How Much Does Sarbanes-Oxley Cost?

You see some numbers saying as much as $1.4 trillion, just in stock market devaluation. Carl Bialik, the sharp Numbers Guy at the Wall Street Journal, lays out the math, and notes that such huge figures are based on "event analysis" -- interpreting all of the stock market's activity over a finite period to one main event. Whole thing, worth bookmarking, is here. My non-bookmark-worthy take on event analysis, and the so-called "nonsense index," is archived here.

Comments

Russ D | June 16, 2005, 1:10pm | #

Couldn't tell you how much SOX costs, but I can say that several companies I and/or friends of mine work at say that SOX made those companies begin offshoring work when they had never considered offshoring before.

David Woycechowsky | June 16, 2005, 1:13pm | #

Maybe we make a more rigorous SOX Mach 2 for foreign companies that want access to US markets, then.

ChrisO | June 16, 2005, 1:15pm | #

SARBOX is one of the most intrusive pieces of federal legislation ever. Also one of the most poorly thought-out. It was passed in a hurry after the Enron debacle, and it has lots of ambiguously written provisions (including wide-ranging criminal liability) and very little legislative history to support it.

One example of its idiocy: Companies' outside counsel and accountants have long been viewed as a bulwark against corporate fraud. SARBOX now requires these outside advisers to act, in effect, as snitches for the feds. Well, what do you think the result of that will be? Corporate executives will no longer confide in their outside legal and financial advisers--the very people who could help prevent another Enron!!! Great legislative drafting, there, guys.

Another problem--every disgruntled hack employee is now going to claim that he became a SARBOX "whistleblower" just before he was fired for incompentency. There are real whistleblowers out there, but SARBOX is simply going to be another litigation breeder for the plaintiffs' employment law bar.

6Gun | June 16, 2005, 1:17pm | #

Why (he asked, rhetorically) can't DC ever, ever do anything fair, rational, and principled?

Arguably the biggest violation of personal rights in the land comes from personal tax servitude, and scott-free corps got that way via intellectally corrupt lobbying, but is SOX somehow the answer?

I can appreciate Russ's friend's dilemma, however extacting the private citizen from involuntary taxation would probably go as far or farther to reduce offshoring as anything.

But there I go again, arguing principle...

Russ D | June 16, 2005, 1:38pm | #

6Gun,

I don't know anyone who lost a job because of SOX, some actually got work because of it. But SOX did create a lot of extra work requiring a lot of rearrangement of existing work which resulted in a lot of offshoring.

Jack Wayne | June 16, 2005, 1:40pm | #

Without addressing any of the items in this post, I know that SARBOX has cost my company $6M+ since we started on it. With no real increase in security for the stock buyer. We were an honest company before. We're an honest company now - less over 6 big ones. Since we're lower mid-range size I think the $1.4 T is low.

thoreau | June 16, 2005, 1:49pm | #

I'm winding up a teaching stint at a private for-profit school. Overall I like the place, but they have some pretty dumb policies, like any corporate bureaucracy. What's great about Sarbanes-Oxley is that it's a tailor-made excuse for any bullshit they want to foist on us.

"Why hasn't the copy machine been fixed yet?!?!"

"Well, in keeping with Sarbanes-Oxley there are very strict rules about the time-tables on which we do things, and strict reporting requirements. But the copy machine will be fixed."

"Why didn't my paycheck arrive on time?"

"Well, in keeping with Sarbanes-Oxley our financial transactions are subject to certain reporting requirements and monitoring. All this takes time. But it will come...eventually."

"Why aren't you opening up new classroom space to accomodate the increased enrollment?"

"Well, in keeping with Sarbanes-Oxley...."

Don't get me wrong, I understand that SOX has plenty of flaws, but I don't appreciate the way my bosses have used it as their favorite excuse when things go wrong.

friendofliberty | June 16, 2005, 2:08pm | #

SOX is a bad law whose costs in no way compensate for any benefit it may bring in providing more confidence among Investors in public company financial statements.

independent worm | June 16, 2005, 2:48pm | #

Bah! Too much math. My question is: how much of the 1.4 trillion dollar "loss" was due to companies actually having to, you know, report real earnings and losses, instead of made-up stuff.

I understand the act has been made into a handy excuse for foot-dragging, and has brought some more work in for biglaw (when Elliot Spitzer isn't busy playing rainmaker) but even in my limited grasp of math, I don't see 1.54 trillion in added costs/lost profits.

What I could see, however, is "devaluation due to increased truth-telling" however.

independent worm | June 16, 2005, 2:49pm | #

however however

Ayatollah Usoe | June 16, 2005, 5:04pm | #

S404 requires a CEO sign off on financial documents. But a CEO runs the business, not the reporting. That's why there are several levels of management below the CEO to handle the financial reporting. Who runs the shop while the CEO plays bean-counter?

As others have pointed out, Congress gave us SarbOx as a response to Enron. But none of us had to invest in Enron. Congress has also given us Amtrak, which is a larger disaster, and we can't elect out of Amtrak. Congress has consistently given us budgets, and the U.S. General Accounting Office (GAO), reports it was unable for a seventh consecutive year to express an opinion as to whether the U.S. government’s consolidated financial statements were fairly stated.

Congress is attempting to hold corporate America to a higher standard than it is capable of meeting. I propose applying SOX 404 to the government first, before we take it national.

Russ D | June 16, 2005, 5:52pm | #

You know how much more "make-work" THAT'S gonna cost??

Ruthless | June 16, 2005, 8:51pm | #

Keep in mind as you read below that I consider laws to be like traffic signals: stumbling blocks society masochistically sets up purely for inflicting pain.

"By Steve Slater

LONDON (Reuters) - PartyGaming shares were under pressure in unofficial trading on Thursday amid investor concern about the regulatory risk facing the online poker giant, which is set for a multibillion-dollar share float later this month.

Spread-betting company IG Index said its price range for PartyGaming's shares had slipped to 110-118 pence, while Cantor Index's price was 112-115p, both towards the lower end of PartyGaming's indicated price range of 111-127p per share.

The weakness came a day after the company issued its prospectus which said the company's directors risk jail if U.S. moves to clamp down on online gaming are successful.

"There is a significant risk that criminal or civil judgements may be sought against the group of directors," PartyGaming said in its prospectus for the initial public offering in London.

"If successful, such actions may result in remedies such as injunctions ... fines and imprisonment."

PartyGaming said 87 percent of its players are based in the United States, where the legality of online gaming is a grey area."

Kenneth Jordi | June 17, 2005, 4:45am | #

SARBOX -- just another make-work program for lawyers (and for bureaucrats of course)