Sarbanes-Oxley fifth Anniversary Event:
The sponsors of the landmark Sarbanes-Oxley Act (SOX) defended the law and downplayed the need for major changes at an event hosted by the CAQ to mark the Act’s fifth anniversary. (Click here for a complete transcript of the event)
The panel discussion at the National Press Club in Washington, D.C., brought together all of the key players in the law’s passage and its implementation. Participants at the July 30 event included the bill’s authors, former Sen. Paul Sarbanes and former Rep. Michael Oxley; the chairmen of the SEC and PCAOB, Christopher Cox and Mark Olson; former SEC Chairmen Harvey Pitt and William Donaldson; and former PCAOB Chairman William McDonough.
With respect to one of the more controversial aspects of the law, Chairman Cox was asked if smaller public companies should expect another deferral from compliance with Section 404. While the SEC has not ruled out a deferral, he said, “It’s not Plan A at the moment. We want to make sure that everybody understands they need to get ready for this.”
Moderator Joe Nocera, a financial columnist for The New York Times, told the audience of more than 160 guests, invited from the government, academia, the accounting profession and the business and investor community, that they were experiencing a rare opportunity.
“This is not your normal panel,” he said. “I feel as if I ask a question to ‘Mr. Chairman’ everyone will answer.”
CAQ Executive Director Cindy Fornelli noted that SOX has garnered both praise and criticism, but said its importance to capital markets cannot be overstated. A CAQ-sponsored survey of investors found that 62 percent believe that the rules mandated by the act should be left fundamentally as they are. (View Summary of CAQ survey Findings) or (View the Survey Questionaire)
The bill’s sponsors suggested that any changes could be handled by regulators.
“It is the implementation of the law that has caused the excessive burden, not the law itself,” said Sen. Sarbanes. “That is an important distinction. I do not believe these important investor protections, which are even now only a few years old, should be opened up for amendment or that they need to be.”
He cautioned against what he called the “danger of collective amnesia towards the pain and loss investors suffered,” and he remembered aloud the objective he and his congressional colleagues had at heart as they wrote the bill five years ago.
“We wanted to get the gatekeepers back to being gatekeepers. We thought they slid off that standard, and we needed to reestablish that important role for the auditors, for the lawyers, for the audit committees of the boards of directors who of course now hire, fire and compensate the auditor instead of the management doing it.”
Rep. Oxley described the bill’s rapid development as a culmination of public outrage at the financial scandals of 2001 and 2002, which he called “a railroad train coming at us at a very fast speed.”
He said the law is going through “the natural evolution” as regulators “refine” its implementation.
“I also think we’ve come a long way towards solving the 404 conundrum,” Rep. Oxley said.
After opening remarks by the SOX architects and a lunch in the crowded room, Nocera directed questions, some of them passed from the audience, to the distinguished panel.
Chairman Olson noted that Sarbanes-Oxley achieved its intended goal: restoring investor confidence. “What Sarbanes-Oxley did, I think, was address the fundamental loss in confidence in financial reporting and in addressing that fundamental lack of confidence, we've created a structure to address that issue.”
The panel frequently noted the need for continued innovation in the way SOX is implemented. Chairman Donaldson echoed that point when he said SOX “is supposed to be a strategic top-down look. You're not supposed to count the paper clips and the rubber bands."
When asked about how the PCAOB went about creating a structure for regulating the audit firms, Chairman McDonough noted that they adopted the supervisory approach, copying the Federal Reserve’s approach to bank supervision. He noted this system worked well, saying: “We could work with the auditing firms, not just the big ones but the medium sized ones and the small ones and say, ‘We want you to fix yourselves. Our inspections will make it very clear whether you're doing so or not."
Chairman Cox emphasized the overarching ethical framework provided by SOX, saying “One of the major themes of the law is the tone at the top. How much focus is there on what's going on at the top? What kind of ethos is there in the firm? Clearly, that was one of the pathologies we saw at Enron where it didn't work right.”
Additionally, the panelists returned frequently to the high standard set for the American capital markets by the bill. “The fact of the matter,” said Chairman Pitt, “is if we didn't have that legislation, there would not have been a national statement that this kind of conduct was improper and to me, that is the major advantage.
|The Honorable Paul S. Sarbanes, former senator and former chairman, Senate
|The Honorable Michael G. Oxley, former U.S. representative and former chairman, House Financial Services Committee|
|The Honorable Christopher C. Cox, chairman, U.S. Securities and Exchange
|The Honorable William H. Donaldson, former chairman, U.S. Securities and Exchange Commission|
|The Honorable Harvey L. Pitt, former chairman, U.S. Securities and Exchange Commission
||The Honorable Mark W. Olson, chairman, Public Company Accounting Oversight Board|
|The Honorable William J. McDonough, former chairman, Public Company Accounting Oversight Board||Host: Cynthia Fornelli
Executive Director of the Center for Audit Quality
Moderator: Joe Nocera