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Sez Oxley: "Never Mind"
One-half of the duo that created the most suffocating piece of anti-business legislation in recent history is backtracking:
Was Oxley aware, his questioners asked, that the law that he and Senator Paul Sarbanes, a Maryland Democrat, rushed onto the books five years ago after the collapse of Enron and WorldCom had contributed to a sharp decline in listings on U.S. stock exchanges? And, knowing what he knows now about the cost and effects of the law, would Oxley — who retired in January after 25 years in Congress — have done it any differently?
"Absolutely," Oxley answered. "Frankly, I would have written it differently, and he would have written it differently," he added, referring to Sarbanes. "But it was not normal times."
Good to know. So because of a code-3 case of the "do somethings," rashly-enacted, reactionary legislation is causing the U.S. to lose new listings to London and Hong Kong, corporations that are here face enormous compliance costs, stifled innovation, and a fear of risk, and all we get in consolation is Oxley's mea culpa at a rubber chicken dinner.
Reason symposium on SarBox here .
|3.8.07 @ 8:34AM|#
I don't know, Congress acting in a knee-jerk manner in reaction
to the scandal du jour, unintentionally doing more harm than
good...
That sounds exactly like "normal times".
|3.8.07 @ 8:58AM|#
To be fair, SOME parts of SOX (e.g., requiring companies listed on stock exchanges to have fully independent audit committees, harsher legal penalties for willful misstatement of finances) are going to help the business world in the long run. Section 404's internal control regulations are by far the most onerous and objectionable.
|3.8.07 @ 8:59AM|#
Unless you've seen this thing up close in your work life, I
don't think you can appreciate how intrusive and horrible it
is.
It drives up the cost of everything a publicly traded company does.
It creates so much friction and cost that it can be a deciding
factor on not making a substantial move that may require sarbanes
notification. It locks people into their existing benefits
packages.
|3.8.07 @ 9:08AM|#
"do somethings,"
This is a perfect example of "Politician's logic" from the show
Yes, Prime Minister
Something must be done
This is something
Therefore, we must do it
I haven't been touched by Sarb-Ox directly, but I did boggle at the
clusterfuck that was HIPAA. More than anything, it seemed like a
great opportunity for COTS software peddlers to demand that you buy
new "HIPAA complaint" versions of their software for several
thousand dollars. Plus, it had the added benefit of making my job
more difficult, as no one seemed to know exactly what should be
done so everyone decided that nothing should be done (just to be
safe).
|3.8.07 @ 9:09AM|#
Yeah, gee thanks Mike.
I'm a corporate lawyer. SarBox is more or less my life nowadays,
especially right now as we're in the height of 10-K season. The
legal costs of public companies are up pretty significantly since
SarBox came around, and that doesn't even take into account how
accounting and auditing costs have shot up as well.
Timothy|3.8.07 @ 9:10AM|#
My job is only indirectly related to SarbOx, and it's enough to help make every December and January a living hell.
|3.8.07 @ 9:15AM|#
Another prime example of why we need term limits. People who
have no need to appear to be "doing something," just for the sake
of doing something would not react in these ways. These are the
things professional politicians do all the time. It makes them look
like they are doing something and they are, only problem is 99.9%
of the time its a knee jerk dumbass out of the blue pie in the sky
law. Then all the other Pro Pols sign up to the band wagon and
viola bad law is born, never to be corrected either mind you. Laws
they did not even read yet passsed.
Until we have elected officials that are not self preservationist
first and law makers 2nd we are screwed.
A dem in Ca. wants to put you in jail for smacking your kid. A
repub in Nevada IIRC wants to put you in jail for 15 years for a
plant in your house. They raid illegal aliens at workplaces and
then say ohhhhhhh the children of these people are now stranded.
All the while none of them can think about the kids that will be
stranded by their newly desired laws. Shit is so ass backwards in
this country now its to late to turn around. Nothing short of
implosion will change things and the sooner the better this slow
lingering death by government shit is for cold weather communist
folks we are FREE in America. RIGHT!
Guy Montag|3.8.07 @ 9:20AM|#
Don't forget about the bits of the federal government that must
comply now too.
DoDI 5200.40 and 5015.2 are great ideas that do not appear to be
surviving contact with the civilian workforce.
Guy Montag|3.8.07 @ 9:21AM|#
Dee,
Another prime example of why we need term limits.
We already have them. They are called elections.
Dave W.|3.8.07 @ 9:22AM|#
The libertarian position is that if the government created form of corporations are too costly then business owners do not have to incorporate. They can just use non-government mandated forms of organizing their businesses. Don't like corporate law? Opt out, then.
|3.8.07 @ 9:23AM|#
My employer's audit bill is up 20% "due to Sarbox" and it's a
private corporation. What major media (except Wall Street Journal)
is going to come out against Sarbox? Corporations are devils,
aren't they so why be sympathetic? Meanwhile, a million trees are
cut down every year to stuff the mailboxes of mutual fund holders
with huge reports and prospectuses that one in 1000 may even open
up.
Just so the management company is protected from litigious
shareholders who file class action suits every time a stock doesn't
perform to their liking.
|3.8.07 @ 9:29AM|#
mk,
So what would you do for patient information/privacy?
I don't think HIPAA is all that great, but what would the
alternative be?
And yes, I am sure there is an alternative, it's just I haven't
heard one, so the bar is set pretty low on this question...
|3.8.07 @ 9:33AM|#
"What? You don't like the Accountants' Full Employment Act of
2002????"
Eh? That is the narrow scope version. The full version is "The
Billable Hours Maximization Act of 2002."
|3.8.07 @ 9:37AM|#
"Absolutely," Oxley answered. "Frankly, I would have written it
differently, and he would have written it differently," he added,
referring to Sarbanes. "But it was not normal times."
Translation, we knew it was wrong and knew it was a disastrous law,
but frankly there was grandstanding to be done and votes to be won
so we really didn't give a shit about the substance of what we were
doing. Even though it is wrong I have no intention of ever undoing
the damage lest I ever be accused of "not protecting Americans from
corporate predators" and grandstanding and being a demagogue is
always more important than doing the right thing because I am
single celled political creature who can act no differently.
|3.8.07 @ 9:50AM|#
SARBOX, HIPAA, TITLE IX, DAYLIGHT SAVINGS, FAR (the list is essentially endless)...Those clowns in DC would fuck up a wet dream...a cookie to anyone who thinks this is the last stupid thing those fools do.
|3.8.07 @ 9:54AM|#
Hey,
I like daylight savings. I love the long evenings. Just because
that means a few people have to get up to slop the hogs or take
junior to the day care center doesn't mean that the long evenings
are not worth it.
