27 Jun

More on Sarbanes-Oxley and boards of directors

I got a mention this week on a blog called The Race to the Bottom:

A consistently anti-Sarbanes-Oxley site is The FRAUDFiles Blog. Last week, for example, the blog noted a study discussing the changes in boards as a result of SOX and the increase in D&O insurance costs. As the Blog concluded: “Clearly there is a one significant cost of SOX noted here – an increase in the D&O premiums.”.

I tried to like Sarbanes-Oxley. I promise I did.

I just can’t help but noticing over and over the enormous costs of compliance, and little to no proven decrease in fraud. While I think that companies have made some improvements post-SOX, I think that they came at too high of a cost and that the legislation didn’t actually require most of those improvements anyway… so why have the legislation? Add to that the false sense of security that SOX seems to have given users of financial statements, and we’ve got ourselves a bad situation.

Admirably, J. Robert Brown at The Race to the Bottom took a much better look at the study I referenced in my initial post on this topic. A couple of the interesting points that Mr. Brown highlighted:

  • Boards have become larger and more “independent.”
  • The number of companies adding at least one director to the audit committee have increased from 18.09% in 1999 to 36.16% in 2004. One can surmise that a good part of this increase arose from the need for a financial expert on the audit committee.
  • While there was no material change in the number of board meetings as a whole in the post-SOX world, audit committee meetings doubled.

I’m still left wondering, however, whether any of these “improvements” has really helped curb corporate fraud?

Leave a Reply