Tuesday, May 16, 2006
The Sarbanes-Oxley Debacle
In The Sarbanes-Oxley Debacle: What We've Learned; How to Fix It (AEI Press, 2006), Henry N. Butler and Larry E. Ribstein argue that the Sarbanes-Oxley Act of 2002 (SOX) has been a colossal failure. Enacted after the collapse of the Enron Corporation, the authors argue that Congress panicked and rushed into passing legislation that has had huge direct and indirect costs to the firms which must comply with the reporting rules.
The direct cost to companies complying with SOX's reporting rules has been widely estimated at $6 billion per year. Butler and Ribstein, however, argue that the indirect costs of SOX are in fact far greater: diversion of executives' attention from maximizing shareholder value; increased risk aversion by managers; distortion of executives' and directors' incentives and investment decisions; criminalization of corporate agency costs and mistakes; reduction of access to capital markets by entrepreneurs; and the crippling of the dynamic federalism that has created the best corporate governance structure in the world. Indeed, the best evidence to date indicates SOX imposes additional net losses totaling $1.1 trillion to the financial markets.
posted by Brian Moran @ 11:47 AM