Friday, December 01, 2006
The political chances for reform of Sarbanes-Oxley
Glenn Reynolds links to Walter Olson's op-ed piece arguing for reform of the Sarbanes-Oxley Act and other laws and regulations that chill risk-taking and drive capital from the United States. Glenn's Insta-verdict: "I think there's an excessive degree of complacency on this topic." I obviously think so as well, given my recent blogging zig into the tedious but critical subject of corporate governance.
Olson wonders whether the Democrats, who are not exactly thought of as the friends of business, will bash corporate America more than liberate it:
What’s more, the new Democrat Congress is likely to find business bashing more appealing than restricting litigation.
Maybe, but I think the opposite may be true. The Republicans, who are always vulnerable to the charge of being in the pockets of the "corporations" and their "Benedict Arnold CEOs," could not be seen to loosen reforms enacted in the wake of the financial scandals of 2001-2002. The Democrats, who have long-established anti-business bona fides, can support reform in the name of "competitiveness" or some other rationale that will simultaneously placate their populist constituencies and reassure the socially liberal working wealthy (such as New York investment bankers and California technology entrepreneurs). Only Nixon could go to China, and only the Democrats can fix Sarbanes-Oxley.
Olson hints at this, pointing out (as I have also pointed out) that New York Democrat Chuck Schumer called for SarbOx reform even before the election. Smart move. It could be just what the Democrats need to persuade pro-growth Americans that they won't gum up the world's most dynamic rich country economy.
6 Comments:
By 
, at
Sat Dec 02, 06:30:00 AM:
Your argument has the same logic applied to the go to war meme. A Democrat will always be better able to take the nation to war because he can disarm the natural antagonists to going to war - the left.
By , at
Sat Dec 02, 07:00:00 AM:
Reform will affect the same majority as passage of the initial law: the companies who adhere to acct'g regs in the first place. Worldcom,Enron,Phar-Mor,Integrated Resources, OPM Leasing (as you can see the list is both long and old,i.e. the Dutch Tulip scandal or the French land bubble) didn't occur due to lack of regulation,they occurred due to corrupt managers. Criminals think they can get away with whatever they're doing regardless of regulation.
It's entirely unclear that SOX has caused companies to prefer to issue outside of the US. Due diligence,registration fees and especially investment banker fees typically drive the bulk of issuance costs,not the future cost of SOX.
One benefit of overseas issuance is that's where the money is; US $s seeking a home. In addition, investment banks overseas can be on as many sides of the deal as they want.
By 
TigerHawk, at
Sat Dec 02, 07:25:00 AM:
It's entirely unclear that SOX has caused companies to prefer to issue outside of the US. Due diligence,registration fees and especially investment banker fees typically drive the bulk of issuance costs,not the future cost of SOX.
I don't think the problem with SOX is really its incremental cost, as high as that is. The problem is its impact on the propensity of executives to take risk, which is severe. It creates lots of liability for small and ultimately inconsequential things. Executives would much prefer not to operate in that environment. Since they can do business in the United States without actually complying with SOX if they list their companies in London instead of New York, we will see more and more business go there. And, by the way, it will be good for the American economy, because the alternative -- risk averse managers running companies more obsessed with process than business strategy -- will only drag us down. Better still to lower the liability and ambiguity in our corporate governance regulation (and, by the way, make it a lot easier to do hostile takeovers, but that's another topic).
By , at
Sat Dec 02, 07:46:00 AM:
It's entirely unclear....not the future cost of SOX
That is true, and I would be guilty of confusing the source of costs in previous posts.
But, google around the numbers of international/foreign companies listing on London AIM vs NASDAQ, and the reasons, and you find - - Cost. Additionally, many mention ongoing SOX costs. I've also read of UK listed Cos considering delisting in the US because of SOX.
I wasn't aware of "In addition, investment banks overseas can be on as many sides of the deal as they want". and would appreciate your comments.
By the way, given your obvious detailed knowledge of this market, I would appreciate and value your opinion of This company who appear to be well connected with relations to some good websites, and able to act as a NOMAD.
As a small investor, I realize the truth of your words, and seek ways to increase my returns, - any which way.
By , at
Sat Dec 02, 07:51:00 AM:
Well, I didn't press the refresh button.
My post referred to Anon, but landed after TH post.
Sorry for any confusion.
By tm, at
Sat Dec 02, 11:58:00 AM:
I started writing a comment, but it kept getting longer and longer and more boring and boring, so I took it offsite to my blog.