Dave W.|3.8.07 @ 10:00AM|#
. . . is causing the U.S. to lose new listings to London and
Hong Kong . . .
Isn't this economic thinking a form of protectionism (that US
non-corporate taxpayers pay for)?
|3.8.07 @ 10:04AM|#
ok we keep DST but only cause you whined...how about the Federal Tax Code, good idea well executed or colossal cluster fuck & cosmic circle jerk rolled into one?
|3.8.07 @ 10:04AM|#
I don't think HIPAA is all that great, but what would the
alternative be?
What its always been - state privacy laws and the common law
governing the doctor patient relationship.
HIPAA was a solution looking for a problem. Just what exactly were
the patient privacy abuses that we needed a federal law to solve?
Anyone? Anyone at all?
Timothy|3.8.07 @ 10:05AM|#
Jim/Jason: The government is run by lawyers and accountants, do you really think they'd do anything to hurt their colleagues?
|3.8.07 @ 10:08AM|#
The libertarian position is that if the government created
form of corporations are too costly then business owners do not
have to incorporate.
No, the libertarian position is that government intervention in
markets, including capital markets, should be kept to the minimum
to prevent theft and fraud. It doesn't legitimize a stupid and
onerous government program to say "Well, you have
alternatives."
C'mon, Dave, do you really think it would be OK to mandate a rectal
exam for everyone boarding any form of public transportation.
"Well, you have alternatives. You can always walk."
|3.8.07 @ 10:09AM|#
To be fair, SOME parts of SOX (e.g., requiring companies
listed on stock exchanges to have fully independent audit
committees, harsher legal penalties for willful misstatement of
finances) are going to help the business world in the long
run.
Judging from the reactions from the people here who deal directly
with the regulations, it sounds bad enough that the entire thing
should be thrown out. I've seen this in my industry as well. From
the outside, all sorts of reforms seem like they may be good, even
if one wished that the market would reform itself without
legislation. Unfortunately, all sorts of
anti-legislation/pro-freedom people sometimes throw up their arms
and say "well, in this case, the market failed." I call bullshit.
The market may have appeared to have failed, and the legislation
may appear to have fixed some problems, but, longterm, legislating
the market will be harmful. Longterm, the market would have
corrected itself.
You think I have blind faith in markets?
More than that, I distrust gov't controls.
|3.8.07 @ 10:10AM|#
So because of a code-3 case of the "do somethings,"
rashly-enacted, reactionary legislation is causing the U.S. to lose
new listings to London and Hong Kong, corporations that are here
face enormous compliance costs, stifled innovation, and a fear or
risk, and all we get in consolation is Oxley's mea culpa at a
rubber chicken dinner.
SOX is a ton of pain for maybe an ounce of gain. It's yet
another government millstone around the necks of people who are
trying to create value.
Interestingly, at a securities-law seminar I attended in November,
the panelists said they're sense was that new listings were
migrating away from New York partly because of SOX but even more
because of the exposure posed by the high rate of stockholder suits
here (which is due somewhat to SOX but also has a lot of other
causes).
|3.8.07 @ 10:23AM|#
even more because of the exposure posed by the high rate of
stockholder suits here (which is due somewhat to SOX but also has a
lot of other causes).
There was a nice
article in Regulation magazine discussing the futility of such
suits.
I've been sheltered from SarOx. My regulatory nightmares consist of
RegNMS, OATS, OTS, and other fine acronyms.
|3.8.07 @ 10:29AM|#
Excuse me, but where's the disaster? Our economy, as the boys
and girls at the National Review will be glad to tell you, is
humming along smartly. The boys and girls at Goldman Sachs don't
seem to be suffering too much, do they?
Maybe if Wall Street banks would charge competitive fees, instead
of double the rates charged in other financial centers, they'd get
more business. And why should Wall Street get all the action in the
first place? As Milton Friedman pointed out, all capitalists insist
that their business is different, that it needs special laws and
special protection. Why doesn't Wall Street try to compete instead
of running to Congress for protection?
Dave W.|3.8.07 @ 10:30AM|#
C'mon, Dave, do you really think it would be OK to mandate a
rectal exam for everyone boarding any form of public
transportation. "Well, you have alternatives. You can always
walk."
I dunno, but I tell you that if, under that burdensome legal
regime, people were getting on the bus anyway, the way they seem to
be reliably maintaining their corporate forms, then I would begin
to wonder what was on that bus that was so great it was worth a
digit in the 'tum. I would then wonder how much the good stuff
there on the bus was costing me as a taxpayer.
|3.8.07 @ 10:32AM|#
SarbOx awesomely drives smaller corporations to "go private."
This means that somebody (a group really) buys all the shares in a
leveraged buy out and then no longer trades the shares publicly,
thus they escape much government regulation of their internal
workings.
Also, all the big corporate scandals people are getting their asses
handed to them in courts of law based on the laws that were on
the books before SarbOx.
As far as lawyers go, and I'm just a law student, most seem to hate
the law with a passion because they see how it doesn't do any good
and it also sets up a conflict of interest with regards to
reporting corporate misconduct. (Usually, lawyers are only supposed
to tattle on clients if a crime is going to happen not if somebody
might or if somebody has committed one.)
I know lawyers and bankers from London who think SarbOx is manna
from heaven though.
As to vicious securities law suits, there has been some reform
there, and hopefully, Milberg Weiss (the ambulance chaser of
securities fraud suits) having gotten in deep shit will cool the
"market" for these things.
http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393127/index.htm
|3.8.07 @ 10:33AM|#
"Excuse me, but where's the disaster? Our economy, as the boys
and girls at the National Review will be glad to tell you, is
humming along smartly. The boys and girls at Goldman Sachs don't
seem to be suffering too much, do they?"
