The costs of Sarbanes-Oxley has prompted some smaller companies to delist themselves from the stock market and "go dark''. Instead of pouring money into accounting and legal costs, they can invest it in the business.

As a result, Treasury secretary Hank Paulson has flagged changes to SOX. But in his speech this week, Paulson said new legislation was not necessary, just changes that would "better balance the benefits of the legislation with the very significant costs that it imposes, especially on small business.''

Section 404, he said, would get a reworking but he warned that there is only so much the law can do:

"We should remember that we cannot legislate or rule-make our way to ethical behavior, whether it be in the business world or any other endeavor,'' Paulson said."Proper corporate governance processes increase the likelihood that well-intentioned people will do the right thing. But they do not guarantee such an outcome - and they certainly do not guarantee that unethical people will do the right thing. In my judgment, we must rise above a rules-based mindset that asks, 'Is this legal?' and adopt a more principles-based approach that asks, 'Is this right?'

Just how much of an impact the US legislation has on delistings has been shown up in another study. This one from Australia.

The University of Melbourne's Centre for Corporate Law and Securities Regulation has produced the study Corporate law reform and delisting in Australia which really puts things in context by contrasting the very different regimes in the two countries. Going dark is less of a problem in Australia simply because the regime there is less proscriptive.

The study cites figures showing how much SOX had contributed to companies going dark or private. "Companies with higher audit fees (as a ratio of assets) were more likely to go dark in this period - thereby linking the going dark decision to SOX. Thirty nine per cent of the companies that went private in 2004 (44 of 114) in fact cited SOX compliance costs as a reason for doing so. Twenty per cent of public companies surveyed in 2005 ... were considering going private - compared to 21 per cent in 2004 and 13 per cent in 2003. Most of the companies within the 20 per cent were small in size and all said that the disclosure reforms were too strict."

By way of contrast in Australia, nearly half (40.4 per cent) the delistings were because the companies had changed their names, or were taken over (18.8 per cent), or were subject to capitalisation changes (19.3 per cent) or had failed to pay listing fees (8.1 per cent).

That's right. Stricter corporate governance laws had nothing to do with it. This is partly because in Australia, there is no equivalent of Section 404 which requires companies demonstrate that they have the right control structures and procedures for financial reporting.

Also in Australia, all businesses, except for small proprietary companies, have to prepare and lodge financial reports with the regulator, the Australian Securities and Investments Commission. US companies on the other hand can delist in order to avoid mandatory reporting requirements. No similar mechanism exists in Australia.

All up, the study shows what happens when a corporate governance regime like Sarbanes-Oxley is rushed through, without any cost-benefit analysis. The changes to the Act are now just playing catch-up.

And as Paulson said, no regime can ever guarantee there will be no fraud. You only get that when people stop asking whether something is legal, and start raising questions as to whether it's right.