Is the Sarbanes-Oxley Act on its last legs?

Looks like it. In this topsy-turvy political world Sarbox was ushered in by a GOP-controlled Congress and is being systematically gutted by a Democratic Congress. Of course one the unintended consequences of Sarbox was an untenable burden on small business. Wall Street was going to motor along, accounting firms were going to bank and Main Street was going to take it on the chin once again.

From the link:

The House Financial Services Committee has approved an amendment to the Investor Protection Act of 2009 to allow most companies to never comply with the law, and mandating a study to see whether it would be a good idea to exempt additional companies as well.

Some veterans of past reform efforts were left sputtering with rage. “That the Democratic Party is the vehicle for overturning the most pro-investor legislation in the past 25 years is deeply disturbing,” said Arthur Levitt, a Democrat who was chairman of the Securities and Exchange Commission under former President Clinton. “Anyone who votes for this will bear the investors’ mark of Cain.”

Those who favored the amendment saw it differently. They were simply out to help small businesses, which would be burdened by having to report on whether they maintained acceptable financial controls, and to have auditors check on whether those controls worked.

There are other threats to Sarbanes-Oxley as well.

No more Sarb-Ox for small business?

This should be welcome news.

From the link:

Small businesses would be granted a permanent reprieve from complying with part of the Sarbanes-Oxley corporate reform laws, under a draft U.S. House of Representatives bill discussed on Tuesday.

Small companies have not had to comply fully with the rules since the Sarbanes-Oxley law was approved in 2002 in response to the Enron and WorldCom corporate scandals.

Companies with a market capitalization below $75 million have argued that they faced disproportionately higher costs compared with larger companies and have convinced regulators to delay compliance at least five times.

The Securities and Exchange Commission is now requiring small companies to report on the effectiveness of their internal controls as of June 15, 2010.

But Republicans, hoping to thwart this SEC requirement, introduced an amendment on Tuesday to a House Financial Services Committee draft bill to do just that.

Risk-taking and Wall Street

This BusinessWeek article is actually about the demise of risk-taking in Silicon Valley, and it does a great job of identifying some of the players who’ve collectively killed risk in the one-time land of starry-eyed entrepreneurs.

The final culprit — Wall Street — and the indictment against it is interesting, true and really applies across the spectrum of business sectors as a succinct reminder of the myriad problems facing the Street and what has become business as usual. Particularly the point about Sarbox and why entrepreneurs might shy away from IPOs.

From the first link:

WALL STREET

Wall Street hasn’t played as direct a role in Silicon Valley since the late 1990s, when analysts like Mary Meeker and bankers like Frank Quattrone knew as much about new startups in the Valley as the VCs did. That’s part of the problem.

Startups have to want to go public in order to go for the home run. And most entrepreneurs today just don’t. Blame it on bankers and analysts who no longer care about a company with a sub-$500 million capitalization; blame it on Sarbanes-Oxley; blame it on activist hedge funds who don’t give CEOs the leash to innovate; blame it on scars from companies going public in the 1990s that had no business going public and paid the price.

But too many great entrepreneurs sell early not because they’re lazy, not because they want a quick buck, but because the idea of running a company all the while trying to meet quarter-by-quarter Wall Street estimates is antithetical to risk-taking.

Verdict: There’s got to be a reward for all that risk, and until the public markets become a place great entrepreneurs aspire to get to, that risk-reward equation is hopelessly lopsided.

Sarbox is a joke

Can’t we all agree the Sarbanes-Oxley Act is a complete failure?

From the link:

As if business needed one more reason to dislike the Sarbanes-Oxley Act, here’s a doozy: It may actually worsen the impact of financial statement fraud, the very problem it was created to address.

A new report from the Association of Certified Fraud Examiners found that companies that had the controls mandated by Sarbanes-Oxley actually suffered greater losses from financial statement fraud than those that did not have the controls. What’s more, the study found, companies whose management certified financial statements and had independent audit committees actually took longer to detect financial misstatements than companies without those controls.