look like a Lionel train set. Who in Congress will vote against corporate "reform"? In today's world, big corporations are the bad guys. Any politician who objects to SOX will appear to be bought and paid for.

What about the pundits? They're too busy. George Bush shook things up so much in the last few years, their plates are full. Their lifelong issue-advocacy campaigns are finally coming to fruition. They have to cover Social Security, gay marriage, Middle Eastern realignment, Supreme Court nominations... They've got their hands full. Besides, this Sarbanes-Oxley stuff takes too much time to learn.

Surely there will be public outcry, right? Nope. Lots of people still think Saddam hit the Twin Towers. Do you really think the masses are going to dig deep into the intricate details of corporate governance? Do you think the average Joe will bother to figure out the optimal tradeoff between financial statement accuracy and the marginal cost of additional assurance? Do you think they'll do all that on their own, without critical coverage of the Sarbanes-Oxley Act in the media?

It looks like I'm on my own, and that's fine. I'll charge this Sarbanes-Oxley windmill by myself if I have to. Heck, if I stand alone for long enough, maybe I'll get on TV... Like Michelle Malkin did with her lonely defense of Japanese internment during WWII.

Luckily, I'm not really alone. There are a few other dogs in this fight. I probably won't be on TV after all. But at least with more voices, we're more likely to be heard.

In the coming weeks, I plan to use this space to expose the most ridiculous aspects of the Sarbanes-Oxley Act. If you're interested in the subject, you don't have too many other places to go.

Good for me.


1 Comment

the national review sees the point - look at 2/ 20 article
I agree with you. But we dont have a lot of friends. Still, the jobs lost from this are mounting up!

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