Oracle playing GRC catch up?

In between all the SAP Business Objects pontifications, I just noticed this morning that Oracle has bought LogicalApps. This seems to be a rather delayed response to SAP’s acquisition of Virsa nearly 2 years ago, and another catch up attempt. In SAPspeak this would be a “tuck-in” but it is also an admission from Oracle that SAP is winning in the GRC space. It is a defensive play, and won’t really strengthen Oracle’s position beyond its core Oracle financials users. Nevetheless it makes sense.

LogicalApps plays in the SOX 404 and financial closing space, and from my understanding mainly sells to Oracle customers, and does well at it. Logicalapps has itself grown by acquistion, having bought Applimation earlier this year. Interesting also to see the focus on OMB A-123, a US public sector regulation. The customer base seems to be overwhelmingly US based. I’d not heard of them in a European context.

Over the last 4 years or so, there has been an explosion of GRC related vendors.Despite a rapidly growing market, more consolidation is likely. Perhaps I’m misreading this, but the venture funded 150 odd employee 300 customer, IPO unlikely for a while company is a tough place to be. Chasm jumping and all that.

I look forward to reading the Approva  Audit Trail blog take on this. Perhaps Mark Crofton could take a pause from winning GRC deals and do a post too?

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Happy Birthday SOX.

and a retort to John Dvorak….

Today, I’m reliably informed, is the 5th birthday of the Sarbanes Oxley Act, so at the risk of scaring off yet more readers,  some more SOX  musings. 

I stumbled across some interesting research (and several rantings) on SOX over the weekend. Sad, I know, that I spent Sunday night trawling through Academic Journals, but trust me, it beats German TV.

Have a look at this paper by Robert Prentice,  “Sarbanes-Oxley: The Evidence Regarding the Impact of Section 404” .    He is the Ed & Molly Smith Centennial Professor of Business Law, McCombs School of Business, University of Texas at Austin. I’m going to quote extensively from the paper here, so please excuse the rather long extracts. I tried to summarise it, but I found it pretty much without a wasted word. The paper links to many other research papers, and is an excellent launch pad to examine SOX via the facts, rather than soapbox rhetoric.

I’m hoping that you would be inclined to take this research seriously than the recent rantings of John Dvorak on SOX. (tip Audittrail blog for the link)

John knows his stuff on technology;  I would not presume to challenge him on operating system innards,  but frankly his piece on SOX, is not, how shall I put it politely,  his best work.

After 5 years in operation, it is time that commentators, tech or otherwise looked at the emprical evidence, rather than relying on heresay.

I’m not saying SOX is perfect, and I have serious concerns about the continued high cost of audit fees. The law continues to require fine-tuning, and the recent changes to the PCAOB are timely, if not overdue.

Firstly, given the recent options backdating scandals in John’s “valley” I’d urge him to read section 409. The backdating scandals cost shareholders roughly 100 billion dollars at the low end of estimations see Gennaro Bernile et al.  Section 409 makes this sort of large scale fraud much harder to commit, and makes it far less lucrative. This alone is enough to cover the cost of the SOX implementations for ages. 

As we are reminising, please think back to 2002 and remember the state of the market.

As Prentice notes,

When SOX was passed, the stock markets were nearly in a free fall. From 2000 market peaks, the Dow Jones Industrial Average had dropped 25%, the S&P 500 had declined more than 40% and NASDAQ had plummeted more than 70%.52 Investor confidence in the capital markets was at record lows, causing average trading volume to drop 54%. The lack of confidence stemmed not from worries that Congress would legislate, as conservative pundits have asserted, but from that fact that 84% of the investing public believed that corporate wrongdoing was widespread rather than isolated. Professor Paredes noted at the time that “restoring [investor] confidence might be the most important thing that the SEC and Congress can do, just as it was the top priority during the crisis of confidence following the 1929 stock market crash.”

