Sarbanes-Oxley in Retrospect: Fear and Loathing
By 2005, it was clear that Sarbanes-Oxley wasn't exactly popular. SOX was being blamed for everything from putting companies out of business to forcing foreign firms to seek capital in non-U.S. markets.
The most serious and believable criticisms surrounded SOX's notorious Section 404 which called for internal and external audit attestations. In 2002, Congressional staffers predicted it might cost firms about $500,000 a year, but actual bills went much higher, at least in the early stages.
Wall Street experts complained that SOX and Section 404 were hurting capital markets. One favorite factoid was that in 2005, out of 24 firms seeking more than $1 billion on global capital markets, 23 were not registered in the U.S. The suggestion was that the firms deliberately avoided registering as U.S. firms because they loathed SOX's restrictions. However, the New Yorker magazine pointed out that some of the largest companies seeking a lot of capital on that list were state-owned ones in China who couldn't register as American firms anyway.
The clamor kept growing. It was part of the reason for the departure of Securities & Exchange Commission chair, Williams Donaldson, who was replaced by Christopher Cox, an affable conservative Republican representing California's Orange County. Donaldson had been seen as not being pro-business enough and occasionally voted with the two Democrats on the SEC commission. At first seen as a push-over for business, Cox proved to be more of his own man.
One of Cox's most important missions was to ease the harsh implementation of SOX while trying to keep its intent intact. He worked to change some of the rules involving auditing to be more principles-based rather than strictly rules-based.
Perhaps his most significant campaign was to push for series of delays for full SOX compliance for small public firms with market caps of less than $75 million (the actual limit has changed several times). This was done so they could marshal their finances and take more advantage of the experience larger firms that had gone through the SOX compliance process.
Yet Cox disappointed the hard-chargers in the business community who thought he might push for exempting smaller firms completely from SOX regulation. He did not and the gnashing of teeth would continue for a few more years.
Next: SOX comes of age
(Image courtesy SEC.)
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