Time to Change Sarbanes-Oxley
Hat tip to Market Center blog for links to articles from the Financial Executive Institute and the Business Roundtable about the high costs companies are required to pay to comply with Sarbane-Oxley (SOX) regulations.
While Sarbanes-Oxley was intended to promote greater investor confidence in companies, the result has not had the desired effect. Anyone who owns a mutual fund or 401-k plan is affected by the regulations through lower stock prices due to higher company expenses and lower profitability. Additionally, over 500 public companies thus far have stated that they are not compliant with all of the SOX 404 requirements - typically the result has been a dramatic selloff in those companies' stocks.
The one industry that has benefited from all this regulation? Accounting firms, which have so much work they can't hire enough people to keep up. And as might be expected, they can charge almost whatever they want to companies.
Many U.S. public companies are considering going private to bypass these excessive regulatory costs, while overseas companies are contemplating leaving the U.S. exchanges altogether. The U.S. already has one of the highest corporate taxes in the world. One reason the U.S. markets are so attractive is because of the better regulatory climate. If that changes, the benefit to remin listed in the U.S. are reduced. While Europe and the rest of the world are lowering taxes and reducing business regulations, the U.S. is going in the opposite direction.
If SEC chairman William Donaldson wants the U.S. to remain competitive in the future, he needs the SEC to re-evaluate SOX now.
Public companies have had to dig even deeper than previously estimated to pay the costs of complying with Section 404 of the Sarbanes-Oxley Act, according to a just-completed survey by Financial Executives International (FEI). ...Companies' total costs for year one Section 404 compliance averaged $4.36 million, up 39 percent from the $3.14 million they expected to pay, based on FEI's earlier July 2004 cost survey. The increase stems largely from a 66 percent leap in external costs for consulting, software and other vendors and a 58 percent increase in the fees charged by external auditors. ...94 percent of all respondents said the costs of compliance exceed the benefits.
While Sarbanes-Oxley was intended to promote greater investor confidence in companies, the result has not had the desired effect. Anyone who owns a mutual fund or 401-k plan is affected by the regulations through lower stock prices due to higher company expenses and lower profitability. Additionally, over 500 public companies thus far have stated that they are not compliant with all of the SOX 404 requirements - typically the result has been a dramatic selloff in those companies' stocks.
The one industry that has benefited from all this regulation? Accounting firms, which have so much work they can't hire enough people to keep up. And as might be expected, they can charge almost whatever they want to companies.
Many U.S. public companies are considering going private to bypass these excessive regulatory costs, while overseas companies are contemplating leaving the U.S. exchanges altogether. The U.S. already has one of the highest corporate taxes in the world. One reason the U.S. markets are so attractive is because of the better regulatory climate. If that changes, the benefit to remin listed in the U.S. are reduced. While Europe and the rest of the world are lowering taxes and reducing business regulations, the U.S. is going in the opposite direction.
If SEC chairman William Donaldson wants the U.S. to remain competitive in the future, he needs the SEC to re-evaluate SOX now.
posted by Richie Rich | 11:42 AM
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