That little piece of sophistry is used to justify every government
intrusion. Just because the economy is succeeding in spite of a
regulation, doesn't mean that regulation is good. The standard for
government regulation should be something besides whether it causes
a recession or not.
|3.8.07 @ 10:40AM|#
MP -- Thanks for the link. I will definitely read that
article.
Alan V. -- In this case, Wall Street is not running to Congress for
protection; it's running to Congress to be left alone. W/r/t
profitability, the movement of IPOs and such overseas is not really
a problem now, but a trend has been observed that could mean less
U.S. prosperity in the future. One of this country's biggest
comparative advantages has been in financial services and access to
financial markets. It would be a shame to lose that because of
unhelpful government regulation.
|3.8.07 @ 10:40AM|#
Frank_A,
We had to jump through many hoops for HIPAA regardless of the fact
that HIPAA was rather less stringent about things than we were
already. There was just an extra burden of documenting
everything.
Oh, and there is a loophole that is big enough to drive a truck
through. Basically, they just want you to try real hard to
protect PHI. So, it seems to me that one is not necessarily any
better off than they were before in the particularly egregious
cases. It's just that now there is a piece of paper with your name
on it somewhere that says that the healthcare provider is going to
try real hard not to give your protected health information
away.
I could go into some examples of where HIPAA made my job difficult
as a programmer, but it would only be interesting to IT types.
Actually, they wouldn't find it interesting either.
|3.8.07 @ 10:42AM|#
Griping about anticompetitive regulation isn't a form of
protectionism. People who advocate innovation and the ability to
increase choice should all hate this beast. It makes it so that
only the big boys can play ball at all, and even then it has the
effect of making existing business arrangements sticky because of
the astronomical cost of changing service providers in regulated
areas.
I'm also tired of hearing the whole spiel about how incorporating
is protection created by the government, so it can do whatever it
wants. No kidding. The question is whether they are doing something
idiotic, costly and anticompetitve here.
|3.8.07 @ 10:44AM|#
Maybe if Wall Street banks would charge competitive fees,
instead of double the rates charged in other financial centers,
they'd get more business.
Maybe if there wasn't so much government regulation they wouldn't
have to charge "double the rates" to cover their costs.
Dave W.|3.8.07 @ 10:47AM|#
SOX is a ton of pain for maybe an ounce of gain . . . new
listings were migrating away from New York
So the gain would be measured by comparing how the New York
exchange companies do compared to the other exchanges over the long
run?
I mean, isn't one problem with SOX that the cost is up-front and
quantifiable, but the benefit is long run and diffuse?
I would be more convinced by someone who actually tried to measure,
in a non-politically slanted way, the benefit (if any) and then
compared that to the compliance costs.
I am no big SOX fan, largely because I don't trust legislative
competence. In fact, SOX may have had a large negative affect on my
own career for reasons I will not get into here. However, the case
against SOX I read in these Hit and Run collective blog
entries sound more like preaching to the converted, rather than
material designed to convince an undecided person that SOX is that
bad, beyond redemptive tweaking, etc.
|3.8.07 @ 10:51AM|#
I would like to point out that I still think SOX is a bad law and it was passed in an overheated, "do something" climate. I just wanted to point out that some parts of the law are worse than others (Section 404 in particular). And, as always, well-meaning intentions lead to unforeseen negative results, especially when the government is involved.
|3.8.07 @ 11:00AM|#
I'd like to hear a proposal to measure the "benefits" of SOX. It is infinitesimal if it exists at all.
Kap|3.8.07 @ 11:01AM|#
I'm an engineer that works at a mid-size oil-services company.
Being a geek I typically do all of my engineering reports in HTML
format, and I installed the Apache web server on my workstation so
that my colleagues could browse my stress analysis results as a
(company-private) intranet site.
It occurred to me that other folks here might like to do that,
without the hassle of setting up their own web servers. I therefore
made a little presentation for our IT guys (on my intranet website,
natch) detailing how they could install Apache on the large file
servers that serve everyone's network home directories, and here's
how you could set up the Apache config file with aliasing, such
that all you had to do was type in an engineer's user name in a web
browser address bar, and you would automatically get their site,
and all the engineer had to do to make the site was put stuff in an
"HTML" directory at the root of his home folder. You could even
make a little script to set everyone up automatically in a matter
of seconds. I had visions of doing for my company what Tim
Berners-Lee did for CERN when he invented the WWW.
The IT guys agreed that it would be very cool and useful, and easy
for them to set up as well, but sorry, can't do it.
Why? Because our company was at the time trying to go public on
NYSE, and the SOX regulations prohibited this sort of thing. You
see, SOX doesn't just deal with legal and financial stuff. It also
governs the entire information flow within a business,
with accounting of who has access to what and how any network
permissions are set up, even engineering information that has
nothing whatsoever to do with money. They had just spent the
past few months reconfiguring the entire network and filesharing
system to put it in compliance with SOX, and they were damn sure
not going to get themselves fired by getting involved with some
damn fool intranet thing. And they were going to pretend that I
didn't just tell them I installed Apache on my computer. And we
didn't just have this entire conversation.
My company eventually bailed on the IPO and opted to be purchased
by an already-public huge industrial conglomerate.
That experience floored me.
|3.8.07 @ 11:04AM|#
I would be more convinced by someone who actually tried to
measure, in a non-politically slanted way, the benefit (if any) and
then compared that to the compliance costs.
It's a good question that I believe is near impossible to answer.
In particular, no one made an effort to quantify the "problem" in
the first place. Reason being is that I doubt it is possible to
quantify a vague notion of "bad corporate actions". There will
always be cheats and liars. But trying to correlate corporate
scandals with SarBox is a fools errand, because there are too many
other variables in play.
|3.8.07 @ 11:08AM|#
Kap's experience is entirely typical. I've seen it over and over again. You'd like to say that big decisions that are right for shareholders will be made in the face of this thing, but the cost of compliance and the inflexibility of execution built into SOX is actually determining the fates of thousands of companies and millions of shareholders. It is insane.
|3.8.07 @ 11:15AM|#
I worked for a company, that is now seriously considering
delisting from the US stock exchange because its doesnt want to
deal with SOX compliance.
I left the said company because of all the headaches and politics
SOX brought into I.T.
|3.8.07 @ 11:17AM|#
Somewhat off topic, but . . .
