Risk & Compliance

Bumper Crop of Corporate Probes

This year's ''fall harvest'' provides a reminder of the value of legislation like the Sarbanes-Oxley Act.
Stephen TaubOctober 20, 2004

Stephen Taub’s opinion column appears on Wednesday. Contact him at [email protected].

Fannie Mae, Krispy Kreme, Marsh & McLennan, American International Group. This year’s “fall harvest” — another bounty of companies under investigation by the Securities and Exchange Commission, the Department of Justice, or New York State Attorney General Eliot Spitzer — provides a reminder of the value of legislation like the Sarbanes-Oxley Act.

So it’s distressing that despite several years of post-Enron scandals, some corporate executives are rooting for a second Bush administration and a Republican-controlled Congress that would undo that legislation and back off from new rules intended to improve corporate transparency and deter malfeasance.

“Hopefully, they’ll put something that’s more practical in place,” said Daniel Ustian, chief executive officer of truck maker Navistar International Corp., at the Reuters Autos and Manufacturing Summit in Detroit earlier this month. Other CEOs in attendance made similar comments, according to the wire service.

Section 404 of Sarbanes-Oxley, which must be implemented in next year’s financial filings, also came in for criticism. “The internal control part is good,” Ustian told Reuters, “but they need to step back and say, ‘Is this really doing anything from a practical standpoint? Is this really controlling? Is this really giving the company some benefit?’.” He was obviously mindful of a recent survey by Financial Executives International, which estimated that large companies will shell out an annual average of about $8 million to comply with Section 404.

Of course, a large number of companies — especially those in the technology industry — have been aggressively lobbying against the Financial Accounting Standards Board’s proposal to require that companies expense the value of options. Sadly, it worked; last week, FASB delayed the implementation of the new rules until next year.

The SEC also recently pushed back, by one year, its timetable for the accelerated filing of financial statements after some companies raised concerns that closing their books 15 days earlier would be heavily burdensome while they were implementing 404 and expensing their options. And a large number of high-profile companies have been aggressively fighting the SEC’s proposed “proxy access” rules and have even threatened to file lawsuits if the rules are enacted.

No less a personage than Jack Welch, the onetime chief executive of General Electric, said this week that new governance standards — specifically, the provision of Sarbox that requires CEOs and CFOs to certify their companies’ financial statements — have gone too far, according to The Times of London. “I think seeing people punished for what they did is the best deterrent in the world,” Welch reportedly said, adding, “You have to wonder whether there are too many regulations.”

Yet the nay-sayers might do well to recognize, as Welch does, that while it may be the season to consider pruning Sarbox, even the former guru of GE wouldn’t uproot it altogether. “Sarbanes Oxley is, in fact, too tough,” he told The Times, “but we’ll fix it.”