Now that Ken Lay and Jeff Skilling are set to spend the rest of their lives in the slammer, questions are being asked (again) whether it's time to unwind Sarbanes-Oxley. Apparently the system has been shown to work so well that we don't need it.

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Alex Pollock, a resident fellow at the American Enterprise Institute says he hopes the Enron verdicts will be the "catharsis" that leads to the overhaul of the law, reports TODAYonline.

"The regulation isn't necessary because the legal system is working," said Scott Richardson, an accounting professor at Wharton School of Business told MarketWatch.

Still, as the MarketWatch report points out, lawyers are saying that Sarbanes-Oxley would help curb the disgraceful practice of backdating options.

Pollock has a point when he claims that Sarbanes-Oxley imposes "mechanistic bureaucratic procedures to overcome the natural propensities of human nature". But the question remains: how do we protect shareholders and the integrity of the market?

Post-Enron, we still have the same problem. Nothing has changed. Sarbanes-Oxley was rushed through with insufficient cost-benefit analysis, and business is now paying the price. Which makes George Reisman's blog on applying the same rules to politicians so refreshing:

"The Sarbanes Oxley Act of 2002 requires corporate executives not merely to read but to certify the accuracy of their companies' financial reports. Why are Congressmen (i.e., both Representatives and Senators) held to a lesser standard? Why are they not required under penalty of perjury to certify that they have read and carefully studied each bill that they vote for? Don't the American people have the right to demand that their legislators know what they are doing?
After all, the stakes are far higher in cases of Congressional nonfeasance or malfeasance than in cases of business nonfeasance or malfeasance. In the latter, the most that one can lose is an investment. In the former, what can be lost is human life, and on a massive scale. And it is much easier to avoid the financial losses inflicted by wayward businessmen than it is to avoid the losses inflcited by wayward Congressmen. To avoid the first, it is only necessary to avoid making a bad investment. There is no such simple way to avoid the harm that can be wreaked by the second.
"A first step should be the refusal to enact any new legislation that the members of Congress are unwilling to swear or affirm under oath that they have read and carefully studied. And along with this, as another preliminary step, the promulgation of any new rule by any regulatory agency should be prohibited except upon that rule having been read, studied and voted into effect by a majority of the House and Senate Committees having jurisdiction over that regulatory agency. Thus, for example, before the SEC or EPA could enact any new rule, a majority of the members of the House and Senate Committees having jurisdiction over them would have to approve the new rule. This measure would effectively place members of Congress in charge of the various regulatory agencies."

The reality however is that in post-Enron environment, we still need to address the more insidious influence of executive compensation schemes designed to manipulate the system.

The backdating of options is part of that story (psst, wanna get some shares where you pick the price and where you have a no-risk guarantee to make a killing? work as an executive at these companies).

I have written a piece warning that if we don't do that, there will be new scandals.