Considering all the talk lately about amending Sarbanes-Oxley or extending deadlines or relaxing the section 404 requirements, we can't say we were all that surprised to find commentary from The Cato Institute saying that Sarbanes-Oxley should be completely repealed. The liberal-leaning think tank's chairman calls the hard-hitting corporate reform law "unnecessary, harmful and inadequate."
The law is unnecessary, he says, because it doesn't create any new requirements that the Securities and Exchange Commission's listing rules don't cover, the Department of Justice had authority to prosecute corporate fraud cases before Sarbox existed, and the Sarbox-created Public Company Accounting Oversight Board (PCAOB) doesn't have any new oversight powers that haven't already been given to the SEC. Not to mention, of course, that the PCAOB might be unconstitutional.
We've seen the "unconstitutional" argument before, and of course the Department of Justice prosecutes corporate fraud cases, but the other prongs of the argument raise some questions for us: If the SEC already had all the rules and oversight powers in place, why did Congress feel the need to pass additional legislation? Where are those rules, and why didn't the SEC just step up its oversight/enforcement efforts?
The harmful argument we've seen before, too: Sarbox causes companies to go private or move their listings to foreign countries to avoid the rigid requirements; it costs too much; it increases the risks of serving as an executive or a director.
All these things may be true, but it's also true that companies -- even foreign ones -- view Sarbox as a good thing. Compliance has forced them to improve the efficiency and transparency of processes, which means better business. And some foreign companies love the increase in value they experience just because they're listed in the U.S. and investors know that means they must comply with strict requirements.
As for inadequate, well -- that may be. We're not ones to judge, but it seems that inadequacies would be better addressed by amending or revising the legislation rather than doing away with it altogether.