I have an opinion piece in The Financial Times in honor of the tenth anniversary of Sarbanes-Oxley on July 30.
I have always been a huge supporter of the law but a harsh critic of its implementation and enforcement. I’m also no fan at all of efforts during the past ten years to delay and then defeat the 404(b) portions of the law for “smaller” companies. The JOBS Act gutted what was left in the name of “jobs and growth”. After the Facebook IPO fiasco and the joke of organizations like the Manchester United soccer club using the law to qualify as an emerging growth company and escape most scrutiny for its capital raise, you have to ask yourself:
Who’s zoomin’ who?
Who are you kidding? The smaller and newer the company, the more likely it is there’s no internal audit function, a domineering founder or family owner who says my way or the highway – PFGBest or Koss – and few if any internal controls like segregation of duties and a fully independent board – if fully independent boards even exist.
So, after sitting through several hearings where Senators and Congressmen – not just the GOP and Tea Partiers but Democrats, too that have been bought and paid for by lobbyists – advocate cost/benefit analyses and “jobs and growth” over investor protection, I thought it might be interesting to turn that chant on its head.
What’s one of the biggest sacred cows in capital markets universe? The mandate of an independent audit chicken for every listed company pot. That obsolete government-sponsored franchise benefits only the Big Four and costs shareholders billions ever year.
And what has it done for you lately?
My opinion piece is entitled:
Today is the 10th anniversary of the Sarbanes-Oxley Act, which was enacted by Congress “to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud”. It has failed. Most importantly, Sarbox has not restored investor confidence in audit companies after Arthur Andersen’s failure to mitigate fraud at Enron…
We need reform – again. Time limits on the use of any one auditor, annual audits by two companies and changes to fraud reporting have been suggested. But these are superficial proposals. Regulators should start with a cost/benefit analysis of the industry and its delivery model.
Read the rest at The Financial Times. Yes, it requires a subscription. But, take it from me. They’re worth it.