Sarbanes-Oxley Is Business Disaster; Passage of the Sarbanes-Oxley Corporate Reform Act was supposed to stop corporate abuses, but instead it has strangled small business and slowed job growth

0 Comments | Insight on the News, Feb 2, 2004

She says, "If you're a small company, if you decide that you want to be a publicly traded company, that means you're offering issues to the public, and the public investor needs to be assured that you are going to achieve certain accounting standards and certain standards of corporate governance."

But the Competitive Enterprise Institute's Smith says the one-size-fits-all rule is as silly as it is expensive. Investors already know that a small public company usually carries more risk than a "blue-chip" firm. The law's proponents "want a world of investment with no risk," Smith says.

Yet it was risk-taking entrepreneurial companies such as Microsoft, which were able to get access to public capital when they were small, that fueled the boom of the 1980s and 1990s. And Insight has reported on the role played in the Clinton bust by Clinton and Levitt's reversal of some of Ronald Reagan's deregulatory SEC policies toward the end of the Clinton years [see "Recession Shock," Dec. 31, 2001]. Revised figures from the Commerce Department now confirm that the negative growth began on Clinton's watch in the third quarter of 2000. But while economist Wesbury praises Bush for reversing Clinton policies on taxes and the harassment of Microsoft, he says the administration has dropped the ball with securities regulation.

But Sarbanes-Oxley is creating some jobs, Wesbury points out. The requirements for specific internal-control processes and 48-hour disclosure of any "material information" have been a boon for software builders, consulting firms and, ironically, the very Big Four accounting firms that were blamed for the corporate scandals. "Despite what all my friends in those businesses tell me, overall those are nonproductive jobs," Wesbury says.

John Berlau is a writer for Insight magazine.