Congeries of cross connected concepts
Apparently one of the sponsors of the Sarabanes-Oxley corporate governance law has realized it was a bad idea (via Professor Bainbridge). Just a wee bit late, me thinks. We have had some discussions here lately about whether people learn from past mistakes. Clearly Congress doesn’t, as I hear stories like this on a regular basis, where Congress rushes in to do something stupid because it’s time to act and then the primary sponsors / backers realize, long after the legislation is passed, “gosh, that was a dump thing to do”. Yet, no behavior modification goes on. I suppose it’s job security — after all, who else can clean up after them?
P.S. Is it wrong to hope they don’t fix this too soon, as a significant chunk of the market for my product are firms targeted by Sarbanes-Oxley. Repeal wouldn’t be a killer, as there are good reasons to use it anyway, it just won’t be as urgent.
| Michael Herdegen Thursday, 08 March 2007 at 09:34 |  |
Yes, it is wrong to hope that, especially since there’s no need to bite your nails over this one; there’s no chance that modifications to SarbOx will be law before ‘10 - Presidential politics, don’tcha know.
| Ali Choudhury Friday, 09 March 2007 at 05:42 | |
On the one had, Sarbox is a major pain in the behind. But Enron went down because they exercised no supervision of their cash controls, so I suppose it’s worthwhile from the POV of US shareholders to have it in place. Meanwhile London will continue to expand at the expense of New York as more companies seek to do IPOs there instead.
| Annoying Old Guy Friday, 09 March 2007 at 08:22 | |
SarbOx would have made no difference had it been in place during the Enron scandal. Those guys violated existing corporate governance laws on a large scale, why wouldn’t they have violated SarbOx as well? In fact, one could make the argument that the paper blizzard generated by SarbOx provides a better environment of data numbed stock holders in which to perpetrate a large scale fraud.
I would also say that what servers stock holders best is the maximally sustained corporate growth. If having loose enough rules to let the occasionally scandal through promotes more than enough additional growth to cover those losses, stock holders are better served by the looser rules.
Here we touch on the same point as I have dealt with regard to the music industry (such as here). SarbOx was driven (beyond the blind panic need of Congress to do something) by the same mentality that drives the copyright fanatacism of the music industry, that it is better to stifle 10 companies than let one get away with fraud. Not only is that economically sub-optimal, but it also seems to go against the “better to let 10 guilty men go than convict one innocent” view that alledgely informs much of our personal criminal law.
