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Axe the Ox I have been reading the Ron Paul Campaign blog on a regular basis and this portion of an interview with Glenn Beck brought a grin to my face:
GLENN: Okay. If you were President of the United States, what would you do?
PAUL: Well, the advice would be return to the market economy. First
we would have to deregulate. We had a crisis a few years ago, at least
a supposed crisis with Enron and they superregulated. So I would
repeal certainly major portions of the Sarbanes-Oxley. So we would
argue for deregulation. Then, of course, there should be major, major
tax reform…
I suspect Editor Perry will also gain a smile from this one. Sarbanes-Oxley has been a disaster to the US economy from the git-go and it is about time a politician got up and admitted it.
Of course the City of London has loved it… all those US IPO’s did not vanish, they just came over here to Merry Olde Englande.
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I think this is the point where a “Sarbanes-Oxley for Dummies” link would be helpful. What I know about finance is limited to reading my 401(k) statements every quarter.
Passing a new law to “do something” about a crisis that’s almost over anyway is a recipe for stupid and wrong, but I’m weak on the details this time.
Perry is our financial expert… perhaps he has a good explanatory link. I only understand it from the entrepreneurs viewpoint. The accounting practices required for a public company are so severe and costly that entrepreneurs simply do not want to deal with it. Even some mid-size public companies have gone privately held.
At the moment the UK is one of the better places to IPO because of S-O… at least until Gordy gets around to mucking it up!
here you go. Not very helpful; it just amused me that such a book exists.
Seems there are several other books on it as well. Sort of makes my point why entrepreneurs would just rather not deal with it. Screw the Congress of the United States. IPO in London!
wiki article here.
In particular, title III is a killer:
“Title III mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports.”
let’s say that you are on the board of a company employing 50,000 people worldwide. You are required by SOx to guarantee that your accounts are accurate and that none of your 50,000 employees have been up to something naughty. That’s a tall order.
It’s worth remembering that everyone in the presidential race who was then a senator, including Clinton, Edwards, McCain, and Fred Thompson voted for SOx. Obama arrived too late. Also voting “aye”, for that matter, were Tancredo and Hunter. Fortunately, the “serious” candidates in the race, Kucinich and Dr. Paul, voted against it.
Surely a law that needs a stack of books to explain it is nothing but bad news. The law should be simple and self explanatory, eg Do not kill another human being unless your life is in danger. The more complex a law is the more likely it is to be broken due to misunderstanding.
Mandrill
The legislative bodies of the western world are largely made up of lawyers, (and those who play them on TV).
I’m not saying that all laws are deliberately designed to be a lawyers bonanza but…
I have personally benefited from SOX because I was hired to, amongst other things, help with SOX compliance. The whole thing is ridiculous.
Firstly, it requires a corporation to spend a lot of money on proving negatives. Based on our internal auditors’ interpretation of our external auditors’ interpretation of their lawyers’ interpretation of the law, it is “illegal” for the backup modems we use for emergency access to network routers to be left turned on. When audited, we prove our compliance by providing a photograph of a modem in the off position. A person without respect for the “law” could have provided the same close-up photograph with no identifying objects in the background for each separate audit over the past few years.
Secondly, it allows the jobsworth types in the organization to refuse to do anything they find too challenging by saying it “contravenes SOX.” This is usually a killer argument because they can imply that people who contravene SOX are criminals who can go to prison.
We are a multinational company listed on the US stock exchange. To comply with Sarbanes-Oxley our head office accountants went overboard. Even our engineering office in Australia had to provide expenses down to the individual pencil.
Sure we could change systems to facilitate the entry of that level of data, but they required it retroactively. So a number of employees had to go through every single accounting entry and break it down to individual components.
well considering that fact that quite a few politicians start off as lawyer, I’m looking at YOU Blair, it is not surprising at all that legislation is brought in which keeps lawyers in jobs. The same can be found in the field of programming, there is/was a rather geeky urban myth that did the rounds a few years ago which said that C++ was made up to be so convoluted and illogical so as to keep programmers in work. It gets to the point where only lawyers can make the law because they are the only ones who understand it, and then they’re laughing all the way to the bank and we’re left with a system which is of no practical use whatsoever.
There has been talk of getting rid of some (if not all) of the S.O. absurdities for some time – among Democrats as well as Republicans.
However, normally such madness does not get repealed – it spreads to other places.
For example, the demented American “anti trust” regulations have spread to the European Union (if anything toe E.U. ones are or soon will be even worse).
And various such regulation ideas are even appearing in Switzerland (their are endless cunning ways to get round principles of law designed to keep such statism out – for example the 40% gold backing for currency requried by Swiss law was got rid of in 2000 by whipping up a “its Nazi gold stolen from murdered Jews” campaign).
The thing can be traced back to the “perfect competition model” (of Walras and the others).
The idea that government should make sure that everyone has the same information and that no company can effect the market due to its size.
This has no connection with the real meaning of compitition at all.
“Perfect competition” is a mathematical construct that can have no connection with the real world – but governments still try and impose it.
Just as they try and impose their fiat money systems – as planned money supply expansion must be better than the “chaos of the market” deciding what commodity or commodities to use as currency and the expansion of such money supply being dependent on how much of the stuff is mined.
A few things:
While I agree much of it is silly, and won’t prevent any fraud in the future (just look up Refco, and notice that much of the misconduct took place after SOX), I think some of the hysteria about SOX is overblown.
First the idea of CEO’s taking responsibility for the financial statements is more symbolic than anything else. So far as I know (and I’m willing to have someone prove me wrong) it won’t change the liabilty corporate officers can face under federal securities laws or common law. That is, it doesn’t create strict liability.
Also, while it certainly adds additional (and in large part unnecessary) costs on business, I haven’t seen evidence that SOX compliance has had any noticeable affect on the economy as a whole.
Last year the FDA approved 19 new drugs, including two biotechs. The European Medicines Agency approved 50. Part of the reason is catch-up in the EU but I have no doubt that SOX has affected the willingness of capital-hungry start-ups to move to Europe.
I interviewed three CEOs of drug firms either wholly or partially biotech developers, NONE said they would consider an IPO in the USA and SOX was the deal-killer in each case.
For people who look for effects consider that as recently as the 1980s, nearly 80% of all new drugs were developed in Europe (including Switzerland). In 2002 more than half were developed in the USA and there are no top 10 drug firms from Germany any longer.