SOX in the bathwater....

Article in today's New York Times reports on efforts being made by the corporate and investor sectors to bring about changes in the implementation of Sarbanes-Oxley (SOX), the congressional Act of 2002 passed in response to the Enron collapse and other major failures (e.g., WorldCom, Tyco, etc.). A particular target is the provision that requires public companies (i.e., those with shares traded on Wall Street) to report on the existence and effectiveness of their internal financial controls. This seemingly simple request (you would think they had such controls in place already) has proven to be too onerous, especially as the provisions designed for the big firms are being imposed on the smaller (and foreign) ones as well. Certainly Sarbanes-Oxley is far from ideal -- in fact, many of its provisions seem pretty absurd, more symbolic gestures than effective actions. And the enforcement of its provisions seems to have been turned over the the criminal prosecution divisions of the Justice Department rather than relying on the actions of regulatory bodies such as the SEC (although they do play a role). After five years, going on six, the reactions are setting in and change -- in the form of proposals to emasculate the law -- and that push for change seems likely to win out. But despite the poor crafting of the law and its onerous burdens, we need SOX (or something like it) for the purpose it serves -- or at least the purpose it was implicitly designed to serve. That is, SOX was an effort to remind corporations that they are a public "franchise" in the classic sense of that term -- that while it is okay for modern corporations to amass wealth and serve the interests of its shareholders and stakeholder, they must remain aware that theirs is a public trust on loan from the state (or in the US case, the People). By focusing so much attention on the obvious flaws, the policymaking community is likely to overlook the more general objective of the Act: to reinstate the overall legitimacy of the corporate enterprise. They need to remember there is a baby sitting inside that bathwater... Tags: Sarbanes-Oxley, Mel Dubnick, accountabilitybloke