SOX: a Democratic opportunity

Last March I said "the Republicans deserve much of the blame for SOX," noting their cowardice under fire that led to the enactment of this misbegotten legislation, and their failure to do anything about it even after the costs became obvious. I then noted the House Democrats' "innovation agenda" which would explicitly "require specifically-tailored guidelines for small public companies to ensure Sarbanes-Oxley requirements are not overly burdensome."

Now John Berlau of the Competitive Enterprise Institute reports on a Nancy Pelosi statement about SOX that "I don’t think you need the whole package.” Maybe this is just election posturing, but it's at least better than the October posturing we're getting from the Republicans. Berlau notes that President Bush would go no further than that maybe the Act needed to be “fine tuned.”

Meanwhile the NYT's Floyd Norris reports on anti-auditor humor – a mock risk disclosure that includes such language as

there is .. . substantial risk that our auditor will disavow any knowledge of our operations, our accounting practices, or our very existence prior to the date of the filing in which we disclose that what it told us earlier was wrong. . . . Our auditor may . . .require us to emblazon, in bright red letters, ‘We had a material financial weakness in our internal control over financial reporting’ on everything we send to the Securities and Exchange Commission or other government agencies, including on our employees’ personal tax returns, and on T-shirts that our employees may then be required to wear to work for the next 12 months. Buying and printing such T-shirts for all of our employees could be expensive.. . .

Norris notes that anger over SOX and auditors "could become an issue when Congress considers whether to amend Sarbanes-Oxley, as many companies want it to do next year:

Might companies fight audit firms, which generally think Section 404 is a good thing? Or might they try to cut a deal, in which auditors do not oppose gutting Sarbanes-Oxley so long as something is done to limit the liability of auditors to investors when companies blow up?

The bottom line is that I think the Democrats recognize that SOX is a problem for the Republicans. Even if the Republicans have the power to do anything after election day, they're probably too vulnerable, particularly as the party of big business, to do anything significant on this issue. Watch for the Democrats to grab business support with a SOX rollback initiative after the election.

Additional thought:  And there's always the possibility of SEC action.  SOX First, reporting on a speech by PCAOB head Mark Olson, says "Olson has acknowledged that the Act will be changed, reminding us that the Securities and Exchange Commission will consider recommendations to change Section 404 at its open meeting on December 13."

Comments

[Robert Schwartz]

If you think the Ds will do anything positive, you are sadly mistaken. Here is what they are really thinking:

Waxman Plans Tougher Oversight Of Companies:
Drug Prices, Oil Profits Are Among Democrat's Priorities If His Party Retakes House
By Yochi J. Dreazen; October 28, 2006; Page A1:

WASHINGTON -- California Rep. Henry Waxman, the vocal corporate critic slated to run a powerful committee if Democrats win the House, said he would aggressively expand oversight of many large industries -- with a focus on drug prices, oil-company profits and Halliburton Co.'s contracting work in Iraq. ...

Of particular concern, Mr. Waxman said, would be rooting out what he called "profiteering." His aides define the term broadly enough that it encompasses Iraq contracting, the massive growth in homeland security expenditures, pharmaceutical prices and soaring oil-industry profits. ...