Sarbanes-Oxley at 10

Ten years ago today the Sarbanes-Oxley Act (SOX) was enacted, supposedly ushering in a new post-Enron era of corporate governance. A New York Times “Room for Debate” feature published a few days ago on the paper’s website offers four viewpoints on the law’s value after a decade, although the timeliness of the feature is tempered somewhat by its shallowness.

According to one writer, attorney Michael Peregrine, SOX’s benefit is largely conceptual, the law having catalyzed “a more robust respect for corporate compliance, fiduciary duty to shareholders and ethical behavior.” Another, Broc Romanek, who edits a website on legal issues pertaining to securities regulation and corporate governance, concedes that some of the new requirements embedded in the law “have stopped some frauds in their tracks,” but regards the larger pursuit of governance reform as “in its infancy as board failures remain too common.” A third, former SEC deputy chief of staff Kayla Gillan, points to the law’s merits as a deterrent: “Those who would seek to provide the market with misleading numbers are less likely to be able to do so because the public company internal controls are now much more effective.”

These are all lovely, essentially upbeat sentiments, but the Times package is incomplete because it comes off as a bit of a whitewash, omitting the widely held view on the right that the SOX law does more harm than good and should be dismantled. The Cato Institute crowd has been espousing this view for quite some time, and we now find ourselves with a major party presidential candidate who is on the record favoring outright repeal of the law.

While it’s certainly plausible (even likely) that a sweeping reform law passed in the emotional wake of scandal overreaches, it is hard to believe that doing away entirely with the law’s new regime of accounting controls and executive responsibility for the integrity of firms’ financial statements is a way to advance boardroom ethics. As the Wall Street Journal has reported, “Many businesses have complained that the new requirements are onerous and costly.” As well they should be.