Sarbanes-Oxley - an AWFUL law

Aside from his relentless hectoring of Fed Chairman Greenspan, Senator Paul Sarbanes will probably be chiefly remembered for the legislation that bears his name, the Sarbanes-Oxley Act of 2002.

John Berlau has an excellent piece on why the legislation was ill-considered, ill-timed and extremely bad for American business. Click the title to read the whole thing. Here's one quick reason why you know its bad: the Big Four accounting companies LOVE it because its created a booming new business for them. These are the NITWITS who were complicit in the various scandals for failing to find the issues with Enron and Worldcom.

Let me give you an example. Sarbanes-Oxley has cost the international banking institution for which I work hundreds of millions, if not billions of dollars, both directly and indirectly. Directly from the forced hiring of consultants and additional audit folks who are crawling under every desk looking for issues. Indirectly, though, is where the cost is staggering. The opportunity cost of having to certify the procedures of an entire investment bank from top to bottom so that the chiefs and outside directors can affix their name to a document is impossible to quantify. And Sarbanes-Oxley isn't a one-shot deal, its continuing with no sunset provision in sight. It's instructive that the firm's primary concern now is operational risk rather than organic growth or revenue.

This mad sprint towards compliance is driven by the fear that non-compliance could cause authorities to significantly curtail the activities of the institution as a whole - an eventuality too horrible to contemplate for management and corporate counsel. While SOX has caused us to tighten procedures its ongoing cost and threat of annihilation (shutting down the institution) is extremely high and brooks no dissent.

Unless leavened, Sarbanes-Oxley could cause a large scale bureaucratization of American business making it more and not less like the doddering behemoths that we see in France and Germany. Think of it this way, it will likely take a few tenths off GDP growth on an annual basis. Thanks for nothing Senator, and good riddance.