The price and effects of Sarbox

John Thain, NYSE CEO, writes in today's WSJ $ about the problems the Sarbanes-Oxley Act poses for U.S. companies. No surprise to me. See my comment on Sarbox when it was first passed, Market vs. Regulatory Responses to Corporate Fraud, 28 J. Corp. L. 1 (2002) (draft here).

Will these costs and complaints have any effect on regulatory policy? After all, US firms were among the big supporters of Sarbox -- it was supposed to solve all the investor confidence problems of the summer of 2002. Nobody was paying much attention to the high costs and low benefits of Sarbox -- it was all about publicity value. Sarbox's effect on competitiveness is not something that's easily translated into political action. As I argue in my article, the biggest effect is on the business that is not done -- the startups that don't start, the firms that don't grow. But regulatory policy is made by the biggest and richest firms, who are helped by regulation that makes life especially hard for the small fry.

But Thain discusses something that might get regulators' attention, and has certainly gotten his: Sarbox's demands on foreign companies, together with the costs of complying with multiple accounting standards, the rising strength of European markets and the euro, and the threat of investor class actions, is causing a significant drop in "cross-listings" of European firms in the US.

Again, no surprise here. See my International Implications of Sarbanes-Oxley: Raising the Rent on US Law, 3 Journal of Corporate Law Studies 299 (2003). I argue that a drop in cross-listings resulting from Sarbox eventually will cause important players in the US securities industry to marshall opposition to increasing securities regulation. Enter Thain.

The bigger story is that the US is not alone in the world. We have the dominant economy and the dominant securities markets, but we could squander that edge with more short-sighted legislation like Sarbox.

P.S. Similar take from Adam Smith, Esq.

Comments

[Bruce MacEwen]

Dear Larry Ribstein:

Interesting post on Sarbox; I linked to the same John Thain op-ed with a fundamentally similar take on it. The law of unintended consequences strikes again! My post is here:

SOX & Knee-Capping Our Comparative Advantage
http://www.bmacewen.com/blog/archives/000059.html