2009-11-06 Sarbane-Oxley blog pictureAs a board member often chairing governance sub-committees, I have used Sarbanes-Oxley as the gold standard not just to guide procedures of for-profit but also of not-for-profit organizations.  While the latter were not covered under Sarbanes-Oxley, I have advocated that non-profits who followed its guidelines would be at the cutting edge of best practices in good governance.  The New York Times piece by Floyd Norris “Goodbye to Reforms of 2002” describes how congress already has substantially gutted Sarbanes-Oxley over the years and now plans to further remove most of its teeth.

The 2002 Congress passed the Sarbanes-Oxley Act, which required public companies not just to have internal controls against fraud – something by law they had to do since 1977– but through its Section 404 also mandated them to report on whether they maintained these controls.  The bill also provided through the Public Company Accounting Oversight Board for regulation of the accounting industry, which had proven to be greatly flawed in self-regulation.  And it reinforced the independence of The Financial Accounting Standards Board that writes US accounting guidelines.  Congress, under constant lobbying by representatives of businesses and their bankers with vested interest in not revealing their activities, consistently has been chipping away at these protections almost since they were put in place.

I share Arthur Levitt’s sense of dismay that lawmakers – this time led by Democrats fearful of being seen as anti-business – are attempting to further dismantle the few protections that remain intact.   As our nation and the world are just barely beginning to recover from the worst recession since the Great Depression, the American Bankers Association has the audacity to claim that it was not the failures of highly risky, complex, unregulated financial instruments nor the banks not measuring the market values of these toxic securities that caused the cascading collapse of the global economy.  Incredulously, they claim it simply was the need to disclose losses that was the cause.  The House Financial Services Committee just approved an amendment to the Investor Protection Act of 2009 – in Norris’ words, “a name George Orwell would appreciate” – that further seriously watered down Sarbanes Oxley.  Now one of its sub-committees is trying to take away any remaining force of Section 404 by exempting even more companies from the need for compliance.

This is a terrible set-back for the transparency we vitally need to protect not just investors but everyone as all are affected by the consequences of unregulated, largely unknown financial activity and its myriad negative ripple effects.

{ 4 comments… add one }

  • isabel November 7, 2009, 8:28 pm

    This is such an important topic, and as you point out, for all types of corporations, including non-profits. It is one further indication of the impact of corporate lobbying in Congress that this important Act continues to be undermined instead of strengthened. Get on the phone to your congressperson!

  • Nili Gilbert November 10, 2009, 7:36 am

    Dear Nadine,
    Thank you for your post. Your perspective is particularly valuable, considering your extensive governance experience. As I understand it, one of the main concerns about SarbOx has been the large expense of meeting the additional reporting requirements, particularly for smaller firms. It is impressive that you have had good experience in meeting these deliverables, even in nonprofit contexts. How would you respond to those who critique the cost of these controls?
    Sending all the best,

  • Nadine Hack November 11, 2009, 9:16 am

    Dear Nili – I have heard this concern from many opposed to SarbOx and my answer comes not only as “governance guru” for other organizations but as a small business owner, one that doesn’t even qualify by capitalization level to be mandated to comply with SarbOx. In fact, I have found that much larger costs often are incurred when organizations – for- or not-for-profit – do not rigorously monitor and report their financial controls and then “discover” problems that have been festering a long time “unseen” by any but perhaps the CFO or others in the finance dept. In fact, you and I shared such an experience on one of the boards that we both served on. My mantra is transparency always is cost-effective in the long-term. Best right back at you, – Nadine

  • Nadine Hack November 13, 2009, 9:56 am

    Georgetown University Law Center Professor Emma Coleman Jordan, best known for establishing the field of economic justice in legal theory, and for her work in financial services and civil rights gave the Fourteenth Annual Derrick Bell Lecture on Race in American Society. Everything she spoke about relates to many of my recent posts on Inequity. Following are my three 140-character tweets, the first sent at the end of her speech, the second two sent the following morning. Listening to Emma Coleman Jordan at NYU Law School give brilliant Derrick Bell Lecture: Race & New Economic Connection in #Subprime Crisis. Last night Emma Coleman Jordan http://bit.ly/4EP3rV gave most coherent analysis #economicjustice I’ve heard Read also http://bit.ly/1P1hT1. & read http://bit.ly/WLnxB for Wealth & Inequality Thinking About Communities & Individualism Economic Connection in Subprime Mortgage Crisis. For those interested in following me on Twitter, I’m @nadinehack.


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