Also

Indeed, Lord and Benoit’s post-SOX study showed that over a two-year period, there was a 27.67% increase in the average share prices for companies that had effective internal controls in both years, a 25.74% increase in average stock price for companies that had ineffective SOX 404 controls in year one but effective controls in year two, but a 5.75% decrease in average stock prices of companies that reported ineffective Sox 404 controls in both years.

and further

..consider that in October 2002, “the dark days when the market was most nervous about the quality of financial reporting,”65 credit spreads for investment grade companies were 2.5 percentage points over Treasury rate whereas by 2006 that spread had shrunk to .85%. The managing director of Moody’s Investors Services has stated that not all of that shrinkage can be “attribute[d] to 404, but if only 10 percent of that reduction is due to 404, put those numbers in your calculator and you get a benefit that is absolutely enormous.

Prentice then goes on to look at  Improving Corporate Governance,Liquidity (see also this paper),  financial reporting, fraud detection and deterrence, the impact on the competitiveness of US security markets.  It is a through paper, and if you are even vaguely interested in compliance it is a must read.

He concludes by noting

Faith in U.S. capital markets has been substantially restored following the bursting of the dot-com bubble and the exposure of a scandalous corporate culture at many major corporations. Sarbanes-Oxley and its Section 404 helped enable that resurrection.

The commonly perceived burdens of SOX 404, including implementation costs and impact on U.S. capital markets, are real but have been overstated while its real benefits are often overlooked. Considerable empirical academic evidence indicates that SOX 404 has improved the accuracy of financial reporting, improved liquidity and corporate governance, and helped disclose some frauds and discourage others.
That said, it is impossible at this point in time to accurately weigh SOX’s total benefits against its total costs. None of the scores of academic studies cited in this article purports to settle definitively the question of whether SOX in general or Section 404 in particular have been, on balance, beneficial. Therefore, what must continue to occur is a careful, reasoned study of SOX’s provisions and their impact.

While there is substantial reason to believe that SOX has improved the economy and brought various concrete benefits to the capital markets, if its detractors succeed commercial actors in the U.S. will ultimately view SOX, and especially Section 404, as illegitimate. This eventuality would blunt SOX’s positive impact upon beliefs, norms, and practices in the U.S. capital markets and its potential to create and sustain a culture of compliance and integrity will be seriously damaged. If that happens, it becomes much more likely that SOX’s costs will ultimately exceed its benefits than if SOX 404 is viewed as a legitimate, though somewhat flawed, attempt to restore integrity to the U.S. capital markets. And the current evidence indicates that is much closer to the truth.

 

John Dvorak also goes about the supposed capital flight:

Thus they jump onto the London stock exchange or become Canadian corporations, maybe even Swiss corporations. They’ll do anything to pick up the extra 4% profit not to mention the advantage of avoiding the SOX paperwork and the worries about missteps.

This defies both logic and the facts. Firstly it assumes there is no cost of compliance or regulation elsewhere. Secondly, there is little evidence for significant “jumping”  due to SOX costs.  See this post here.  and this paper here. 

And to show that this blog isnt just a SAP GRC flag waving exercise, I’ll quote again from an SAP GRC competitor, Approva, whose recent survey of CEO’s points to an entirely different reality from  Dvorak’s vague “…blame Sarbanes-Oxley and so does everyone else in the valley” point.

Despite widespread media coverage that public companies are begging for a reprieve from SOX, Approva’s survey found that 83 percent believe the Sarbanes-Oxley Act ha had an overall positive impact on their companies. And 63 percent believe SOX has been successful in preventing corporate fraud. Seventy percent of respondents believe that investments in SOX compliance will provide benefits beyond compliance alone.

The time for vague blah blah on SOX is so over. To repeat Prentice’s words… what must continue to occur is a careful, reasoned study of SOX’s provisions and their impact. 

