At the time, the Sarbanes-Oxley sponsored Public Company Accounting Reform and Investor Protection Act of 2002 was considered to contain “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.”
Sponsored by Paul Sarbanes, a Maryland Democrat Senator and Ohio Republican Congressman Michael Oxley, the bill passed with bipartisan support and was signed into effect by a Republican President, George W. Bush. So credit and blame lies in the lap of both major parties but now, almost seven years later, the question is does Sarbanes-Oxley deserve more blame than credit.
The political purpose of the bill was achieved. It helped to restore public confidence in the securities markets.
In the wake of the accounting scandal that brought down energy giant Enron, its stock prices plummeted from more than $90.00 a share to less than 50 cents a share and investors lost billions and Enron eventually went bankrupt. In response to the shocking demise of Enron, congress tried to act in a way that would restore investors confidence by trying to insure that the scandalous practices of Enron would not be repeated.
So congress responded to the problem which took care of the political objective. They did something about it. But what did they really do about it?
Regretfully, all they actually did was make themselves look good. They made themselves look like responsible legislators responding to our needs but looks are deceiving because seven years later, Sarbanes-Oxley is proving to be more of a hindrance than a help.
It is all an example of government overreaching and innefficiency and innaccuracy.
Initially compliance with the Sarbanes-Oxley Act was projected to cost businesses, that want to go public, about $91 thousand dollars to do so but the actual figure is over $4 million dollars.
This typical government miscalculation has helped to push the start up time for businesses from five years to twelve years and it is adding to the stagnation of a much needed rate of growth for our economy.
At a time when the federal government has spent over $ 1 billion 200 million in the name of economic stimulus, does it really make sense to leave untouched, excessive legislation which is counterproductive to the goals of all that stimulus spending?
When you come down to it, enforcement of Sarbanes-Oxley costs more than it is worth.
That is not to suggest that Sarbanes-Oxley must be scrapped. It must be amended.
Of the eleven sections in the bill, some have merit. Specifically, those sections which hold business executives and owners more accountable. However, no responsible legislative stimulus action can exist without addressing the many other detrimental sections of the bill which are having a debilitating effect on economic growth.
To allow the so-called Public Company Accounting Reform and Investor Protection Act of 2002 to remain as is, during the economic recovery attempts of 2009, is irresponsible and reckless.
In its current form the bill is destroying new job creation, stifling our entrepreneurial spirit and surrendering entrepreneurial innovation to foreign competitors. None of which adds any value to the hundreds of billions of dollars that are intended to grow our economy.
Without changes to the Sarbanes-Oxley legislation, our government is allowing existing legislation to work against all of their current and future economic recovery measures. Without changes to this bill, we are prolonging the economic downturn we are in and putting our economic future on a course that will put us far behind the burgeoning markets and economies of Asia.
A mathematician, an accountant and an economist apply for the same job.
The interviewer calls in the mathematician and asks “What do two plus two equal?” The mathematician replies “Four.” The interviewer asks “Four, exactly?” The mathematician looks at the interviewer incredulously and says “Yes, four, exactly.”
Then the interviewer calls in the accountant and asks the same question “What do two plus two equal?” The accountant says “On average, four – give or take ten percent, but on average, four.”
Then the interviewer calls in the economist and poses the same question “What do two plus two equal?” The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, “What do you want it to equal”?