Via SOXFirst, came across Enron Changed Nothing by Gary Weiss in Salon.
Theoretically, Sarbox would have prevented Enron from happening. Realistically, it wouldn't have done a thing, because an exec with "derring-do" such as Skilling (to quote a February 2001 Business Week cover story) would surely have found a way around it.
Not that it would have taken much effort. Sarbox requires, for example, that at least one member of every board audit committee be a "financial expert." It requires that an "internal control report" describe how management has done a good job of tackling all those pesky numbers and checked 'em real good. And, of course, the company must tell us — immediately! — about any changes in the "code of ethics" for its chief number crunchers. The cost of complying with these and similar requirements has annoyed some smaller companies, adding to the overall luster of Sarbox when viewed from afar.
What Sarbox has never done, and never could do, is change corporate behavior, anymore than you can stop a car thief by taping a Do Not Steal sign to the dashboard. Remember that CEOs who are going to pull off a mega-scam like Enron, or even a routine stock swindle or accounting trick, are not going to be deterred by a law book or someone with a stinkin' badge. They have a more pragmatic view of corporate responsibility — they feel they don't have any. If you listened closely, you heard the Enron management credo at the trial. It is the same philosophy that has been employed by second-story men and Mafia bosses since the dawn of the first proto-scam. It can be summed up as, "If it's broke, it ain't broke, and anyway it ain't my fault."
While I was one of the earliest supporters of more stringent regulation to prevent scamster companies from frittering away public wealth, I increasingly feel that SOX was a step in the wrong direction. As Professor Stephen Bainbridge writes in his scathing attack on SOX in TCS Daily:
Congress hoped SOX would restore investor confidence by curbing various corporate governance excesses, encouraging director independence from management, and especially by toughening up accounting standards so as to enhance capital market transparency and the integrity of disclosures. Whether any of these benefits have been achieved is debatable and, if so, any such benefits have proven almost impossible to quantify.
Given the increasing number of companies going "dark" (private), it is indeed not clear whether SOX has indeed served the average investors. Further, SOX increases the costs for small companies far disproportionately. These facts are increasingly well known.
Another fact known to all those who live under the spectre of SOX is that it encourages a culture of "management by audit", distracting the management of the company from achieving Sales Growth, Cost Leadership & Operational Excellence. And promotes in its stead a focus on "Control by ticking boxes".