Thursday, March 15, 2007
Michael Oxley makes a good career move
Last week, we and many others reported that Michael Oxley, one of the co-sponsors of the famous and infamous Sarbanes-Oxley law, recanted.
Presiding over a recent dinner in Paris for more than 200 accountants, Oxley — the former Republican congressman from Ohio and co-author of the Sarbanes-Oxley corporate governance law — was asked during the question period whether he realized he had helped create one of the most crushing financial burdens ever imposed on business.
Was Oxley aware, his questioners asked, that the law that he and Senator Paul Sarbanes, a Maryland Democrat, rushed onto the books five years ago after the collapse of Enron and WorldCom had contributed to a sharp decline in listings on U.S. stock exchanges? And, knowing what he knows now about the cost and effects of the law, would Oxley — who retired in January after 25 years in Congress — have done it any differently?
"Absolutely," Oxley answered. "Frankly, I would have written it differently, and he would have written it differently," he added, referring to Sarbanes. "But it was not normal times." [. . .]
Whether or not Oxley is sincere in his recantation, we now understand the timing of it.
9 Comments:
By 
Sissy Willis, at
Thu Mar 15, 01:52:00 PM:
Like bad cases, abnormal times make bad law.
Thanks a lot, Michael.
By 
, at
Thu Mar 15, 04:22:00 PM:
Tiger, I really have to disagree with you on SOX and government regulation. I work for a consulting company (we don't do SOX consulting) and I have had long conversations with industry experts, people who have been compliance officers in banks, on Wall Street. I can tell you that in their opinion, the regulations are not too stiff, in fact, they should be stricter.
There is nothing wrong with the law, just the way the law is enforced (that from the authors.) You look at companies, their compliance department is there to keep senior leadership from going to jail.
Read the headlines, you see it every day. SOX was put in place because while the government knew that senior leadership was breaking the law, they couldn't prove it. SOX makes them sign on the dotted line that the financials are correct. If the financials are not correct, they are responsible. What is wrong with that?
UHG didn't know that not accounting for $1.2 billion dollars in options was wrong? Jobs didn't know that not reporting options grants on his financials was wrong? (To say nothing of Al Gore, an Apple director)
All the talk of companies going private or doing their IPO's elsewhere is a joke. Most of the companies that went public overseas wouldn't have ever been allowed to go public here because of serious questions about their numbers.
If anything, more regulation is needed. Is it a burden? No, its a cost of doing business. Its goal is to give investors confidence in the stock market. Take that away, and the cost to companies will be a whole lot higher than what they spend today.
By TigerHawk, at
Thu Mar 15, 05:34:00 PM:
Random -
I actually think that many of the reforms of SarBox made sense. However, the elevation of process to equal significance with outcome has in my judgment changed the character of American business for the worse. It is now impossible to act entrepreneurially within a public company because of the multiple sign-offs required to do anything. Even worse, directors now spend the preponderance of their time on process rather than a substantive review of the business. The result is that corporate boards are being repopulated with people who love process -- accountants, lawyers -- and depopulated with people who know how to build businesses and innovate. I am seeing it all over the place, and it is a disaster.
As for your idea that SarBox is hurting the capital markets -- of course it is. Look no further than the massive boom in private equity, which is heavily fueled by the much higher barriers to public financing.
By RandomThoughts, at
Thu Mar 15, 07:51:00 PM:
TH, when did Google go public? Has it stopped them from innovating?
Process is of course important, its the way you run your business. You show me a company that doesn't know or understand how they do things, and I will show you a company that isn't run well.
The massive boom in private equity may or may not be related to regulation. Hedge Funds may or may not be tied to regulation. I think it is too soon to tell if thats a good thing or a bad thing.
Look at the Dow, until last week, it was doing pretty well. Exxon seems to be able to generate profits despite having to deal with regulation. Where is the beef? What, Goldman isn't happy with its profits? It needs even more?
The goal of SOX is to hold the senior leadership accountable for their financial statements, the statements they use to get investors to buy into their company. Whats wrong with that?
By , at
Thu Mar 15, 08:41:00 PM:
I didn't spend all that time reading Sarbanes-Oxley For Dummies just to have them change it and force me to buy a second edition.
By , at
Thu Mar 15, 09:38:00 PM:
Tigerhawk,
OT but a request:
The walterreedblogspot blog(link below)claims to be written by a recovering soldier at Walter Reed. It describes the military hospital as a pit of hell etc. The blogger is being quoted by the usual lefty, anti-war suspects and being posted on digg to promote their agenda. Can you find out if this author is really what he claims? Or is this another front for the anti-war crowd?
http://walterreed.blogspot.com/2007/03/need-to-write.html
Thanks
By , at
Thu Mar 15, 10:13:00 PM:
Anonymous, good question, this is the most frustrating thing about the internet.
By TigerHawk, at
Fri Mar 16, 12:33:00 AM:
Random -
The goal of SOX is to hold the senior leadership accountable for their financial statements, the statements they use to get investors to buy into their company. Whats wrong with that?
Nobody objects to the goal of accountability, the problem is in how SOX gets there. Anyway, all the Clinton-bubble era criminals were prosecuted under the pre-SarBox laws that prevailed then, and have gotten suitable jail time and other penalties under those laws. So the criminals were caught and prosecuted without needing SarBox. Just sayin'.
Look at the Dow, until last week, it was doing pretty well. Exxon seems to be able to generate profits despite having to deal with regulation. Where is the beef? What, Goldman isn't happy with its profits? It needs even more?
SarBox is not a crippling burden for huge companies for a number of reasons (including their high "materiality" threshholds). The situation is entirely different for small companies, which are the engine of innovation in the American economy. It is far more difficult for them to tap public capital markets than it was. It is far harder for them to attract truly useful directors (as opposed to watchdog directors who will not add value). SarBox threatens to make our capital markets look more like Japan or Europe, where only large companies have access to capital. Ironically, this will happen just as much smaller European companies find themselves able to raise money. We're messing with the American miracle, and it scares me.
By Purple Avenger, at
Fri Mar 16, 08:18:00 AM:
Since Oxley's ability to predict seemingly obvious logical consequences was so clearly deficient, why would anyone want to hire him for any position with more responsibility than dog catcher?
Everything has consequences. Its basic Newtonian physics. Every action, has an equal and opposite reaction.
When some politician says "I didn't think that would happen", they're saying essentially that they're morons who can't think more than one step ahead.
