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Business Law Professors Square Off Over Sarbanes-Oxley
Joseph Nocera's column in today NYT (Business Section),  "For All Its Cost, Sarbanes Law is Working," was a typical Nocera effort to declare.  He takes a controversial topic, breezes over the claims for and against and declares.  He has done, for example, a column on Donaldson as head of the SEC, declaring that he did a good job.  In his column he quotes two law professors, William J. Carney and Steven Bainbridge, on the law "unintended consequences and quotes Harvey J. Goldschmid:  "There is no question it has been a great piece of legislation, and anybody who says otherwise is talking like a darn fool."  Ouch, Goldschmid was on the SEC when the SOX was put into place and had an important hand in the implementing rules. Well, lots of folks are talking like fools.
There are two parts of the argument that are hard to deny.  First, Congress intended the legislation to clean up the corporation scandals of 2002.  A primary part of its purpose was to fix auditing; auditors had misbehaved.  The primary effect of the legislation has been to enrich auditors.  Auditors have more important positions inside companies and must do more;  audit fees have skyrocketed.  So a profession misbehaves, Congress writes legislation to discipline them and the profession profits big time -- what a great country.  We should we suspicious of any legislation that has this effect.    Second,  of course the legislation has benefits, the question is the cost of the benefits.  Nocera quotes CEOs saying that they learned some things about their companies from Section 404 internal controls audits.  Nocera uses these CEO revelations, in the final analysis, to say the legislation works.  Pretty shallow stuff.  An argument like this could justify any number of very silly disclosure rules.  [Make all companies run environmental bore hole tests on every acres of land every year or so;  some CEOs will learn something.]  All companies must do Section 404 audits and some will learn a bit that they would otherwise not know --but many (most?)companies, making a business decision on information, would not do them if not forced to -- the total information gains from the 404 audits do not exceed the total costs of the rules.   The continuing exemption for small companies (and the discussion of the exemption) is where the rule's true problems are revealed for all to see.
From Business Law Prof Blog
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