Oxley: I'm Not Happy with Sarbox

Why was 404 inserted after WorldCom?
WorldCom changed everything. It sucked the life out of the room. It was four times larger than Enron. Everyone was already exhausted by Enron. Then WorldCom took everyone's breath away. It was just amazing. It pushed the Senate toward adopting 404. It was really taken from a banking statute. It is a highly regulatory regime [intended for banks] that is superimposed on publicly traded companies. So, banks ended up with the worst of all worlds — existing banking regulations and [Sarbanes-Oxley]. I even discussed exempting regulated financial institutions, but I didn't win.

Are you glad you didn't win?
I honestly believe they should have been exempted. Individual banks, not the holding companies, which take on the structure of a corporation. For banks, it is an unnecessary regulatory burden [in addition to those] they are already complying with.

You said a few years ago that "Most CFOs I talk to can quote the act's cost down to the dime." Do you still feel this way?
That's their job, to count down to the dime. They wouldn't be doing their job if they didn't. But, it is important to weigh the costs with the benefits. As the PCAOB gets us back on track in terms of the benefits versus the costs, they will protect the investor and make it more cost-effective. Sarbanes shares that sentiment. I think they found the sweet spot.

What do you think of the groups that want to kill Sarbanes-Oxley altogether, arguing it was a bad idea?
The federal court just kicked out a lawsuit. [In late March, a U.S. District Court judge dismissed a lawsuit challenging the constitutionality of Sarbox's creation of the PCAOB.] It's now on appeal. They don't appear to have a whole lot of traction. If you look at total market cap on July 30, 2002, for public companies and today, it is pretty hard to argue that Sox has been a detriment to growth and prosperity. It has provided a certain degree of comfort to the investing public and a confidence level in the investing public has been restored. Markets are more transparent. Accountability is built into the process. A lot of people overlook the requirement that insider deals must be reported in 48 hours. This provision is interesting in light of the backdating scandal. Virtually all cases took place before 2002. Before that, they had up to 90 days to report [stock trades]. I think the transparency will preclude nefarious activity. The statute does get credit for this.

What about reports that the SEC will have more authority over the Financial Accounting Standards Board? Will FASB become more politicized?
In some sense, it will always be politicized. Remember the number of hearings on its proposal to expense stock options? You can't get rid of it. Even [former SEC chairman Arthur] Levitt, who had concerns [about FASB losing its independence as an accounting standards–setter], was supportive of what is about to transpire. I have great confidence the SEC knows what it is doing, won't overstep its bounds, and will provide some sort of order to the process.

So, you're not concerned this will undermine FASB's independence?
I think everything will be transparent. It doesn't keep me awake at night.

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