Has Sarbanes Oxley lulled us into complacency and a false sense of security?

That's the suggestion from Georgetown University law professor Ethan S Burger in this piece Today's Financial Crisis, Corporate Governance, and the Issue of Third-Party Liability.

The problem, he says, is that corporate governance has not been fixed, contrary to what was expected following the passage of Sarbanes-Oxley.

Burger writes: "After the passages of SOX, many people were lulled into complacency that the factors contributing to corporate governance scandals had been addressed by assigning greater responsibilities to corporate board of directors. In fact, this is only partially the case as recent events have shown. It is not possible to regulate morality and frequently companies have incentives not to rigorously carry out internal compliance systems as they do not generate a profit. A good share of the blame for corporate governance failures (and poorly performing corporations in general belong to passive boards of directors (the members of which are often handsomely remunerated). These individuals frequently serve on numerous boards while spending very little time examining the activities of the corporation - the details of which are frequently supplied by management. Even the so-called independent directors are often only independent in the sense of not being employees of the company".

Burger says one way to address this is to give shareholders more power to hold boards accountable through the courts.

Certainly, the answer does not lie in stronger regulation. As he says, you can't regulate morality. too much regulation has the perverse effect of increasing systemic risk because it creates a system where no one can choose to do anything wrong. What that does is leave us with a system where no one can do anything right because you don't choose at all, you just comply. And history has shown us that when you do that on a very large scale, as occurred in the Soviet Union, they stop making responsible decisions. Like any skill, that falls away when it isn't used. Corporate governance needs an overhaul in the wake of the financial crisis. But regulation will not fix the problem.