The Sarbanes-Oxley Act : A real improvement or just another new law?

Résumé du document

At the end of the year 2001, and during the year 2002, many financial scandals broke out and shook the confidence that had been placed in our global economy and the reliability of companies listed on the Stock Exchange such as Enron, WorldCom, Tyco, Qwest, and Xerox. These scandals are not just the results of suspicious dealings of only a handful of people. They also disrupted the working of the whole system of listed companies, in a very liberal environment. Various malpractices were uncovered like the interference between audit and consultant companies, and the use of the technique of external growth to hide huge deficits. Such practices gave rise to abuse, especially from top managers and executives; this is why we can see now a reappraisal of self-regulation by companies and corporate governance. After such scandals, the US government decided to intervene. Confidence is a vital element in a market economy and this was put at risk. M. Oxley, a Democrat congressman, and P. Sarbanes, a Republican congressman wrote a law in order to modify deeply, the rules of US corporate governance. The Sarbanes Oxley Act (SOX) was voted unanimously and promulgated on 30th July 2002. Through this law, the US government established tougher controls and regulations for listed companies.

Extraits

[...] A lot of small companies consider Sarbanes Oxley Act as a waste of time and money. Some listed companies even thought about going private. And large companies that would like to merge or acquire another business also think twice 14 before starting this process. In order to complete a merger, firms have indeed to be subject to a lot of internal controls. If there are not enough evidences that the merger complies with Sarbanes-Oxley rules, the merger can be cancelled. [...]

[...] And it was not easy at all. William Webster former director of both FBI and CIA became the first chairman of the Public Company Accounting Oversight Board . He symbolized the laxity of the Bush administration with regard to large companies. The whole situation made professionals think that SEC was not going to be really efficient. If we keep seeking too much for culprits, people to blame, we are going to keep not asking ourselves real questions without finding any right answers. [...]

[...] The Sarbanes-Oxley Act: a real improvement or just another new law? At the end of 2001, and especially during the year 2002, many financial scandals broke out and shook the confidence that had been placed into our global economy and the good working of companies listed on the Stock Exchange. Enron, WorldCom, Tyco, Qwest, Xerox these scandals are not just the results of suspicious dealings of only a few people. These scandals disrupted the working of the whole system of listed companies, in a very liberal environment. [...]

[...] The Sarbanes Oxley Act was followed by immediate consequences, but it appeared that most of them were negative and sometimes unintended for the economy. Most of the companies have decided to fully adopt the measures brought by Sarbanes-Oxley, by introducing new controls, new means of communication. Companies reacted favourably to new measures and got quickly in conformity with the new rules. Concerned about giving a proof of their respectability to the investors, some companies went sometimes further that what the law requires, like General Electric for example It is also interesting to notice that a lot of large non-listed companies decided to follow measures introduced by the Sarbanes Oxley Act, even if they were not obliged to. [...]

[...] As a response, the government said transparency and confidence are at this price. I will detail this kind of problems later in the essay. By establishing the inspection of listed companies, while taking into account fate of victims of such scandals, the SOX asserts itself like a device of great width making it possible to fight against the litigious financial practices. The creation of the Public Company Accounting Oversight Board (PCAOB, in charge of supervising accountancy firms and establishing standards) was aimed at fighting against the “culture of permissiveness concerning the treatment of the accounts 6 which was spread under the reign of the self-regulation and corporate governance. [...]