Have the benefits of Sarbanes-Oxley been worth the implementation costs?

No

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by Jack Buffington

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The Sarbanes Oxley Act of 2002 is a perfect example of how government shouldn't over-legislate problems, and as a result, can create even bigger problems. These two Senators were seeking to solve a problem of the most egregious fraudulent companies of the late 20th/early 21st century (Enron, Worldcom, et. al.) even though a large majority of public corporations wouldn't have taken such advantage of existing public disclosure laws.

What are the results of SARBOX, five years in:

1) Extremely higher finance costs for public corporations, as a function of revenue. A 105% increase in accounting cost, 90% increase in legal costs, 102% increase in cost due to lost productivity, and 266% increased cost due to compliance activities.

2) Small public corporations either delisting (Moore Handley in 2002) or not going public in the first place. Fewer small companies going public stymies innovation and growth.

3) Penalties so extreme that it is preventing Fortune 500 Corporations from taking much risk at all in a time when these corporations need to be more innovative and challenging in a global marketplace.

4) So draconian that it is preventing market activity of foreign corporations in the U.S.

Contrary to China and India who are becoming less government regulated, and more competitive in the global economy, SARBOX is yet another example of how America is becoming more regulated and less competitive. Our nation cannot afford any sort of regulation that will impact our ability to compete with the world.

While mandating greater and more accurate public disclosure may protect the investor to a certain degree, at what price? Can our businesses, 95% of which play by the rules, afford such escalating overhead costs? Can we afford to stymie the incubation of small businesses through the act of "going public" to raise funding? Should we be content with fewer foreign companies wishing to be a part of our public accounting process? The answer, of course, to all of these questions is a resounding "no".

There are ways of preventing public corporations of conducting fraud through the simplification of the financial reporting process, not through making it more complex. Since when has adding bureaucracy, compliance rules, and costs to a problem made it become fixed?

In our history, America hasn't solved its problems through over-legislation and populist rhetoric. Senators rallied around SARBOX in reaction to middle class anger over the loss of pensions and investments. Now that the emotions should hopefully be gone, we should understand how draconian compliance laws are working against the middle class, and not working for them. Our Senate should repeal SARBOX, and then get to the roots of the real problems regarding fraud, and even competitiveness in the emerging global economy.

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