Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Lane3 who wrote (93571)	1/4/2005 10:08:31 AM
From: LindyBill	Read Replies (1) \| Respond to of 793772

Sarbanes-Oxley in the category of regulation...I had to look this one up. Do you know what the complaint is about it? Gee, I thought everybody knew that one. :>) Just more corporate regulation, I guess. Does it give more transparency, or just add to the bureaucratic load? That's the argument.

To: Lane3 who wrote (93571)	1/4/2005 10:22:28 AM
From: LindyBill	Read Replies (2) \| Respond to of 793772

Speak of the devil! The mounting attack on Sarbox Ideoblog By Larry Ribstein on Securities fraud busmovie.typepad.com I have been regularly covering the problems and criticisms of the Sarbanes-Oxley Act (see, e.g., my initial Sarbox paper (draft) and this blog's Sarbanes-Oxley archive). Now comes this story from yesterday's WaPo summarizing the state of the political attack on Sarbox. The story says that "political business interests are focusing with laser-like intensity on the negative effect the law has had on small businesses, which say they lack resources to pay multimillion dollar audit fees." One might argue that, given the fundamental problems Congress identified, it would be unwise to retrench just because things happen to look ok at the moment. But there would be two problems with that argument. First, Congress didn't do its job the first time around -- as I've said [in Bubble Laws, 40 Houston L.Rev. 77 (2003)], Sarbox was a typical "bubble law," passed in haste and without anything even remotely resembling adequate analysis. Roberta Romano makes this clear in her devasting recent critique. Second, even careful regulators can't know everything, particularly including how the regulation will play in the real world. As the senior vp of the US Chamber of Commerce is quoted as saying, "did regulators really intend for companies to put off buying IT systems? Did they really intend to create an environment in which companies are putting off acquisitions in the fourth quarter?" This is why I've argued [in Sarbox: The Road to Nirvana, 2004 Mich. St. L. Rev. 279] for "humble" regulation, including sunset provisions. Since Sarbox was born without a sunset, Congress needs to provide one. So what's the strategy at this point? Leave it to the SEC? The SEC has "formed an advisory committee to examine how small businesses disproportionately may bear costs of the changes." And the SEC has the incentive to respond to forestall a Congressional effort to shrink its power. But it, and Congress, also have an incentive to run scared from headlines about corporate fraud, and of course Eliot Spitzer. And a focus only on small business indicates that the SEC isn't planning to go far enough. What the SEC does depends on its chairman and members. If truth and justice prevailed in the world, Donaldson would go. But according to the WaPo story, lobbyists think replacing him is impractical. So they're focusing on possible new members. If a Republican slot on the Commission opens, here's my pick: Steve Bainbridge. Joe Grundfest is another possibility, but his role in the Oracle case might be a concern. Professor Bainbridge has been consistently on the side of truth and justice, particularly including the SEC's ill-advised initiative on shareholder nomination of directors (recent post here). To the extent that anti-regulatory lobbyists want to pick a specific battle, expensing stock options looks like the one. The WaPo article says that "consumer advocates" are concerned about Congress' attempt to thwart the FASB stock options expensing move. I'm against forcing firms to expense -- see here. Finally, Harvey Pitt (remember him?) blames over-regulation partly on business, saying that if "these industries had taken the lead in detecting their own conflicting practices, and then resolving them, there wouldn't be anything for Elliot Spitzer or the SEC to do." There is a truth in that, but only a trivial one. Free markets inevitably err. The question is what to do once this happens. As I argue in my initial Sarbox article linked above, securities markets have the wisdom, the incentives and the flexibility to make the right corrective moves. Of course in an overheated regulatory environment firms have an incentive to take Pitt's advice to heart and avoid risk and innovation for fear of government reprisals. But contrary to Pitt, that's a problem, not a solution.