Monday, May 16, 2005
Federal Reserve Chairman Alan Greenspan endorsed the changes in business practices mandated by the Sarbanes-Oxley Act in the commencement address (here) delivered to the graduates of the Wharton School at the University of Pennsylvania on May 15. In a speech that stressed the need for trust and honesty in business, Greenspan said:
The Sarbanes-Oxley Act of 2002 appropriately places the explicit responsibility for certification of the soundness of accounting and disclosure procedures on the chief executive officer, who holds most of the decisionmaking power in the modern corporation. Merely certifying that generally accepted accounting principles were being followed is no longer enough. Even full adherence to those principles, given some of the imaginative accounting of recent years, has proved inadequate. I am surprised that the Sarbanes-Oxley Act, so rapidly developed and enacted, has functioned as well as it has. It will doubtless be fine-tuned as experience with the act's details points the way.
Corporations have been pushing back at the internal controls requirements imposed by Section 404 of the Act, arguing that the costs are too great for the benefit provided (see earlier post here). For example, the U.S. Chamber of Commerce argues (here):
The unintended expansion of corporate governance rules and excessive compliance demands will cost the nation’s 17,000 public companies billions of dollars this year. Entire industries have been consumed by multiple, sweeping demands from competing regulators for their data, e-mails, and correspondence. These excesses have discouraged bold business decision making, have sent both domestic and foreign companies fleeing from public markets, and have hurt efforts to attract strong board members and executives to public companies.