Stop whining about SarbOx!
Critics want to repeal the law, but it's been a boon to the market, says Fortune's Andy Serwer.
By Andy Serwer, Fortune editor-at-large

(Fortune Magazine) -- Sarbanes-Oxley turns four years old on July 30, but you won't hear corporate America singing "Happy Birthday." In fact, the grousing about the bill - designed to protect shareholders from fraudulent accounting - has never been louder.

You hear how it's heaping onerous costs onto businesses. How it's forcing companies to do IPOs overseas. How it's compelling CEOs to take their companies private.

Mallory Factor, chairman of the Free Enterprise Fund, an advocacy group focused on conservative fiscal policy, recently made all those arguments and more in written testimony to Congress. (Earlier this year his group filed suit against the Public Company Accounting Oversight Board, the entity created by Sarbanes-Oxley, claiming it is unconstitutional.) To Factor, SarbOx's bottom line is simple: "The costs in fact grossly outweigh the perceived benefits."

But do they?

I must admit that when President Bush signed SarbOx into law, I had my doubts. Spirited through Congress in a matter of weeks, the measure passed the Senate 99 to 0 (the abstainer was Jesse Helms), and the House 423 to 3.

Anything that rises to the top of the Capitol Hill mire with such overwhelming support - well, you can just imagine what Will Rogers would say. Four years later, as we transition from the Enron scandal into a wave of stock-option malfeasance, it's time to assess this law.

Cost-benefit analysis

And now that I've waded through the jungle of competing claims about it, I'm here to say that net-net, it is unassailable that SarbOx has been a positive for our markets and our economy.

Doing the cost-benefit analysis isn't easy. In his testimony Factor cited one academic study that calculated that market dips associated with the passage of Sarbanes-Oxley coincided with the loss of $1.4 trillion of shareholder wealth, and that only some $400 billion could be explained by other factors.

Ergo: "Sarbanes-Oxley had a trillion-dollar negative impact on the U.S. economy." He offered no further explanation. He also referred to one study that said the increase in spending due to SarbOx brings the average cost of being a public company to $2.9 million. Then he cited another that said compliance costs for the law's section 404 alone are expected to average $4.36 million! You see what I mean about the numbers.

It's true that only one out of the world's ten biggest IPOs last year was listed in the U.S. But the other nine were all for overseas companies. And if foreign firms find our desire for transparency so distasteful, do we really want them here anyway?

Are you, as an investor, so devastated that PartyGaming (Charts), a Gibraltar-based company, saw fit to list in London instead of New York? Anyway, it's not as if the pipeline is drying up. There were more U.S.-listed IPOs in the first half of this year than in either of the past two years.

Steve Schwarzman, CEO of private-equity juggernaut Blackstone, recently said that Sarbanes-Oxley "is probably the best thing that's happened to our business and one of the worst things that has happened to America."

What Schwarzman seems to be suggesting is that because Sarbanes-Oxley is so costly and complicated, companies are throwing themselves at him in an effort to go private. Maybe. Or maybe CEOs are dialing Schwarzman's number simply because he and his competitors in the buyout biz are raising money hand over fist - Blackstone just closed a record $15.6 billion fund - and itching for opportunities to spend it.

I decided to ask one of the bill's authors, Senator Paul Sarbanes, what he thought about the criticism. "These people have already forgotten what happened at Enron and WorldCom," he told me.

"People lost all their pensions and retirement savings. The bill is really about ensuring that public companies have a legitimate system of internal financial controls. To me that is a worthwhile cost."

Oh, and then there's this. On the day Sarbanes-Oxley was signed, the market value of the Wilshire 5000 index - a proxy for all public companies in the U.S. - stood at $10.5 trillion.

At the end of June, the Wilshire was worth $16.14 trillion, an increase of 54%. To say that's all SarbOx would be just as specious as some of the criticism of the bill.

But to deny that the restoration of confidence it brought had any impact would also be inaccurate. Sarbanes-Oxley isn't perfect. And by all means, it should be scrutinized. But consider the alternative. What if we had done nothing?


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