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In further defence of compliance

Vinnie, Dennis, James  and I are having a rather longwinded discussion on Compliance, Governance and Risk , and in partly  the Sarbanes-Oxley Act of 2002.  (We had a similar run in last year)

I don’t really  like it when the broader compliance discussion ends up focusing on the costs of section 404 of SOX,  but this is where the debate always seems to end up. (I’ll save that rant for another day, but there is more to SOX than audit, more to compliance than SOX, and more to GRC than compliance) In this post I won’t discuss software. I’ll focus on SOX.

Vinnie, I don’t think I am glamourising compliance,  but at the risk of being trite I’d  suggest that you are looking at business through a set of rose-coloured specs.  Options scandals , excessive executive pay anyone?

I’m not arguing that SOX is perfect, just that is working. Investor confidence is up,  transparency is up, and costs are on the way down.  Yes, Audit costs are still way too high, but recent reforms may help to address this.

I was updating my reading list  this morning.  I wish I’d found this blog earlier. Lots of interesting, well researched stuff on compliance. Well worth a long perusal.  The site pretty much debunks the argument that SOX is a failure, and also points out that many business leaders are strong supporters of SOX.

The blog is maintained by Prof Brown from The University of Denver. Herewith a excerpt from a recent paper.

Sarbanes-Oxley (SOX) was adopted in a rush, political expediency necessitating that something be done before the 2002 election to minimize voter backlash from the collapse of Enron and WorldCom. Despite the rush, the Act contained a number of improvements on the current state of regulation, including a separation of accounting and consulting services, increase in the strength and independence of the audit committee, certification of financial statements by top officers, and assessment of internal controls by managers and auditors

Indeed.

The blog led me to this piece written  by Joel Seligman is president of the University of Rochester and has written several books about securities regulation. Harvey J. Goldschmid is Dwight Professor of Law at Columbia Law School and served as a commissioner of the SEC from 2002 to 2005, and general counsel of the SEC in 1998 and 1999

It is important to remember the context in which SOX was passed.

Go back about five years. This country was in the midst of the largest securities fraud wave in its history. Daily news stories highlighted the alleged misconduct of major corporations, including Enron Corp. and WorldCom Inc. As significant were several other lesser known trends. Financial restatements had grown linearly between 1997, when there were 116 restatements, and 2001, when there were 305. Not all of the restatements should be attributed to fraud, but a significant number fairly could be. The staff of the SEC had not grown by a single position between 1995 and 1998. Deterrence, as we entered the new century, had been grievously weakened. Significant areas of concern, such as research analysts, were largely unaddressed by the commission. In the months running up to the enactment of the Sarbanes-Oxley Act, aggregate stock market values declined by more than $7 trillion between selected dates in March 2000 and July 2002.
These developments led Congress (by a vote of 99-0 in the Senate and 423-3 in the House), the SEC, the New York Stock Exchange and the National Association of Securities Dealers to respond vigorously with the Sarbanes-Oxley Act and other important reforms. Conflicts of interest in the auditing profession and in corporate board practice have been systematically reduced. Internal auditing controls have been effectively strengthened through executive certification and the much-criticized § 404 of Sarbanes-Oxley. The SEC’s budget was dramatically increased, and the SEC and Justice Department devoted much greater resources to enforcement. And private securities class actions have played an important role in deterring corporate misconduct.

 They go on to note:

Is the system perfect today? Of course not. It is nearly universally recognized that compliance costs with respect to § 404 of Sarbanes-Oxley have been too high, particularly for small and medium- sized firms. But the system is working. The Public Company Accounting Oversight Board has recently proposed revising its most expensive Audit Standard No. 2 (the basis for most complaints about § 404) and replacing it with a streamlined Audit Standard No. 5. The SEC itself has offered constructive guidance that should further reduce compliance costs.

 See also what the Business Roundtable had to say in 2003. I’d argue they are more representative of the CEO than Fortune magazine is. (given that it directly represents one third of listed companies, rather than the whims of an editor)

The following is submitted on behalf of The Business Roundtable, an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees in the United States and $3.7 trillion in revenues. …

The Business Roundtable strongly supported the enactment of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and we applaud the Commission’s efforts to implement the Sarbanes-Oxley Act.

