Saturday, July 19, 2008
Will Sarbanes-Oxley go down in infamy?
The Financial Times rather casually links Sarbanes-Oxley, the bane of any public company executive who went into business actually to do business, to other famously destructive regulatory overreactions:
Legislators do not always make their wisest calls at such times of financial frenzy. The Bubble Act of 1720 banned the issue of all stocks that were not authorised by royal charter and as such made it difficult to start a legitimate business in Britain for more than a century until its eventual repeal. The Wall Street crash of 1929 led to the Smoot Hawley tariff legislation of 1930, with its devastating impact on international trade. The dotcom bubble in the early years of this century was followed in the US by the Sarbanes-Oxley legislation, with expensive consequences for all US listed companies.
The comparison is apt. The costs of Sarbanes-Oxley are not limited, by the way, to measurable added expense for auditors and lawyers. Certain aspects of the law (largely related to the elevation of financial controls to the same status as truthfulness in the preparation of financial statements) are equally as destructive as other famous anti-business regulation. They exhaust management with administrivia, require directors to spend a huge proportion of their time on formalities rather than understanding the actual business, promote the importance of law and accounting over sales, marketing, and product development, and create an inherent bias toward the aversion of risk (because every action requires multiple approvals). One result is that the best executives no longer want to work in public companies -- I literally do not know a single public company executive who does not wish that he or she worked for a private company instead. That is a sea change in attitude, and one that does not bode well for American publc companies or the domestic economy in the long haul.
3 Comments:
By 
Nomenklatura, at
Sat Jul 19, 06:07:00 PM:
There has been talk in London of putting up a statue to Sarbanes and Oxley, because the legislation brought so much financial business from the US.
It was decided though that it wasn't worth the (admittedly small) risk that the US Congress would finally wake up and understand what it did.
By D.E. Cloutier, at
Sat Jul 19, 06:38:00 PM:
Antibusiness politicians and bureaucrats in the U.S. and the EU will learn they don't have as much power as they think they have in the global marketplace.
This week Germany's Spiegel Online had a report about the EU's carbon trading scheme. The manager of a German cement factory told bureaucrats: "If that's the shape the trading will take, we will simply move our cement operation to Ukraine. Then there won't be any trading here, nothing will be produced here anymore -- the lights will simply go out here."
Link:
http://www.spiegel.de/international/business/0,1518,566441,00.html
By Cas, at
Sun Jul 20, 04:09:00 PM:
If we can't get Congress to recognize the ridiculous burden they've placed on American "energy companies" by not allowing them to drill where the oil is (and subsequently using the revenues thus accrued for investing in alternate energy sources, such as bio-diesel from algae) how can we possibly expect them to recognize the burden they are placing on US companies via Sarbanes-Oxley? Besides, the majority of the dhimmi-crats HATE those capitalist- pigs with a passion (being good socialists/Marxists), so any pain they can inflict on those terrible ogres controling American business is justified, isn't it?
