Where Was SOX?

Mon Dec 22 15:24:38 EST 2008
By Dr. Henry Butler with Professor Larry E. Ribstein, Mildred Van Voorhis Jones Chair in Law at the University of Illinois

In light of President-elect Obama's promise to re-regulate Wall Street, this article from Forbes Magazine addresses the regulatory burden that firms already bear: the Sarbanes-Oxley Act, or SOX. Authors Dr. Henry Butler, Special Consultant to NERA and Executive Director of the Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law, and Professor Larry E. Ribstein, Mildred Van Voorhis Jones Chair in Law at the University of Illinois School of Law, note than when Congress passed SOX in 2002 -- following the implosions of Enron and WorldCom -- the idea was to force firms and their auditors to clean up their books and disclose "internal controls" and procedures for ensuring the accuracy of their financial reporting. However, the authors argue, the current financial crisis demonstrates that SOX did not have the advertised payoff of flushing Enronesque risk out of the market, and merely resulted in imposing huge costs and giving the country a false sense of security for six years. Despite these failings, the authors propose that, rather than scrapping SOX, Congress should allow firms to have their shareholders vote to opt out of some or all of its provisions; or allow firms going public to opt out of SOX and let potential investors decide whether to buy their shares.