Read the full submission here. And if you go to the Business Roundtable site you will see continued, consistent support for SOX.

Brown’s blog also led me to this business week article, not everyone hates Sarbox.

Lost amid all the boos over SarbOx, they say, are some major benefits. The biggest: SarbOx and related reforms have produced much more reliable corporate financial statements, which investors rely on when deciding whether to buy or sell shares. For them, SarbOx has been a godsend.

At the end of the day though,  SOX is about the investors. Since the passage of SOX, the Dow has almost doubled, some of the credit for this should go those that passed and implemented the law. 

I’ll finish with a link to a bad couple of weeks for critics of SOX

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SOX again. Getting to the real numbers.

I sense a series of enterprise software and law-compliance posts brewing.  I tried to explain some compliance stuff last night via email, but I failed.  Signal-noise ratio was wonky.  So I’ll post instead.  Warning if you find law, finance costs and software boring, stop reading now.

I’d rather pick up on other laws than the Sarbanes-Oxley Act of  2002, it tends to crowd out discussion on other important laws, and paints a very US centric picture of compliance.   But given that the Act is undergoing a timely fine tuning, I figured it was worth a revisit.

Details here on the SEC site. 

Congress never intended that the 404 process should become inflexible, burdensome, and wasteful. The objective of Section 404 is to provide meaningful disclosure to investors about the effectiveness of a company’s internal controls systems, without creating unnecessary compliance burdens or wasting shareholder resources,” said SEC Chairman Christopher Cox. “With the Commission’s new interpretive guidance for management on the evaluation and assessment of its internal controls over financial reporting, companies of all sizes will be able to scale and tailor their evaluation procedures according to the facts and circumstances. And investors will benefit from reduced compliance costs.”

You can watch the SEC broadcast here.  (nice transparency!)  I’ll explore the implications of these changes in another post, but it seems that the US is moving to a more principles based control framework, which is more like the UK’s FSA model.  SOX isn’t being scrapped or radically transformed, but after 3 years of year-ends   the SEC is a better position to improve the “protection-cost” ratio.

Vinnie has a regular go at  SOX, SOX costs,  and indeed those selling compliance tools.   His recent post is no exception, commenting on Oxley saying he would have done things differently..

Wish he had said that 3 years ago – but sounds like we are back to “normal times” after pissing away billions on gun-to-the-head compliance spend.

In this post I’d like to explore SOX costs in a little more detail, because I’ve been privy to some interesting research.  As part of my job I have access to the Hackett Group Research, and I’d really urge anyone who is interested in understanding technology and best in class performance spend some time reading their stuff. It is thorough, independent, compelling and worth the money.

In 2005 Hackett commented.

This is the first time in Hackett’s 14-year history of benchmarking that finance costs have risen for typical companies.

2005 was the first year that Section 404 really hit home for most companies: they had to begin to comply with the requirement in their annual reports for their first fiscal year ending on or after April 15, 2005.

Hope Hackett don’t mind me linking the graph here.

 

Again in 2005 Hackett said.

Hackett’s research also found that world-class finance organizations now spend 42 percent less in the finance function than typical companies, and have 44 percent fewer finance staff. According to Hackett’s research, world-class finance organizations now spend 42 percent less than typical companies overall (0.73 percent of revenue versus 1.26 percent). Typical companies have seen an 18 percent increase in total finance costs since 2003, while world-class finance organizations have seen a 5 percent drop during the same period.

Compliance costs have risen significantly for both world-class and typical companies since 2003. World-class now spend 36 percent less on compliance than typical companies (.060 percent of revenue versus .094 percent). For instance we see that the typical company is spending an additional $340,000 per billion in revenues or a total of $940,000 per billion in revenues for additional internal finance and external resources to meet today’s compliance requirements.

There are a couple of things I’d like to pick up on this.

