For business, reforming SOX might be best gift of all
- November 30, 2009
The holiday shopping season traditionally gives many businesses a boost. But the best gift to the bottom line may come in the new year. On Dec. 7, hearings get under way before the U.S. Supreme Court on a lawsuit that challenges the constitutionality of the Sarbanes Oxley Act of 2002.
While a decision isn’t expected until mid-year, ho, ho, ho will resound throughout the land if all or a part of the much-hated accounting law gets overturned. Passed after the Enron and WorldCom scandals to ensure greater accounting transparency, SOX has cost companies billions in compliance. One estimate by a University of Rochester researcher puts the cost at $1.4 trillion to the economy.
At the heart of the legal challenge is the Public Company Accounting Oversight Board. In nine separate briefs, several parties, including the Washington, D.C.-based Competitive Enterprise Institute, argue that the board’s structure can not stand up to constitutional muster. “Here you have an agency whose head is paid more than the president, $700,000 a year. They can levy their own rules, yet they’re not appointed by the president or confirmed by the Senate,” says John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, a free-market think tank.
In short, he argues that the PCAOB — whose executive is confirmed by the Securities and Exchange Commission — lacks congressional oversight.
The law also is under attack on the legislative front. In November, the Obama administration and a bi-partisan group of Republicans and Democrats on the House Financial Services Committee passed an amendment to the Investor Protector Act that would permanently exempt smaller public companies (with a market cap of less than $75 million) from some of SOX’s restrictive internal controls.
If the change is passed by the full House and Senate and is signed into law, the exemption would free many entrepreneurial firms from expensive accounting controls, freeing up more money for growth and innovation. “You need business growth for job growth,” says Berlau.
Besides, he adds, SOX hasn’t been effective in exposing fraud. “Countrywide passed SOX with flying colors and now its former CEO is being indicted for security fraud.”
The Competitive Enterprise Institute, whose attorneys are co-counsel to the plaintiffs in the court case, is holding a hearing Tuesday in Washington, to discuss the legal and economic aspects of Sarbanes-Oxley.
“If Bill Gates, Sam Walton or Meg Whitman were starting out today, what would be the regulatory barriers in place that would keep them from building the next Microsoft, Wal-Mart or eBay? Sarbanes-Oxley is one of them.”