I occasionally hear about anti-corporation, anti-big business
libertarians. Dave W. seems to be one, and I think others pass
through these portals from time to time.
Question: Has Reason ever published an anti-corp
libertarian vs. pro-corp libertarian smackdown? Should H&R host
one?
Mike Laursen|3.8.07 @ 11:19AM|#
Another prime example of why we need term limits.
Here in California, term limits serve as nothing more than speed
bumps. When a legislator terms out of the assembly, he just jumps
over to the senate. When he terms out of the senate, he jumps to
county supervisor. And so on and so on.
D.A. Ridgely|3.8.07 @ 11:22AM|#
No law or regulation will completely eliminate or prevent
corporate fraud; however, the easiest solution to the problem would
have been to require audits of publicly traded companies to be
performed by accounting firms that do not engage in non-accounting
activities. This would, of course, be violently opposed by the Big
[this week's number] accounting firms whose consulting business is
now more profitable than their accounting business; but, in a word,
screw 'em. (Okay, so that was two words.)
Major investors (e.g., pension and mutual fund managers) already
have enough leverage in the market to secure all the information
they require before investing in publicly traded companies,
although that alone will not protect them when the books are cooked
with the aid of external auditors; and study after study shows that
the overwhelming majority of small private investors never examine
the SEC mandated filings, anyway. Worse yet, as matters stand such
small investors too often harbor the illusion that merely complying
with SEC filing requirements somehow guarantees that a firm is
investment worthy.
The result? The worst of all possible worlds: accounting firms with
unmitigatible conflicts of interest and an investing public gulled
into believing that the government is protecting it.
|3.8.07 @ 11:23AM|#
"I mean, isn't one problem with SOX that the cost is up-front
and quantifiable, but the benefit is long run and diffuse?"
I think the "benefits" (aside from transaction costs and
accounting/ consulting fees) are largely imaginary, making
quantification difficult. The notion that SarbOx somehow made
executives more accountable for fraud is absurd.
|3.8.07 @ 11:28AM|#
"I occasionally hear about anti-corporation, anti-big business
libertarians."
If, by that, you mean "anti-corporate-welfare" libertarians, put me
on that list.
|3.8.07 @ 11:32AM|#
"and study after study shows that the overwhelming majority of
small private investors never examine the SEC mandated filings,
anyway. Worse yet, as matters stand such small investors too often
harbor the illusion that merely complying with SEC filing
requirements somehow guarantees that a firm is investment
worthy."
Cupie doll for DA. This is exactly right. The institutional holders
acted on fraudulent information provided by Enron. 99% of everyone
else rode it to the bottom without once looking at even a balance
sheet.
|3.8.07 @ 11:34AM|#
If, by that, you mean "anti-corporate-welfare" libertarians,
put me on that list.
I think we're all on that list.
What I'm referring to are self-described libertarians who view the
corporate form as a bad thing that would not exist in the ideal
society.
|3.8.07 @ 11:38AM|#
even engineering information that has nothing whatsoever to
do with money
Everything rolls up to the financials eventually.
Everything. Well, not technically everything, but pretty
much everything. The information flow you're speaking of results in
decisions being made and journal entries being booked off of those
decisions. A good(bad?) auditor can make a case for anything being
relevant to SOX.
|3.8.07 @ 11:38AM|#
What I'm referring to are self-described libertarians who
view the corporate form as a bad thing that would not exist in the
ideal society.
I'm gradually being swayed to be on that list. But I don't recall
seeing any discussions in Reason (or anywhere else) dealing with
that perspective.
Dave W.|3.8.07 @ 11:42AM|#
Why? Because our company was at the time trying to go public
on NYSE, and the SOX regulations prohibited this sort of thing. You
see, SOX doesn't just deal with legal and financial stuff. It also
governs the entire information flow within a business, with
accounting of who has access to what and how any network
permissions are set up, even engineering information that has
nothing whatsoever to do with money. They had just spent the past
few months reconfiguring the entire network and filesharing system
to put it in compliance with SOX, and they were damn sure not going
to get themselves fired by getting involved with some damn fool
intranet thing. And they were going to pretend that I didn't just
tell them I installed Apache on my computer. And we didn't just
have this entire conversation.
How do you know that they were telling the truth about SOX in this
instance? How do you know they weren't looking for a polite excuse
to make you go away? How do you know that they were not dismayed
with you for fooling around with IT things on your own? How do you
know that SOX was not merely a handy excuse?
Dave W.|3.8.07 @ 11:43AM|#
If, by that, you mean "anti-corporate-welfare" libertarians,
put me on that list.
P Brooks, do you consider a more favorable tax rate than you would
otherwise get to be a form of "welfare?"
|3.8.07 @ 11:45AM|#
There are a lot of subgroups of anti corporate
libertarians.
The overarching claim is that limited liability causes a lot of
ills and should not exist in a libertarian society.
Upon further discussion, I find that most people of the anti
corporate stripe have a fairly specific vision of what business
should look like and believe that their preferred system has been
unfairly eliminated from the field by 'government protected Big
Businesses'. My personal take is that most of these claims don't
survive close scrutiny.
Dave W.|3.8.07 @ 11:50AM|#
Upon further discussion, I find that most people of the anti
corporate stripe have a fairly specific vision of what business
should look like and believe that their preferred system has been
unfairly eliminated from the field by 'government protected Big
Businesses'. My personal take is that most of these claims don't
survive close scrutiny.
My vision is that there should be many, many independent suppliers
and many, many independent buyers in every market. I believe that
this is what is required for markets to be truly competitive and to
avoid harmful influence on the legislative process.
I am not anti-corporate, so much as antitrust.
I have often self-identified here as an "antitrust libertarian." I
had a thread here recently explaining that position at length and
how Milton Friedman was that until 1980. Unfortunately those posts
were deleted by the management.
|3.8.07 @ 11:51AM|#
I occasionally hear about anti-corporation, anti-big
business libertarians. Dave W. seems to be one, and I think others
pass through these portals from time to time.
For sure, anti-corporation, anti-big business libertarians do pass
through these portals, but I don't think Dave W. passes for any
sort of libertarian.
Snipe!
|3.8.07 @ 11:51AM|#
"P Brooks, do you consider a more favorable tax rate than you
would otherwise get to be a form of "welfare?""