1. The impact of SOX is clear here. The big jump in costs can largely be linked to SOX related projects, especially the panic projects that drove early spend.  Interesting though that the world class companies cost of compliance post-SOX is lower that of the peer group pre-SOX.  The impact of SOX is less on world-class companies than on the peer group too, the jump in absolute terms being significantly smaller.

2. Now, let’s  move on to the more recent numbers from Hackett. (I don’t have a graph  I can share publicly, but book of numbers owners can look it up)  The finance costs as a percentage of revenue for world class companies have now dropped down to  below pre-SOX levels, whereas for typical  companies the cost continues to climb. The delta is growing. For those companies that lurch from audit to audit and spreadsheet to spreadsheet the cost of compliance will spiral,  as SOX is just one wave in the ebb and flow of compliance demands.  For those that invest in compliance automation, strong foundation systems and smarter processes, the picture is a whole lot better.  Hackett has the numbers to prove it. 

The message here is clear. Moan about SOX all you like, but the best companies in the world have focused on putting in place the processes and the technologies to drive down the cost of compliance.  Every year they will relentlessly improve their  processes, further automate and drive out more costs. Yes, compliance costs, but how big that cost becomes is entirely up to you.  SOX will not be the only law that causes compliance challenges.

I’m not sure where the  shame comes into it.  The finance folks that I talk to want a finance function that provides transparency, control and trust at the lowest possible cost.  And that is just for starters.

 

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Business case for lobbying and the SOX-Enron of 1720..

Businesses lobbying government has always seemed a bit odd to me. Is there a link between all that talking to politicians and company success? Well, one of my research feeds from SSRN picked up two fascinating papers that are well worth a read, but here are the abstracts and a couple of quotes if you are too busy for academic papers.

One, by Goldman, Rocholl and So, from the University of North Carolina.  

In countries with a weak legal system and a high level of corruption it may not be surprising to find that political connectedness is valuable to a corporation. This paper explores whether political connectedness is also important in the U.S., which has the most developed financial markets in the world as well as a very strong legal system. The paper uses an original data set on the political connections of board members of S&P500 companies to sort companies into those connected to the Republican Party and those connected to the Democratic Party. An analysis of the stock price response of these companies to the Republican win in the 2000 Presidential Election finds that companies connected to the Republican Party increase in value while companies connected to the Democratic Party decrease in value. In addition, the paper finds that the announcement of the nomination to the board of politically connected directors results in a positive abnormal stock return. The analysis further suggests that the above effects are more pronounced for the larger corporations. Finally, using an additional (indirect) measure of political connectedness based on political contributions by corporations prior to the 2000 election lends further support to these results. 

If you need a business case for lobbying and having an old politician on your board, I guess this is it. Silly me, thinking that share prices were a reflection of future discounted cash flows. As the paper notes,

First, following the announcement of the Republican win, the return difference between companies classified as having a Republican board and those classified as having a Democratic board is positive. Furthermore, the announcement returns are positive for the Republican portfolio and negative for the Democratic portfolio. These results are reconfirmed when using an alternative definition of connectedness based on political contributions and in addition they remain robust after controlling for several firm characteristics as well as for industry effects.

Secondly, following the announcement of the nomination to the board of a politically connected individual, there is on average a positive and significant stock price response.

The second paper (a lecture) by Painter from the University of Minnesota goes back a bit further and looks two major bits of financial history, the South Sea Bubble and the the US National Bank saga.

 This lecture addresses a phenomenon that arises repeatedly in history: concurrent and interrelated corruption in the political system and in business that puts political and business establishments on the defensive. When corruption from business spills over into government, the story is likely to end with politicians seeking to cover for their own actions or to elevate themselves on an ethical pedestal above their peers. Resulting legislative action – hostile to business and driven by self serving political considerations in the wake of scandal – is often not well thought out, and may hinder economic growth and stability.

