The Fight Against Corporate Accountability
The Fight Against Corporate Accountability
In this week’s Economist there is a lengthy article criticizing Sarbanes-Oxley, the corporate accountability law passed in the wake of the Enron scandals. It’s likely to be cited frequently by business interests working to weaken the law.
The article includes many passages carping about implementation costs like this one:
A survey by the FEI, an association of top financial executives, found that companies paid an average of $2.4m more for their audits last year than they had anticipated (and far more than the statute’s designers had envisaged). Deloitte, a big accounting firm, has said that large firms have on average spent nearly 70,000 additional man-hours complying with the new law.
Two responses:
1. In 2004, corporate profits were at the highest level ever recorded by the Bureau of Economic Analysis. So these costs aren’t preventing companies from making a lot of money.
2. Sarbanes-Oxley was designed to impose additional costs on businesses, in exchange for less risk to investors. It’s always cheaper to not have to worry about the rules.
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Post SOX, there hasn’t been one major corporate scandal. That’s worth the price of admission in my book.
May 23rd, 2005 at 12:55 pm“Post SOX, there hasn’t been one major corporate scandal. � What about American airlines gutting their pension? What about Haliburton? What about Tom Delay Inc?
If Americans want corporate responsibility they had better vote Democratic.
May 23rd, 2005 at 1:22 pmCorporate responsibility (oxymoron, of course). Capitalism needs regulation to protect us from big business. The sad point is that good businesses are being lumped together with the “enrons” and have to be suffer as a consequence.
May 23rd, 2005 at 1:27 pmSOX has been largely effective on most counts. It is unsurprising that The Economist laments the costs of SOX implementation. They are, after all, part news, part business.
May 23rd, 2005 at 1:30 pmInteresting that you lament the “record profits” of corporations.
Just wait till you have “record losses”, then we’ll see how smug you are. When the corporations are suffering, we’ll also have…..
1) recession
2) unemployment
3) higher welfare rolls
4) higher crime
5) higher rates of suicide and depression
6) higher rate of mental breakdowns
7) higher rates of personal bankruptcy & divorce
8) higher inflation and deficits
9) more military conflicts -more American deaths
10) more deaths of innocents
Yes, those gol-dang high corporate profits are a real SHAME, arent’ they?
Profits are not a bad thing. Profits are a WONDERFUL thing. To badmouth profits in a capitalist country is to badmouth air and water.
We don’t need new laws as much as we need enforcement of the laws we have. Reforce them or repeal them.
May 23rd, 2005 at 1:32 pmSo buckshot, you’re back. I was wondering how long it would take.
So, do you think Enron’s anticks are reason enough for SOX? How about HealthSouth? MCI?
I hadn’t seen anyone here decry profits. Somehow you slipped in a lament about it and then went on to give us 10 things that haven’t happened and somehow indicated that those who oppose the relaxation of SOX are at fault for the 10 bad fantasy things that haven’t happened, but are still our fault.
Take your meds, dude. Smoke some 420. You’ll feel better after a while. Leave us out of your odd little world.
May 23rd, 2005 at 1:40 pmWe already higher welfare rolls, higher crime, and drug problems etc. What you fail to note is that corporate profits at the expense of the working class causes many of these social problems. Despite higher taxes, and social responsiblity during the clinton admin many of the above listed problems were lower then then now. So please try a real argument next time.
May 23rd, 2005 at 1:43 pmThe Economist article also provides an interesting example of “single sourcing.”
To quote from the article:
“The cost of all this is steep. According to one study that has attracted a lot of attention, the net private cost amounts to $1.4 trillion. This astonishing figure comes from a paper by Ivy Xiying Zhang of the William E. Simon Graduate School of Business Administration at the University of Rochester.”
That’s it, in terms of an estimate.
We have one highly controversial study suggesting that the costs of Sarbanes-Oxley (SOX) will outweigh the benefits. Provocative certainly; proof, certainly not.
Likewise, the study does not measure the total social cost of the scandals that SOX was implemented to prevent. Enron’s downfall–and previous misbehavior that lead to it–affected more than just shareholders and creditors.
We need to consider the true cost–the total cost–of corporate corruption. The Zhang study does not.
Likewise, audit costs for last year were up, certainly. In part because compliance is new. Much of those hours were spent in learning what to do. These costs to business will come down as SOX becomes more familiar.