This is a loaded question because the corporate landscape is part
of the existing tax structure. You don't know what tax rates would
look like in their absence.
Too, lower taxes paid by corporations are not straightforward to
analyze. Do higher taxes on corporations just mean higher prices?
If so, is it clear who benefits?
Shares also form the basis for an overwhelming percent of savings
growth and the only practical way we know of to offset demographic
demand for greater transfers from the young to the old.
|3.8.07 @ 11:53AM|#
Dave W:
You are missing the efficiency argument. Massive numbers of
suppliers may just not make sense in all markets. It creates
redundancy.
|3.8.07 @ 11:54AM|#
SOX SUCKS
should be SOX SUX!
Right?
And, of course, VM, he must mean the red sort.
Dave W.|3.8.07 @ 11:56AM|#
It creates redundancy.
It is also where consumer choice comes from. It is also a source of
innovation. It also prevents the relatively consolidated side of a
transaction from imposing onerous terms on the relatively
unconsolidated side.
Kap|3.8.07 @ 11:56AM|#
How do you know that SOX was not merely a handy excuse?
Because they spoke at great length with great disgust about the
things they had to go through because of it. And they
didn't have a problem with my fooling around with IT stuff, so long
as none of the compliance guys knew about it; they never suggested
I should shut my stuff down, just keep it below the radar.
I assumed SOX would be a nightmare for the executive suite,
accounting, legal...but IT? And engineering?
whiskey. tango. foxtrot.
Even in his mea culpa I think Oxley doesn't fathom the scope of his
mistake...
Incidentally I underplayed my firm's history. We were owned by a
large foreign conglomerate which tasked our CEO with the job of
spinning us off onto NYSE. This eventually fell through, costing
our CEO his job. We were then sold to an investment group which
stated it would do the same thing. It's IPO ambitions fell through,
and it sold us to an American conglomerate. So really there were 2
failed IPO attempts within the space of the post-SOX years.
D.A. Ridgely|3.8.07 @ 12:03PM|#
Surprizingly, Dave W.'s quasi-rhetorical question regarding
different tax rates has a bit of merit, so let's agree that
corporate businesses and unincorporated business should be taxed at
the same rate as a matter of fairness. Oh, and by the way, that
rate should be 0%. Whatever the tax rate, taxes are a mere business
expense which must either be passed along in the price of goods or
services to consumers or reduce the company's equity. Moreover,
subjecting for-profit organizations of any sort to taxes and then
providing various exemptions makes for bad all-around policy. Think
especially the impact on health insurance here.
(Sorry for the minor thread-jack, but if the thread is going to
devolve into the Dave W. Show anyway, I thought I'd try to slip in
a few words of sanity about one of my pet peeves.)
Dave W.|3.8.07 @ 12:05PM|#
Because they spoke at great length with great disgust about
the things they had to go through because of it. And they didn't
have a problem with my fooling around with IT stuff, so long as
none of the compliance guys knew about it; they never suggested I
should shut my stuff down, just keep it below the radar.
Right, I am suggesting that this is what the IT department would
have wanted to tell you to do with your IT experiments whether or
not SOX existed.
*hey, look, kap, we're buds -- you know we're buds -- I just love
it when the engineers are interested in the same stuff I am -- but,
my hands are tied -- it's (this SOX thing / the bean-counters / my
boss / the auditors / the copyright compliance lawyers / etc.,
etc.) -- they get all over my ass if they see people messing with
IT stuff -- I am not saying don't do it -- I am just saying let's
keep it between us, our secret, ok? I am disgusted to have to even
have this converation with you, but you know . . .*
It ain't that hard to fake disgust.
|3.8.07 @ 12:08PM|#
*P Brooks, do you consider a more favorable tax rate than you
would otherwise get to be a form of "welfare?"*
"[M]ore favorable tax rate than you would *otherwise* get" is a
phrasing which invites a lot of quibbling, but I believe that
preferential treatment for politically powerful special pleaders
distorts the economy, and impedes the rational allocation of
resources.
There are thousands of egregious examples in the tax code, and, of
course (soxfanatics notwithstanding) public funding for sports
stadiums leaps instantly to mind. And, for you
anti-limited-liability fans, we can always point toward the zombie
economy perpetuated by Chapter Eleven bankruptcies.
Dave W.|3.8.07 @ 12:13PM|#
Surprizingly, Dave W.'s quasi-rhetorical question regarding
different tax rates has a bit of merit, so let's agree that
corporate businesses and unincorporated business should be taxed at
the same rate as a matter of fairness. Oh, and by the way, that
rate should be 0%. Whatever the tax rate, taxes are a mere business
expense which must either be passed along in the price of goods or
services to consumers or reduce the company's equity. Moreover,
subjecting for-profit organizations of any sort to taxes and then
providing various exemptions makes for bad all-around policy. Think
especially the impact on health insurance here.
Counterproposal:
- business taxes (eg, cap gains) /commercial real estate taxes pay
for military / spies / police.
- income / consumption (eg, sales tax) / residential property taxes
pay for social spending (if any) / med spending (if any) / public
schools (if any).
- roads, patent office, post office should be user fee based.
I think the people that benefit most, as a class, should pay for
the corresponding services.
|3.8.07 @ 12:15PM|#
And I agree wholeheartedly with D A Ridgely that the appropriate
corporate tax rate is zero.
"Corporations don't pay taxes, customers do."
Dave W.|3.8.07 @ 12:20PM|#
Oh, yeah, further to previous counterproposal:
- fines should fund securities enforcement (assuming we continue to
have corporations) and antitrust enforcement.--
|3.8.07 @ 12:28PM|#
Eh, if you have an unincorporated business, you are doing just as well as the incorporated guys are on tax breaks, thank you very much.
|3.8.07 @ 12:30PM|#
"It ain't that hard to fake disgust."
It is really easy when all of a sudden what you were planning to do
this year cost, and I'm not kidding here, 300% more than it used to
due to notification requirements. Some might not even call that
faking disgust.
|3.8.07 @ 12:35PM|#
Dave:
What happens in markets where two or three competitors are just
that much better than everyone else. Say what you want about wally
world, but they created a comptetition killer of a distribution
network. They understand logistics probably better than any other
organization in the country.