The lecture discusses two examples of this phenomenon in England and the United States respectively. First, the South Sea Bubble of 1720 – during which many Members of Parliament took bribes in South Sea Company stock and traded in the stock on inside information – was followed by Parliament’s draconian restriction in the Bubble Act on transferability of shares for over 100 years thereafter. Second, there were two attempts at the end of the Eighteenth and the first half of the Nineteenth Century to establish a permanent Bank of the United States modeled on the Bank of England. This undertaking was championed by Federalist and Whig politicians who, while they may have sought economic stability, also encouraged speculation in government securities on inside information, and bribery by the Bank of Members of Congress. The debate over the Bank was in part a debate over corruption that came with it. The First Bank of the United States was opposed and eventually allowed to expire by Jeffersonian Democrats and the Second Bank was attacked, and then pushed out of business, by President Jackson. Congress failed to establish a national bank until the Wilson Administration in 1913, two and a quarter centuries after establishment of the Bank of England.

The lecture concludes that corruption of government by business is not only bad for government, but in the long run bad for business. Business sometimes overreaches in  influencing government officials, but at the risk of a backlash in which politicians – in self righteous indignation or in order to cover up for their own actions – embrace harsh anti-business policies, regardless of whether those policies are in the national economic interest.

Pointer goes on to note in the lecture. (excuse the long quote)

Modern parallels do come to mind. Some might think of Enron, Worldcom and the Sarbanes-Oxley Act. As a current White House employee, I will not say more about these scandals beyond what I said before I entered government service. I reviewed former SEC Chairman Arthur Levitt’s book in 2003.While I disagreed with some of Levitt’s substantive views on securities law, I shared his concern that accounting firms – including Arthur Anderson while it audited Enron’s books — undermined the SEC’s independence by making an end run to Congress to complain about proposed SEC rules. Levitt pointed out that campaign contributions were a significant part of the strategy

Enron and Worldcom embarrassed government and business. There is considerable speculation about whether Congress overreacted. If so, the Enron/Worldcom fiasco would fit into the broader phenomenon I discuss in today. Harsh legislative action follows political backlash when business exerts excessive influence on government. Legislative action taken in an atmosphere of moral indignation does not necessarily rid the political system or the economy of corruption, but may leave a body of corporate law, or a banking system, or a capital market that is weaker than what existed before.

I could quote the whole paper but go and download it from SSRN instead. It is probably the most interesting thing about SOX you will read.

I’ll almost finish with a poem from Alexander Pope

At length corruption, like a general flood,
Did deluge all, and avarice creeping on,
Spread, like a low-born mist, and hid the sun.
Statesmen and patriots plied alike the stocks,
Peeress and butler shared alike the box;
And judges jobbed, and bishops bit the town,
And mighty dukes packed cards for half-a-crown:
Britain was sunk in lucre’s sordid charms. 

And I’ll finish with a quote from Marx.

Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.

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SOX… 4 years on, views from Congressman Tom Feeney, and some other google finds.

I have an ongoing conversion with Vinnie on SOX. We agree in an argumentative kind of way most of the time. (sort of a linklovehate)  In 2002, SOX was passed into law with a majority of 423-3 in the house, and 99-0 in the Senate. This level of support is rare. America wanted SOX in a big way, or at least its elected representatives did. I wanted to see if there had been any change of opinion since 2002 in those that create and pass laws in the world’s most powerful economy.  I googled a bit and came up with this  It is much more coherent than the last testimony from the US I read, which talked about the Internet as tubes.

Feeney picks up the two sides of the tale with a series of quotes.

From the Chair of Ernst and Young.

 In a March 6, 2006 speech given by James Turley, Chairman and CEO of Ernst and Young, he states, “Sarbanes-Oxley and all of the other changes that have taken place are helping to restore public trust.”  He goes on to say “Now, I’m not suggesting that the Sarbanes-Oxley Act or any single action is behind these numbers. But they do clearly suggest that investor confidence and the resultant market activity have strengthened, and not in just a small way.”  

and

 As (former) Sun Microsystems  CEO Scott McNealy said of Sarbanes-Oxley it’s like “throwing buckets of sand into the gears of the market economy.” 

