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Sarbanes-Oxley Costs Exceed Benefits
coondoggie writes "Two years of compliance with the Sarbanes-Oxley Act (SOX) have shored up corporate accounting practices - but with lopsided costs compared to benefits gained.
Bill Gradison, acting chairman of the Public Company Accounting Oversight Board (PCAOB), said that guidance the SEC issued last year and PCAOB's latest auditing standard may not be enough to clarify the rules that govern the reporting and auditing of internal controls. 'Based on the information we already have, it would seem that some further changes may be in order,' Gradison said."
Meanwhile, financial companies, especially hedge funds, are increasingly choosing to set up shop in London rather than New York/Connecticut to escape the burdens of Sarbanes-Oxley and SEC registration. Like them or not, these entities contribute a huge amount of money to local coffers: investors flock from all over the world to place capital in hedge funds, and they leave generally 2% of the investment and 20% of the profit annually with the fund managers.
No-one wants more catastrophes like Enron, but that doesn't mean we should throw the baby out with the bathwater.
Please, for the love of God, no more car analogies.
I appears Corporate America is viewing SOX as damage and attempting to route around it. The Charlie Rose Show had on a couple of the biggest private equity fund managers the other night and they were talking about companies which are moving headquarters and operations off-shore because of SOX. They hate it.
However well-intentioned SOX is/was, if this trend continues, we don't get the SOX purported benefits, and we lose the economic benefits of these companies on US soil.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
However, I don't necessarily think that eliminating the corporate form is bad. I think it runs counter to a true free market (because corporations by design work to restrict real information about the marketplace). Combined together, I think that the Corporate Form and the increasingly unregulated markets (notice I didn't say "Free") that we have will eventually end with a severely weakened governmental system and a rise of corporate systems to fill the power gap. Then we will have a new beginning of Fedualism.
Using your same logic, here in the US we should also repeal child labor laws, environmental regulation, and occupational safety laws, merely because many US companies will open shop in in other countries where there are looser pollution regulation, safety laws, etc. Think of how much business the US economy is missing out on due to these regulations pushed by 'liberals'.
The scary thing is that a typical pro-big-business Republican would agree wholeheartedly with my paragraph, without sensing its sarcasm.
At least, until we change our tort laws so that the maximum payout is the maximum input.
So if you get sick from a hamburger, fine, you get your money back, but thats all, not 40 million dollars. Otherwise, corporate limited liability MUST stay.
That is the stupidest, most unjust thing I've seen today.
The idea of tort law is to make the victims of a tort whole, and to discourage tortfeasors and other potential tortfeasors from harming anyone else similarly.
If you get sick from a hamburger, then yes, I suppose you'd have a warranty claim for the burger having been defective, in which case the appropriate remedy would be the price of the burger.
But that's totally beside the point that the burger made you sick, causing you to rack up medical bills, lose income because you can't work, caused you pain and suffering, etc. To even suggest that the price of the burger would be just compensation for what could be quite significant injuries, is simply cruel of you.
In any event, limited liability merely refers to the liability of investors (who cannot lose more money than they invested -- i.e. if you buy $50 of stock in WidgetCo, and they go out of business, you only lose that $50) and that's it. The corporation itself is not shielded from liability, nor should it be. And its officers and management, in their capacities as such, are not particularly shielded either, though their concerns are less about tort liability and more about liability to the investors, to whom they owe a duty.
-- This and all my posts are in the public domain. I am a lawyer. I am not your lawyer, and this is not legal advice.
Sarbanes-Oxley is a *very good thing* - it exists to prevent another Enron
No, it's killing a butterfly with a cannon. Because one company was run by a bunch of crooks, every other public company has to vastly increase their costs, which is money that isn't spent of improving their products, hiring more workers, or cutting prices to their customers.
Let me point out that it was the market that brought Enron down, not the government.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
You're forgetting an important fact. A LARGE percentage of America is knowingly or unknowingly a shareholder in oil companies. You know that retirement plan you have? Your 401k? Those mutual funds you bought? Guess what they include as part of your portfolio? That's right. Shares in those horrible oil companies. The American public loses sight of the fact that while high gas prices certainly hurt your pocketbook right now, there's a silver lining... in the long run, it's actually building up your retirement fund.
Now that's not to say I'm happy with the oil companies. Along with a responsibility to please your shareholders, an ethical company also has a responsibility to act for the benefit of society when they can. In the oil companies' cases, this would mean pumping some of those huge profits into R&D and building new refineries so that we have the capacity to keep artificial shortages from happening.
Just saying though... with the amount of people who hold shares in these companies either directly or through mutual funds, the actions that are best for shareholders might actually be those that are best for society in the long run.
While slashdotters may derive a justified modicum of rightously deserved glee in this state of affairs - who here hasn't been given like orders - the economic waste on the national scale is so hideous that it needs airing. Never before has so much money been wasted on useless butt-plate.