Do we prop up fake competition? Isn't the purpose of comptetition
to outcompete? What makes you think every market will have hundreds
of winners?
VM|3.8.07 @ 12:39PM|#
Hey JasonL!
slightly O/T (apologies). A coupla blogs you might find
interesting!
Skeptical Spectator
("commentaries on economic and financial matters")
London-Based
Macroeconomist makes commentary
Capital
Spectator - on oil, money, econ, and the bottom line
enjoy!
Dave W.|3.8.07 @ 1:04PM|#
What happens in markets where two or three competitors are
just that much better than everyone else.
Depends on what their market share is over the long term.
If their combined marketshare remains at, say 20%, then other
companies in the other 80% will emulate them, and over the long
term, some of these other 80%-residual-market-share companies will
surpass the performance of the 20% who happens to be doing best
today, and these other companies will be the golden 20% in
tomorrow's market.
On the other hand, if their combined market share goes from 20% to
90%, then they will start to act like Microsoft or the RIAA cartel.
Fat. Lazy. Uncompetitive. Hard to distinguish from each other.
Constant desire to merge. Still the best (but only because there is
no longer any real alternative). Product quality will slip, like it
did with PepsiCoke in the early 80s. See also, "The Big 3 Killed My
Baby" by The White Stripes.
|3.8.07 @ 1:05PM|#
JasonL | March 8, 2007, 8:59am | #
Unless you've seen this thing up close in your work life, I don't
think you can appreciate how intrusive and horrible it is.
================================
mk | March 8, 2007, 9:08am | #
I haven't been touched by Sarb-Ox directly, but I did boggle at the
clusterfuck that was HIPAA. More than anything, it seemed like a
great opportunity for COTS software peddlers to demand that you buy
new "HIPAA complaint" versions of their software for several
thousand dollars.
================================
At one point, my company suffered from both Sarbanes-Oxley AND
HIPAA. Because of "mandated" rotation of auditors and the different
regimen the new guys brought with them, my company had to restate
earnings over a long, torturous process. Eventually, the company
sold out to a European transnational, which is not traded on the US
exchanges, easing the Sarbox burden a bit. But HIPAA remains as a
driving force and a huge burden in its own right. The primary
result appears to be the demand for ever more detailed "audit"
functions in our software, so that system administrators and
government inspectors can, at random, check out practically any
system activity, especially those that involve the manipulation or
use of personal health info. Who accessed, when, from which
terminal, using which software function, the information being
accessed at the time, etc. If you're using this system, Big Brother
is more and more over your shoulder, taking notes on everything you
do. This is not because anyone at the customer site cares to
accumulate this information to do their jobs, but rather because
they think that HIPAA requires them do to so, and they are playing
CYA.
Apart from causing all this audit-frenzy, and a corresponding mania
for "security" features, HIPAA basically federalizes health
information. The feds can get HIPAA-regulated entities to stand and
deliver a lot more easily than in the past. So, in many ways, your
PHI seems a lot LESS private and secure than it used to be, but
much more available to the government. Which is, I think, one of
the points of the legislation. Anyone who actually reads through
HIPAA will recognize a good-sized chunk of the blueprint for
federalization of the healthcare system. I see that process moving
forward every day.
Dave W.|3.8.07 @ 1:13PM|#
It is really easy when all of a sudden what you were
planning to do this year cost, and I'm not kidding here, 300% more
than it used to due to notification requirements. Some might not
even call that faking disgust.
You must have missed the part above where I said that I thought
SarbOx had a negative impact on my career. I wasn't kidding about
that. Be thankful you are one of the ones who still has his
budget.
That fake disgust thing was aimed more at Kap who was setting up
his own private computer networks with company resources (perhaps
comingled with his own). I have been around the block enough times
to know that IT guys frowned on that even before 2002. in other
words, the fake disgust thing was not aimed at you or your
(probably real, perhaps commercially unhelpful) compliance
costs.
|3.8.07 @ 1:16PM|#
I occasionally hear about anti-corporation, anti-big
business libertarians. Dave W. seems to be one, and I think others
pass through these portals from time to time.
Dave W. is no one's idea of a libertarian.
Libertarians have no reason to be anti-"big" business, as this is
nothing more than being anti-"successful" business.
Libertarians are not unaware of the uses and abuses of big
government by wealthy and powerful private sector players, but most
of us see the problem as one of big government, not big
business.
Dave W.|3.8.07 @ 1:28PM|#
Dave W. is no one's idea of a libertarian.
Which is exactly why I post here at HnR a subsidiary of
Reason magazine, which is a farm team for Cato. i
love these publications to death, believe me, but I do not want
them having the last word on what a libertarian is or isn't.
You should see the size of the government budget cut I proposed
here at HnR just yesterday. The cut was enormous! I was so
proud, in a libertarian way.
As far as cutting away qualitative regs, rather than mere money,
you just can't beat abolishment of the government regulated,
limited liability corporate form. Old fashioned proprietorships and
general partnerships don't require no nannystate, for sure! It
would be like putting the CFR's and the tax code on Atkins!
|3.8.07 @ 1:54PM|#
Old fashioned proprietorships and general partnerships don't
require no nannystate, for sure! It would be like putting the CFR's
and the tax code on Atkins!
What is your reasoning?
JD|3.8.07 @ 1:55PM|#
As an IT guy, I can confirm that SOX has been a major pain in
the ass. It seems to have been written for financial firms, where
all the business is essentially financial business. But it makes no
sense when applied to other kinds of companies. We were asked
things like "Do you have a documented process for backups? Do you
keep logs for your server installations? When files are rotated off
the webserver, is there a record of that process?" And my favorite,
"Can you prove that...?"
As a man of a philosophical bent, my inclination was to yell, "No!
I can't PROVE any of this! I COULD be making the whole thing up!" I
eventually came to realize that when the auditors said "prove
this", they meant "have a log referring to it." Which to my mind is
pretty useless, since if I really wanted to lie about it, it would
be trivial to fake the logs.