He goes on to illlustrate examples of companies going public and listing abroad because of SOX.

The Congressman provides a good overview of the issues, and suggests.

I believe it is time to review the effects of Sarbanes-Oxley, keep what which is a net advantage to investors, and reform or eliminate those provisions that are a net disadvantage to investors.

Sensible stuff, but not really proposing anything other than a review.  If you were rewriting SOX, what would you change? 

There is some interesting coverage here of the pressure building against SOX. Holstein quotes from an Oxley interview. It is worth reading the whole thing.

Yes, it needs to be changed because the cost-benefit ratio is out of whack. It’s particularly out of whack for the smaller publicly traded companies. Jeff Immelt sat right here about a year ago and was very praiseworthy of what we did. They spent $36 million in complying with Sarbanes-Oxley, but he told me it needed to be done and that GE is using that as an effective competitive advantage for a global company. They are the best of the best and the cleanest of the clean. Jeff deserves a lot of credit for that. I spoke to the Business Roundtable last week when they were in town and Jeff introduced me. It was interesting because there were some CEOs there who were about ready to take my head off. But he was very supportive and I’ve had several other CEOs, at least in private, say it needed to be done. But I do think you need some tweaks and you need some changes. The last thing I want is for this thing not to work. I want it to work for what it was supposed to do, which was restore investor confidence and provide more transparency and accountability. I think we did all that, but at what cost? That’s the issue that we’re looking for the SEC to deal with.

I also came across this interview with Eric Talley, a law prof from Berkeley. He comments.

Talley:We found two pieces of evidence that are pretty consistent with the idea that Sarbanes-Oxley has imposed a cost mainly on smaller issuers. First, the aggregate amount or the rate at which companies go private relative to their foreign counterparts initially increased in the US. It turns out that that increase is really taking place largely among issuers who have under $50 million market cap. This is a little bit smaller than the $75 million dollar group of companies that are now going to be exempt until 2007 from compliance with the internal control mandates.

An interesting critic of SOX is Larry Ribstein. He has a blog here.

Moving back in the mists of time to february this year, William Donaldson spoke at an event.

The returns on Sox are good,” he said, adding that the initial implementation of the law was “flawed.” He said accounting firms demanded more of companies when conducting their annual audits than regulators thought necessary. “We told people they didn’t have to count paperclips.”

The quote that got my attention was that from former SEC chairman Richard Breeden.

Former SEC Chairman Richard Breeden added that however high the costs of complying with the law might be, they pale in comparison to other expenses companies elect to pay.“The implementation costs are one-ten-millionth of executive pay,” Mr. Breeden observed.

Perhaps what needs revising more than anything else is me googling SOX on a Sunday night when I should be doing something more sensible. My wife is sitting next to me blogging on her new mac. check out her blog if SOX bores you. Her prose are much better than mine.

Update: this morning I came  across this;  Unexpected Benefits Of Sarbanes-Oxley By: Stephen Wagner and Lee Dittmar  Deloitte & Touche, Boston, MA (SW); Deloitte Consulting, Philadelphia, PA (LD)Harvard Business ReviewApril 2006, Pgs. 133-140

Look on the bright side. Even while corporate scandals at places like Enron and WorldCom remain fresh in the minds of CFOs and investment bankers, the Sarbanes-Oxley Act has moved many companies toward better practices and greater efficiency. With all the attention riveted on the headaches and expense involved with compliance, few have stopped to notice that numerous companies have changed for the better over the last two years. According to corporate consultants Stephen Wagner and Lee Dittmar, the benefits emerging from compliance include standardization and consolidation of financial processes, elimination of unnecessary information systems and platforms, automation of manual processes, better integration of acquisitions, and elimination of unnecessary controls.

Hmm. There are many sides to this SOX story…..   Technorati tags