Risk & Compliance

‘What’s a Sarbox? Say Many Shareholders

"The effect of Sarbanes-Oxley seems to have blown by the average investor"; 55 percent believe that financial and accounting regulations governing ...
Stephen TaubOctober 20, 2005

More than three years after the passage of the Sarbanes-Oxley Act, investors are apparently not too confident that the new governance rules are reining in inappropriate behavior by corporate executives.

According to a new poll conducted by The Wall Street Journal
and Harris Interactive, 55 percent of U.S. investors believe that financial and accounting regulations governing publicly held companies are too lenient. That figure rises to 77 percent for male investors ages 45 to 54.

Further, many investors are not blindly supporting companies they deem to be unresponsive to shareholders: 30 percent say they have reduced or divested their holdings in a company as a result of poor corporate governance.

The results are based on an online survey of 2,061 U.S. adults conducted in early October.

According to the survey, only one-quarter of investors feel that Sarbox has made the communication of financial information by companies “much more” or “somewhat more” transparent. What’s more, 11 percent believe the legislation has actually made communication less
transparent.

Perhaps even more significant: A whopping 41 percent say they are not sure about the effect Sarbanes-Oxley has had on communication transparency. This suggests that many investors don’t understand the legislation and its impact on businesses. “The effect of Sarbanes-Oxley seems to have blown by the average investor,” said Anne Aldrich, a senior vice president at Harris Interactive, in a press release. “Even as corporate scandals have waned…organizations will need to continue to find ways to build trust in public companies among the investing population.”

The survey also revealed that investors believe that boards of directors (45 percent) hold the most important role for corporate governance, followed by the chief executive officer (22 percent), “senior management” (19 percent), and “all employees” (14 percent).