It was especially asinine since we appeared to be asked to be
SOX-compliant in retrospect, which was well-nigh impossible. The
auditors would pull a long face when we said we didn't have logs
for something, to which our reaction was that we'd never been asked
to log this stuff before, it wasn't critical to the operations of
the business - particularly not anything financial - and maybe if
you'd asked us a year ago...
dhex|3.8.07 @ 2:46PM|#
"Libertarians have no reason to be anti-"big" business, as this
is nothing more than being anti-"successful" business."
i disagree. if you look at a big business, you'll see the shorings
of government at every step; plenty of reasons to hate on
protectionism and even the very concept of limited liability as a
government subsidy.
|3.8.07 @ 2:56PM|#
dhex -- Couldn't an organization of small businesses (e.g., the AMA, the ABA) lobby government for handouts just as effectively as big businesses?
|3.8.07 @ 3:12PM|#
I think dhex's point is that if "big" was solely a function of achievement, then yes, libertarians shouldn't have an issue with "big". But since "big" is typically a function of direct/indirect government supports, there is much more room for debate.
|3.8.07 @ 3:31PM|#
jp:
Without speaking for dhex, I hazard to say, "Yes." It is a key
concept to libertarians who don't like corporate america
much.
The odd thing is how people latch onto different concepts as being
of key importance. For me, there are such strong libertarian
advantages to a society of publicly trading of shares, the legal
arrangement of an LLC is an afterthought. I just can't see the
problem that many find so important. I've tried. It is a difference
of perspective, I suppose.
|3.8.07 @ 3:46PM|#
Jason -- Thanks, that's what I'm trying to tease out. I get
whiffs of anti-limited liability every now and then on libertarian
blogs. But I've never heard anyone really flesh out the argument.
(I don't recall David Friedman's discussing it anywhere in The
Machinery of Freedom, for example.)
I gather the objection is that corporations wouldn't exist without
a government franchise. But that's just an accident of history.
There's nothing about the law of limited liability that would make
it impossible for a common-law corporation to be recognized, like a
common-law partnership or other agency relationship.
|3.8.07 @ 3:46PM|#
I deal with labor/employment law issues, and SOX has been a big hit among the plaintiff's bar due to its whistleblower provisions. All of a sudden, as if by magic, every idiot that gets fired for surfing porn at work is now a SOX whistleblower and runs to OSHA to file a bullshit complaint. Even though OSHA and DOL toss out almost all of these complaints, the affected companies still get nice big legal bills.
|3.8.07 @ 3:59PM|#
There's nothing about the law of limited liability that
would make it impossible for a common-law corporation to be
recognized, like a common-law partnership or other agency
relationship.
Yes there is. Limited liability specifically shields owners from
tort law. I'd prefer not to get into this in depth on this thread,
but one can argue that that disassociation of ownership from
liability is a primary cause of any irresponsible corporate
practices.
|3.8.07 @ 4:08PM|#
Setting aside the question of effects, courts could have arrived at a common-law of limited liability. In the area of tort law, they did come up with other liability-limiting common-law principles, most notably the proximate-cause rule, which essentially limits how far you can trace the impact of a tort in deciding who does or doesn't have a claim, and the economic-loss rule, which bars tort claims where the only harm from the tort was monetary. There's no reason why courts couldn't also hold that if you do x, y, and z, you've formed a corporation, and one result of that is the owners of the corporation are not liable for its torts. In other words, legislation is not a necessary accompaniment of limited liability.
|3.8.07 @ 5:01PM|#
... too, I don't think a world of unlimited liability is really
where we want to go. Every investor must be a day to day top down
expert in every asset and function of every investment?
Also, note that limited liability doesn't mean "no liability".
Shareholders are liable to the extent they own shares that are
worth something.
|3.8.07 @ 5:07PM|#
i disagree. if you look at a big business, you'll see the
shorings of government at every step; plenty of reasons to hate on
protectionism and even the very concept of limited liability as a
government subsidy.
dhex, keep reading. I could have sworn I dealth with this in the
very next sentence.
Limited liability specifically shields owners from tort
law.
There is a pretty solid argument that passive owners shouldn't be
held liable anyway beyond the extent of their investment, and that
common law principles of intent/knowledge and personal
responsibility require this result.
If I didn't actively participate in, or even know of, the
wrongdoing that cause harm, why should I be held liable for
it?
Enshrining this principle in statute no more makes it an artificial
creation of the state than a common law version of the same rule.
The older, unlimited liability rule is an artifact from an era
where most concerns were run directly by the owners, and is inapt
for a larger and more capital-intensive economy.
However, putting it in statute has a number of salutory economic
effects - the elimination of uncertainty around this rule is the
foundation of modern capital markets.
I'd prefer not to get into this in depth on this thread, but
one can argue that that disassociation of ownership from liability
is a primary cause of any irresponsible corporate
practices.
Its also a necessary requirement for anything approaching a modern
economy, by all available historical evidence.
And I would disagree that the split of ownership and control is a
"cause" of corporate wrongdoing. The wrongdoers (senior executives,
board members) are generally owners themselves, and so the split
does not exist in their case, and yet they go forward with their
wrongdoing.
|3.8.07 @ 5:47PM|#
Thank you jp, Jason, & RC for responding to this off thread topic. Someday I'll be able to make a more lucid case to counter your points, but this is not the time or place. Your input though is sincerely appreciated.
|3.8.07 @ 7:30PM|#
"Libertarians are not unaware of the uses and abuses of big
government by wealthy and powerful private sector players, but most
of us see the problem as one of big government, not big
business."
Serious question--why is this? Don't mean to threadjack but I'm
very curious about the rationale behind this.
|3.8.07 @ 7:44PM|#
Taiko,
Because if government wasn't oversized and did not have too much
power over people it would be impossible for it to used and abused
for bad purposes.
|3.8.07 @ 7:53PM|#
TJIT,
I understand that, but I don't find that explanation sufficient.
For one thing, I don't think that peels back the layers enough,
i.e., if (in dem societies) the people did not give the govt the
power to be used and abused, those abuses would be less prevalent.
In other words I don't find "government" to be inherently evil. It
is how it is used. Therefore, those who would use govt to use and
abuse are to blame and not govt itself. I think that is consistent
with the libertarian position on guns, is it not? Just my humble
opinion.
Paul|3.8.07 @ 8:43PM|#
To be fair, SOME parts of SOX (e.g., requiring companies
listed on stock exchanges to have fully independent audit
committees, harsher legal penalties for willful misstatement of
finances) are going to help the business world in the long
run.
