MD's Senator Sarbanes wrote his legacy in financial rules

Daily Record, The (Baltimore), Mar 14, 2005 by Joe Bacchus

As he stood at a podium Friday afternoon and announced his intention not to seek re-election to the U.S. Senate in 2006, Sen. Paul S. Sarbanes, D-Md., was asked what accomplishments he was most proud of in his career.

He offered the assembled press and supporters a pair of bookends for his more than three decades spent in Congress: his sponsorship of the articles of impeachment for President Richard Nixon when Sarbanes was a junior U.S. representative in 1974, and the passage of the Sarbanes-Oxley Act in 2002.

It is perhaps that last accomplishment for which he will be remembered most.

The Public Company Accounting Reform and Investor Protection Act - nicknamed the Sarbanes-Oxley Act - sought to ensure accountability in corporate finances, and to guarantee investors reliable information in an often chaotic market. Rep. Michael G. Oxley, R- Ohio, sponsored the bill in the House of Representatives.

The act created an independent oversight board for company auditors, and gave them the power to set accounting standards, and investigate and discipline accountants, according to the senator's office. It also forces chief executive officers to be personally responsible for financial reports, and personally liable if irregularities are found.

The act came in response to the sagging U.S. economy that welcomed the new millennium. As the nation entered a recession, leaders of major corporations made matters even worse, ruining shareholder investments through illegal activity. Think Enron, Global Crossing or WorldCom.

Without a doubt, the Sarbanes-Oxley Act is the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting since the U.S. securities laws of the early 1930s, reads a statement about the act on the Web site of accounting giant PricewaterhouseCoopers.

Stephen Loeb, a professor at the Robert H. Smith School of Business at the University of Maryland, College Park, agreed it was historic legislation.

I think it certainly has made a lot of change in corporate governance, he said.

One major impact has been to the accounting industry, which has seen demand for its product boom as experienced certified public accountants are needed to audit corporate finances.

The act's effectiveness can also be seen in today's recovering economy, said Peter M. Kravitz, director of congressional and political affairs for the American Institute of Certified Public Accountants.

It clearly has been the major contributor to the confidence that has returned to our capital markets, he said. This means investors can trust financial figures without the worry of surprise bankruptcies - think Enron again - and company managers can better run their businesses.

The Sarbanes-Oxley Act is not without its critics.

As recently as Thursday both Sarbanes and Oxley were defending their legislation against talk of watering down its provisions. The U.S. Chamber of Commerce and the Financial Services Roundtable said they want only technical changes to the legislation, the Washington Post reported. However, Sarbanes and Oxley insist the act is working, and it will work best if left alone.

Sarbanes first entered public office in 1966 as a Maryland delegate. The son of Greek immigrants won election to the U.S. House of Representatives in 1970 and the U.S. Senate in 1976. He was at one point the chairman of the Senate Banking Committee, and is now the senior Democratic member. His five terms in the Senate is a record for Maryland.

Sarbanes' term is not yet up. He said that without the distraction of running for re-election, he can focus all his time and energy on governing during his remaining 22 months before he slips away to a second life of writing and teaching.

He'll continue to oppose the tragic and misguided Bush administration, fighting tax cuts for the wealthiest Americans as the poorest go without, he said, and resisting attempts to restructure Social Security.