Comment: Mixed Signals a Year After Sarbanes-Oxley
By ERIC BORSUM
Before blowing out the candle marking the first birthday of the Sarbanes-Oxley Act, Corporate America should ponder its wish, considering all that has transpired since the legislation was enacted in July 2002.
Securities lawyers may owe Sen. Paul Sarbanes and Rep. Mike Oxley the biggest anniversary gift of all, given the full-employment mandate their legislation has created for them on Corporate America's dime, as executives try to understand and comply with the most comprehensive financial reporting regulations in this country's history.
There have been additional beneficiaries. Plaintiffs' lawyers have seized on the opportunity that Sarbanes-Oxley has created for them as private "attorneys general" protecting shareholders and generating nice-sized fees.
The media have also plugged into the gold rush, bearing witness to dramatic public floggings of some of this nation's most prominent chief executives. Investigative journalists have roamed the country like an impassioned posse, looking to undercover the next Enron.
However, unanswered in the midst of this hullabaloo is whether and to what extent the public has benefited. Understanding the implications of the cause-and-effect relationship that gave rise to Sarbanes-Oxley seems to hold the answer.
Sarbanes-Oxley was a predictable response to a breach of public trust. History is replete with examples of the flurry of activity that almost accompanies such bold transgressions.
The infamous Love Canal case, for example, is cited as the catalyst for creating millions of pages of environmental rules and regulations that spanned the '70s, '80s and '90s. But while we all have benefited from a cleaner environment, such laws did little to restore public trust in companies like Occidental Petroleum, a substantial contributor to the pollution.
The takeaway is that Sarbanes-Oxley is not a mechanism for restoring confidence in some of our nation's corporations. The act responded to a symptom, not a disease. In the wake of this wide-scale breach of public trust, corporations are well advised to view the issue holistically. This is an exercise of inclusiveness and transparency.
As companies develop and improve their corporate governance policies and procedures, they should integrate broader objectives that transcend the balance sheet.
They must look at all stakeholders and address the issues of trust that matter most to each. Real reform and trust-building can only be done through careful analysis and with the internal resolve to develop governance policies and procedures that exceed the credibility of corporate reporting systems.
Let's remember that compromised corporate integrity not inadequate legislation was really the driver of Sarbanes-Oxley. Corporate America should be blessed with the wisdom to understand the difference.
Eric Borsum is a senior vice-president at Hill & Knowlton Inc. and leads the firm's Corporate Social Responsibility initiative.
Here is a sampling of recent newspaper editorials concerning last year's corporate scandals and whether anything has changed.
One of the problems during the late, unlamented stock market bubble is that nearly everyone seemed to lose their heads, even the supposed watchdogs. Auditors were among those who often got swept away. The political class reacted by giving us Sarbanes-Oxley, one of those Washington specials that imposes new costs and burdens on the entire economy in the name of punishing the guilty few. We think history shows that the better way to deter against future misbehavior is for individuals to be held accountable for their own actions.
The Wall Street Journal
The good news is that directors and, particularly, audit committees seem to be taking their jobs more seriously; they've been empowered, even instructed, to ask questions of management rather than simply ratify its decision-making... Meanwhile, some unattractive grousing can be heard from companies about the costs of complying with the new law, as well as some muttering about its supposed effect on corporate initiative... But there's little doubt that investors are better off today than they were a year ago. Corporate America is, too, if it would stop a moment and consider the erosion of trust that Sarbanes-Oxley attempts to repair.
The Washington Post
Oh, how the mighty have fallen. In the past year, prosecutors have secured more than 250 corporate fraud convictions, including 25 former CEOs; charged 354 people with white- collar crime; and recovered more than $85 million in fines, forfeiture and restitution. But instead of celebrating this corporate comeuppance with any tone of revenge, Americans should hail what's happened as a prime example of good government. The Corporate Fraud Task Force, established by President Bush, has become an effective tool for leading our nation beyond the scandals. Making money in America is difficult enough. What businesses and investors don't need is more of the scandalous days of 2001 and 2002.
The Columbian (Vancouver, Wash.)
There is the basic issue of business ethics, which cannot be mandated or controlled by a government agency. Thomas Donaldson, a professor at the Wharton School, spoke at an anniversary event for Burson-Marsteller, and told the group about the most common misperceptions about managing ethics. One is that "bad things are always caused by bad people," when, in fact, he's observed that factors like uncommon stress and blind precedents are really at the root of the actions of those behaving unethically. Compliance programs instituted by companies can play a positive role, but they do little to help executives counter an unethical environment.
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