The Sarbanes-Oxley legislation (pdf) is an example of government at its worst — a knee-jerk reaction that addressed a relatively small problem (i.e., crooked businesspeople) that had little to do with the circumstances (i.e., the bursting of a stock market bubble) that prompted legislators to think that they needed to do something in the first place. Inasmuch as the SOX legislation coincided with the beginning of this blog, the counterproductive nature of the legislation has been a regular subject here, here, here, here, here, here, here and here.
In this timely article, financial columnist Bruce Bartlett (his blog is here) notes that the SOX effect on the economy is only getting worse, and reviews the growing body of research on the negative economic impact of SOX:
Estimates of the cost of the legislation in terms of higher audit fees and lost productivity have risen every year, as companies learn more about its provisions. It is now commonly estimated to be about $15 billion per year, or about $1 million per $1 billion of sales. This estimate is pretty consistent among the organizations that have looked at Sarbanes-Oxley carefully, including Financial Executives International, a trade group; Foley and Lardner, a Chicago law firm; and A.R.C. Morgan, a Dutch consulting company.
Two University of Illinois accounting professors estimated last year that companies had spent 120 million hours complying with Sarbanes-Oxley and that outside auditors had spent another 12 million hours, for a total of 132 million hours. This is equivalent to 66,000 people working for one year on nothing else.
But these direct costs pale in comparison to intangible costs. Corporate executives report an enormous amount of distraction from their core businesses as the result of Sarbanes-Oxley, and they have become much more conservative in their investment strategies. . .
The latest study looks at how the stock market reacted to passage of Sarbanes-Oxley. University of Rochester economist Ivy Zhang found that passage of the bill wiped out $1 trillion of market capitalization. Zhang found no economic benefits to the legislation whatsoever, . . .
Despite the fact that Sarbanes-Oxley has done nothing to improve business performance or investor value, Mr. Bartlett concludes with the following observation:
Bush administration officials are well aware of the negative effects of Sarbanes-Oxley on the economy and the stock market, but they will not do anything about it — a view recently reiterated by Rep. Michael Oxley, Republican of Ohio and co-author of the legislation. They would rather see businesses and investors continue to suffer than admit the possibility of error.
Remember that the next time you hear the Republican Party assure you that the GOP is the “business-friendlier” major political party.
Tom, clear thinking does not always lead, it appears, to clear use of imagery! I am a long-term suffering Chicago White Sox fan, but never has my often disparaged team — here, here, here, here, here, here and here (ok, here, here and here too) — been so cruelly disparaged until now! To have that fine — well, maybe not THAT fine — organization slurred by use of its logo as part of a missive on the abomination that is Sarbanes-Oxley is well, ah, well, just not nice!
Ok, I admit that my team and indeed all of MLB is itself the product of similarly absurd — economically speaking — legislation, in that the monopolistic White Sox and MLB are exempt from the laws of anti-trust. But, well, my response is, well, so what! My point, as you have to admit by now, whether it should be or not, is well taken, because, well, because I say so. And, you may ask, just what is my point? Ok, if you want to be that way, let me ask YOU a question. Can anyone really argue a law is wrong which recognizes that the love of team that exists in the hearts of young boys — and even in those that continue to beat in the chests of old men like me — needs cuddling by Big Brother himself? Come on, Tom! Play ball!
Preston, I couldn’t find a Sarbox logo and I couldn’t find a Red Sox logo without the “Red” in it. So, the ChiSox logo had to do. ;^)
?They would rather see businesses and investors continue to suffer than admit the possibility of error.?
Bovine excrement! The Republicans are forced to be concerned that they will slimed by the liberal media. They will be accused of siding with their ?capitalist masters.? The Bush administration has enough on its plate regarding the war on terror. Trying to reverse Sarbanes-Oxley would be politically dangerous.
Do you think I?m wrong? OK, nobody?s stopping you from pointing out the editorials and articles in the New York Times and Houston Chronicle advocating for the elimination of this onerous legislation.