"Life, which you so nobly serve, comes from destruction, disorder,
and chaos. Take this empty glass. Here it is, peaceful, serene and
boring. But if it is destroyed… Look at all these little things
[lawyers]. So busy now. Notice how each one is useful. What a
lovely ballet ensues, so full of form and colour. Now think about
all those people that created them. Technicians, engineers,
hundreds of people who'll be able to feed their children tonight,
so those children can grow up big and strong and have little teeny
weeny children of their own, and so on and so forth. Thus adding to
the great chain of life. "
Paul|3.8.07 @ 8:46PM|#
I haven't been touched by Sarb-Ox directly, but I did boggle
at the clusterfuck that was HIPAA.
MK,
May I correct you? Thank you. You surely meant to say "the
clusterfuck that is HIPAA."
Last time I checked my "IN" box, HIPAA is still very much with
us.
|3.8.07 @ 9:49PM|#
You are, of course, correct sir.
It distressed me this very day as I tried to make an application
that featured automatic emailing but without utilizing wonderfully
simple SMTP. Nah, that would be easy. No way would that be HIPAA
compliant.
|3.8.07 @ 9:52PM|#
It is how it is used. Therefore, those who would use govt to
use and abuse are to blame and not govt itself.
I'm not saying that the people who seize or manipulate the levers
of power aren't to blame. I'm saying if the levers of power really
didn't amount to much, we wouldn't have to worry about who is using
and abusing them.
We will always have the rich, the greedy, the callous, the
controlling, the plain fuckin' nuts. When there is no Total State
for them to use to leverage their desires over the rest of us,
their scope for hurting the rest of us is pretty limited.
I think that is consistent with the libertarian position on
guns, is it not?
Guns are inanimate objects. Governments are human institutions,
full of human beings. I don't think the analogy holds.
|3.8.07 @ 10:17PM|#
Taiko,
What R C Dean said.
The problem is there will always be someone who will misuse power
if it is available to them. It is a dangerous fallacy to think that
only those with good intentions will have their hands on the level
of power.
In fact burroughs argued that the greatest damage is often caused
by those with good intentions. Commies the world over have had the
good intention of making a fair and equitable society.
Unfortunately their good intentions always resulted in acres of
dead bodies trying to make that fair and equitable society.
The only solution is to reduce the damage people can do by limiting
the power that is available to them.
Dave W.|3.9.07 @ 8:52AM|#
HIPAA was a solution looking for a problem. Just what
exactly were the patient privacy abuses that we needed a federal
law to solve? Anyone? Anyone at all?
HIPAA allowed workers to maintain their insurance policies when
they left their jobs. For many people, this is hugely
important.
Of course, it would be much better if health insurance where
decoupled from employment in the first place, but, absent that,
HIPAA was neccessary to make life livable for those who lost jobs
or otherwise wanted to switch employers. That was good and
important.
Dave W.|3.9.07 @ 9:14AM|#
If I didn't actively participate in, or even know of, the
wrongdoing that cause harm, why should I be held liable for
it?
Because it turned out profitable, you are the one who would have
profitted.
Look at it this way: if you made a contract, as an individual (or a
general partnership of private individuals), to give an employee a
pension, and you fell on hard times, then you would still have to
pay the pension, even if personal sacrifice were involved.
Declaring personal bankruptcy might (might!) reduce or eliminate
this liability, but the personal bankruptcy would certainly involve
you liquidating a lot of your property, all your "toys," all your
bank accounts.
On the other hand if you contract with an employee to provide a
pension with the corporation as employer, and the corporation falls
on hard times, then you get to keep your toys and bank accounts.
The corporation declares bankruptcy, but all the profits you pulled
out of it over the years remain yours. Different result. Good for
you. Bad for the people you contracted with.
Some things to note:
1. This example is a contract claim, not a tort claim. One of the
commenters above was unduly focussing on torts.
2. Someone else suggested that individuals could set up structures
similar to corporations, but not actually incorporate. they
suggested that these "corporations" might just get the benefit of
limited liability in the courts, despite the fact that they had not
participated in the government's (state and federal) plan for how
corporations are formed. This is not true. It is true that one
could structure a business similar to a corporation, but just not
incorporate. However, a court would call this a "partnership" and
the commonlaw rules would apply. Those commonlaw rules (not likely
to change now) are that there is not limited liability and you do
not get the tax breaks your business would otherwise get. BTW, in
an early reply on this thread, I suggested that businesses "opt
out" of SarbOx. This is exactly the approach I was perjoratively
daring the businesses to take. A bit later on the thd, I mused
about how corporations were continuing to "get on the bus" despite
the "rectal exam" that is SarbOx. Limited liability and favorable
systemic tax structures are the "good stuff on the bus" that I
alluded to.
3. Another poster, one of the ones unduly focussing on tort, wrote
that in tort law liability is personal. That you have to do
something personally negligent yourself to incur tort liability.
Not true. If your migrant laborer negligently drops a brick on my
head, then I sue you, not him. You may not have personally dropped
the brick, but you were the one profitting by Jose's (sadly
negligent) labors. Society therefore looks to you, to make me, the
injured party whole. True, I can also sue Jose if I want (maybe he
has winning lottery tickets), or you, the building owner can sue
Jose for indemnification, but as between you and me, the rule is
that I get to sue you. that has been the rule for a long, long
time. it is a good rule.
Drew|3.9.07 @ 9:43AM|#
Hmm, government controls are meant to limit the powers of
private corporations. The oversight should be intelligent,
reasonable voters. Sounds like we have 3 problems: greedy
corporation owners, power hungry government officials, and retarded
voters.
If you don't like Sarbanes Oxley (which I'm sure most of you are
right is a pain in the ass to deal with, I've seen some of it), I
can think of an alternative: when someone is found to be playing
stupid tricks to gain an edge, screw stockholders, avoid taxes,
manipulate public opinion, etc etc etc, shoot them.
|3.9.07 @ 9:57AM|#
when someone is found to be playing stupid tricks to gain an
edge, screw stockholders, avoid taxes, manipulate public opinion,
etc etc etc, shoot them
How about we find some hobo, sponge him down, dress him up nice,
comb his hair and shoot him instead?
Then everybody is happy!
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