Mayor Bloomberg and Senator Schumer have teamed up to release a report [1] urging changes in the Sarbanes-Oxley Act [2], which set stringent new standards for corporate governance and transparency in the wake of the Enron scandal.
The study suggests exempting some non-U.S. companies from the Sarbanes-Oxley corporate-governance regulations. [...]
``Unless we take corrective steps, and soon, we're going to see America's leadership in global financial transactions dwindle, putting a chill on the nation's economy,'' Bloomberg said today during a press conference held at City Hall in New York. The report calls for ``greater clarity and balance to what is now a burdensome and inflexible system of government regulation and enforcement,'' he said. [...]
Bloomberg, a Republican, and Schumer, a Democrat from New York, said efforts to make Sarbanes-Oxley less onerous should go beyond recent changes recommended by the SEC. The New York politicians suggested small companies be permitted to ``opt out'' of provisions of the law as long as they disclose it to shareholders and foreign firms be exempt from certain Sarbanes- Oxley requirements.
The report comes as part of broad wave of attacks on SOX, from corporations, conservative think-tanks, and some politicians (see, for instance, this article [3] by Stephen Bainbridge, a prominent SOX critic). A particularly New York angle is that, supposedly, New York will suffer economically as more and more companies either go private or flee to less-regulated foreign capital markets.
The attempt to blame SOX for companies going private, though, may be completely misguided. [4] And, as this Times editorial [5] points out, companies seek out foreign capital markets for all kinds of reasons - not least of them the fact that underwriting fees in London, for instance, are roughly half the size they are in New York. Moreover, SOX may help American markets maintain a reputation for transparency and investor confidence that will serve them well when Enron-type scandals start to pop up in dodgy foreign markets. [More: Spitzer on SOX]
The Daily Politics had an interesting post [6] last month about Schumer's attempts to get Eliot Spitzer on board the anti-SOX train. Spitzer has flip-flopped a bit on the issue, suggesting last March [7] that SOX had "gone too far," but attacking the Act's critics in November [8]. To be fair, it's a complex issue whose full ramifications are unclear. But, considering his record as a champion of corporate accountability - and, of course, as Governor - Spitzer's position on SOX "reform" will be critical.
In an address to the National Press Club [9] a year ago, Spitzer defended Sarbanes-Oxley with an explicit reference to another New Yorker at the heart of the Progressive tradition:
Now, what's this all about? Well, it's a debate about the role of government in defining the boundaries of appropriate business ethics, defining what it means to participate in our economy and what the expectations are for our business leadership and also who is supposed to enforce those boundary lines. One of the interesting things about this debate is that everybody invokes the same heroes. In this regard, everybody harkens back to Alexander Hamilton and Teddy Roosevelt. These are the two Icons, the two individuals whom we all embrace and say "They really understood what government should do. They understood how the economy should function. They understood how to help the private sector generate the wealth that we so desperately want." [...]
Now the interesting aspect of this is that when Teddy Roosevelt was running for office in 1904, 100 years ago, he wasn't a favorite of the business community. In fact, when Roosevelt attacked the cartels and when he attacked what he regarded as improper behavior, he met with staunch opposition from the business community. He was reviled by the business community.
So the irony is that those who now invoke him, if they actually looked back on what he said and did, and looked back on what their predecessors in the business community said about him, if they did that, perhaps they would rethink their holding him out as an Icon.
Nobody disputes that what Teddy Roosevelt did 100 years ago was not only beneficial for the economy, but was absolutely necessary. And that if he had failed to attack the cartels....attack the illegal behavior....failed to open up the economy to permit true competition, then we would not have had the enormous growth that came after Teddy Roosevelt.
I would suggest to you that today we're in the midst of the same debate that we had 100 years ago. That what we have on one side is a business leadership that cloaks itself in the language of the "free market" but really wants to preserve an ossified system, and they want to act against those who really support competition, transparency and integrity.
On my side of the aisle, I would suggest to you, we have folks who really understand the market, who understand what it takes to permit the market to generate the wealth that has created this marvelous economy that we have, and understand that Government must step in every now and again to define the boundary lines and ensure that there is indeed integrity, transparency and fair play.
I'm not saying that Sarbanes-Oxley is flawless. But in the rush to "reform" it, Schumer and Bloomberg would do well to consider Spitzer's words.
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