Lessons from Bear on SOX
Is there potential SOX internal controls liability for Bear executives? If not, and melt-downs like this can happen after SOX (worth $80+/share one day, $2 the next), then what was it, exactly, that SOX did for us? Could it be that SOX didn't eliminate risk after all?
And Tom Kirkendall sees shades of Enron here. When you're a trust-based business and the trust is gone, your value can evaporate mighty quickly. Skilling pointed out that that's exactly what happened at Enron. Tom K notes that it would have happened at AIG had that company not cut a deal with Big E. Tom says, "such loss is simply one of the risks of investing in a company based on a trust-based business model." Does this mean that Enron was all about inherent risk in the market, and not about fraud?
So two possible lessons from Bear: We didn't need SOX, and it didn't do any good.
It is difficult for the best internal controls to stop runaway bad judgment, that is what a board is for. Does anyone think the CEO was going to take advice from the Controller or the internal audit staff?
The masters of the universe can only be controled by other masters, like the one on the board.
And please don't drag this out as one more reason why Skilling was not a criminal.
Posted by: save_the_rustbelt | March 17, 2008 at 09:57 AM
Skilling is a "criminal" if and only if he is properly convicted. So far he is criminal, though I question whether his offenses justify that treatment. Whether he will remain a criminal is what is being argued right now in the 5th circuit.
Posted by: Larry Ribstein | March 17, 2008 at 10:15 AM
You mean you can't eliminate bad judgment by making it illegal?
That can't be right.
Posted by: heedless | March 20, 2008 at 12:33 AM