At the beginning of this month, I looked at how Obama had dismantled the post-Enron reforms. Significantly, a Democratic-controlled House pushed through changes that in effect neutralize Sarbanes-Oxley, the legislation that had been put there to protect investors. Sarbanes-Oxley had passed, almost unanimously, by a Republican controlled House.
New York Times columnist Floyd Norris says this spells the end of Sarbanes-Oxley as we know it with the House passing the perversely named Investor Protection Act of 2009 which allows most companies to never comply with the law. Norris quotes former Securities and Exchange Commission chairman Arthur Levitt saying: “That the Democratic Party is the vehicle for overturning the most pro-investor legislation in the past 25 years is deeply disturbing. Anyone who votes for this will bear the investorsâ€™ mark of Cain.”
So is the end of Sarbanes-Oxley? Or are we just getting Sarbox Lite? Not necessarily, says Robert Kugel from SVP Research. He points out that the permanent exemption covers companies worth less than $75 million and that most individual investors don’t own stock in companies that size.
Still, it’s hard to see this as the end of Sarbox. The legislation was simply too big and besides all the whining from op-ed columnists, bloggers and disaffected lawyers, the law seems to have the support of most directors and executives.
But as Rob Norton writes in Corporate Board Member magazine, the law can be tweaked further by modifying compensation disclosure for small companies, reconsidering director independence for small companies, refining Section 302 certification rules and changing procedures for whistleblowers, making it even more difficult for them.
This tweaking will produce Sarbox Lite. If it’s not the end of Sarbanes-Oxley, it’s worth asking whether the changes have made it ineffective with no protection for shareholders, leaving us back where we started in 2002.