The concept here is that corporate processes need to be audited independently to prevent fraud and malfeasance. Wonderful idea. What the SEC people had no clue about, however, was just how many processes there are churning away every day in a normal company. There are thousands! If you want to monitor the pain Sarbox is inflicting, subscribe to the alerts from CFO.com. For example, one company just found out it would have to pay its auditors - that's right, the people who failed to catch Enron's malfeaseance - $50,000 a year just to audit its employees vacations. That's not so much alone, but when you multiply it by everything going on in a company, the costs are absolutely humongous. And all of this money is going to the people who not only failed to prevent Enron but told them how to do it. Something is seriously wrong here.
Proportionately, the costs for smaller businesses are much higher (typically 20x). This has an anti-technology bias that hurts all of us in technology and eventually the whole economy. Because our start-ups are small and Sarbox denies us capital, we will not be able to hire and develop. This is bad Kool-Aid.
The supporters of Sarbox are: a) Big Labor - they are more successful unionizing big/old companies, fail miserably with high-tech startups, hate us, and actively seek to ruin us, b) Auditors - they make the money from this regulation, c) Regulators - from their perspective, regulation is always good and Sarbox means hiring many more of them.
The losers are everyone else, especially us in the tecnhology sector. I'm developing technology that could make corporate treasuries more efficient by increasing their control of liquid assets. I cannot sell it because of Sarbox and all its distractions. Ironically, corporate treasuries are so involved in dealing with the worthless regulatory minutia of Sarbox that they cannot invest the time to evaluate systems that would actually improve their control of corporate liquid assets.
I wish I could conclude this rant by recommending what we should do, but I am not as politically astute as our foes. All I can say is let's hope for the best and maybe someone out there in the political world will get a clue.
The problem being that business isn't a small part of society. It is a major portion of how people interact.
Most of my interactions with other people, from a subscription to the YMCA to where I stop for cigarettes to the people I work with to the decision to mow my own lawn or hire a gardener, are business related.
The moment I step out of my door, which I bought, the actual number of people I deal with on a purely social level as opposed to the number of farmers, butchers, bakers, candlestick makers that I deal with on a business basis is very close to vanishingly small.
What reason do I have to be able to type to you this message but the ISP who doesn't know me on a social level at all, the Tier1 IP provider that doesn't know I exist at all, the Slashdot administrators trying to make a living by advertisements for which I am merely one few bytes of data in their database?
If it weren't for business, the price of tea in China would be irrelevant. But the fact is that by means of business, the price of tea in China is directly related to the price I see on the box of Oolong on my grocers shelf (who otherwise would have no interaction with me what so ever).
I think you need to look up the word "praxeology".
Bob-
The Ludwig von Mises Institute. The reasoning individuals economics
This is wrong on any number of levels.
First, realize that the majority of stock in the US isn't owned by rich individuals. It's owned mostly by mutual funds, which are in turn used as part of basically every retirement plan, investment account, college-savings plan, ad infinium. If you have a 401k, you probably are an indirect shareholder in Exxon-Mobil (and IBM, and Microsoft, and General Dynamics, and probably Halliburton). If any of the big oil companies were to sneeze, the whole economy would get a cold.
Second, high-priced petroleum products, especially gasoline, is not necessarily a Bad Thing. I think it sucks as much as the next guy -- if I could click my shoes together and go back to the days of 98-cent per gallon gas forever, I'd be doing it and buying a Camaro before you could say "carbon dioxide." As much as Ma and Pa Jones of Pig's Knuckle, AR think that they want the Gubbermint to step in and 'do something' about the high price of gas, they really don't. Because keeping the price of gas low will only ensure that it gets used up faster, and that we don't do a damn thing to change our usage patterns or wean outselves off of it before it runs out completely.
In other words, cheap gasoline just makes us, as a nation, press the accelerator to the floor as we're heading towards the brick wall of No More Petroleum. Paying the real market price for gas is the fairest way to wean everybody off of petroleum products: and people are listening. Go down to a Toyota garage sometime and see how many people are looking at hybrids, versus a year or two ago. The difference is pretty impressive.
The oil companies will continue to charge what they think the market will bear for gasoline and other products; when the cost of transportation fuels starts to become a major source of pain to American families, they will modify their usage patterns. This is how things have to work: people have to understand that the era of cheap gasoline -- probably of cheap fuel in general -- is over. In the future, if you want to drive 300 miles to see Grandma instead of call her, you're going to have to factor in the $30-40 in fuel that it's going to cost you. That's reality; that's life.
I have no doubt that many politicians this election year will try to come up with all sorts of creative ways of basically subsidizing or otherwise artificially deflating the price of gas. But as they're doing their financial rabbits-from-hats routine, I think it's worth it for everyone to remember that "cheaper gas" doesn't equal "more gas." In fact, it really means 'less gas' for everyone in the future.
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