Btw, on Saturday I remarked:
Finally, to all commentators, please let’s keep the threads on topic. This is a public venue for discussion, not for self-aggrandizing self-inflicted martyrdom. Thank you.
The thread-distracting “martyrdom” continues, it seems. But I thank Krazny and kindness for staying on topic despite it.
Best to all.
May 23rd, 2005 at 1:53 pmHow about this: if a company wants to be a safer investment, it can do as much accounting as it wants to achieve this. If a company doesn’t want to be a safer investment, it can do less accounting. Then investors can choose who to invest in.
May 23rd, 2005 at 2:38 pmIt’s the ultimate in “corporate welfare”: using allegations of corporate malfeasance to pass a law imposing costly accounting surcharges — essentially, taxes — on big companies, all to the benefit of consumers and accounting firms.
I can hear Norquist rattling the Republicans’ cages already.
If nobody paid any taxes then there would be NO law enforcement AT ALL, and corporate crooks wouldn’t be crooks anymore, they’d just be more successful PEOPLE in a lawless, taxless state.
But since the LIBRULS are too wimpy to pick up their guns, let’s use their stupid law to enrich the very accounting firms that cooked the books in the first place! NO TAX: I win; TAX: you lose!
May 23rd, 2005 at 2:43 pmThe companies would lie, and we would be back at square one with the initial problem.
May 23rd, 2005 at 2:43 pmKindness,
Judd’s post uses high corporate profits as a justification for massive government intrusion. We often create more laws while ignoring the laws we already have on the books.
Profits are a good thing. Affluence is a good thing. If folks would spend their time trying to improve their own lives, rather than controlling the lives of others, they would end up much less dependent on “a helping hand”.
Personally, if I were poor, I would not spend my days commenting on blogs. I would be bettering my earning potential & financial security.
If my posts bother you, please feel free to scroll past. You make a conscious effor to read them, and to reply, so I cannot help but think you have nothing better to do. (you must be wealthy, right?)
Krazny,
Incorrect. The social ills you list are all down, due to the fairly robust economy. Do some research, educate yourself, and THEN come back and educate the rest of us.
You have things in the wrong order.
May 23rd, 2005 at 2:59 pmdown compared to what?
May 23rd, 2005 at 3:20 pmBefore anyone takes the Economist’s concerns seriously, keeo in mind that even the Economist acknowledges that many costs are one-shot deals, so the “added” cost of Sox is likely to be less in the future than it was in the past. Also, you need to know some things they leave out of their story:
(1) How much was the total cost of the audits that the FEI study looked at? If the $2.4 million amounts to 3% of the total audit bill, you have a different situation than if it amounts to 25% of the total audit bill.
(2) How many total man hours were spent on the audits? As with item (1), if the 70,000 “additional” hours amount to 3% of the total, that’s far different than if they amount to 25%.
(3) Don’t audits always tend to cost more from one year to the next? If so, how do they know what portion of the increase from one year to the next was due to SOX as opposed to ordinary inflation?
As for good old Buckshot’s “Judd’s post uses high corporate profits as a justification for massive government intrusion”–it does no such thing. The post simply points out that the supposed additional cost of SOX is not beyond the corporations’ ability to pay. Can you people on the right read, or what? It’s amazing how many of your posts are just factually inaccurate about what someone said.
Nor, by the way, are all profits good. If Enron made billions by manipulating the power market–BAD. If the corporations in a given industry collude to set outrageous prices that produce outrageous profits–BAD. An honest and legitimate profit off the company’s business dealings–GOOD. It ain’t really that hard. And the bad kinds of profits frequently cause the very litany of oscial ills that Buckshot lists.
May 23rd, 2005 at 5:40 pmLee,
You make some valid points, of course. Certainly I would never defend fraud corruption and outright theft in the pursuit of profits.
I’m glad you can see that profits in and of themselves are not a bad thing. This separates you from the vast majority of those on the left who consider a profit a bad thing. (even as they demand a share)
Demanding further paperwork and audits is not always a good thing, either. Business already is drowning in paperwork. It is a terrible strain on productivity. New laws are not always a great thing just because they are new.
We already have laws agains theft, fraud, and corruption.
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January 4th, 2006 at 11:56 am