Politics & Policy

Sarbox Talk, But Where’s the Walk?

The Democrats owe investor-class voters some reform legislation.

When it comes to Sarbanes-Oxley reform and the Democratic majority, there is much disparity between what is said and what is done.

Before and after the election that swept them to power, the Democrats, trying to show they aren’t overly hostile to business, have spoken openly about Sarbox’s regulatory overreach and the need to pare back its most onerous requirements. Prior to taking over as House Speaker, Democrat Nancy Pelosi promised to reduce the burden of Sarbox for smaller public companies, while Republican leadership remained silent on the issue. More recently, Democratic Sen. Charles Schumer teamed up with New York Mayor Michael Bloomberg to commission a study that focused largely on reducing the burden of Sarbox.

Yet having run Washington for over four months now, Democratic leaders have yet to introduce a single Sarbox-reform bill.

On the Senate side, Republican Sen. Jim DeMint recently introduced an amendment to allow a small-business opt-out of Sarbox’s section 404, the expensive internal-controls audit requirement. Given all the bipartisan talk on the issue, the amendment should have passed with 80 or 90 votes. Instead, it failed with just 35 votes. It’s hard to say why 12 Republicans voted against it — though the White House’s opposition (based on the rationale that only regulatory tweaks are needed for Sarbox) was certainly a factor.

Only one Senate Democrat, Mary Landrieu of Louisiana, voted for the amendment. But Landrieu always seems to find her pro-growth conscience when she’s up for reelection. And if she’s serious about Sarbox reform, I look forward to her introduction of a reform bill with strong Democratic support.

And what about Schumer, who has positioned himself as an authority on the issue?  In the Wall Street Journal, the senator from New York wrote: “auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated,” all because of Sarbox. And yet he voted no on the DeMint amendment.

Or what about Democrat John Kerry, who last year introduced a bill to subsidize compliance costs for smaller companies? He also voted no, in lock step with the rest of Democrats.

The situation in the House is slightly better. A House version of the DeMint amendment, H.R. 1508, which has not come to a vote, makes section 404 voluntary for smaller public companies. The bill’s lead sponsor is Democrat Gregory Meeks of New York. Meeks deserves ample credit for sponsoring the bill, but so far only 1 of his 26 co-sponsors, Ed Towns of New York, is a fellow Democrat.

My friend John Berlau of the Competitive Enterprise Institute noted that Pelosi made Sarbox reform a priority during the 2006 midterm-election campaign. She said, “You need the transparency. You need the focus on it. But you don’t need — I don’t think you need the whole [Sarbox] package.” So why hasn’t Pelosi lent House-leadership support to the Meeks bill?  What better way to trim the package than to make the law’s most onerous requirements voluntary for smaller public companies?

With more than 65 percent of voters in the last election owning stock — directly or indirectly through 401(k)s, mutual funds, or other investment vehicles – Democrats know they can’t politically afford to ignore the issue. That’s why they have said all the right things to convince investors that they understand just how much Sarbanes-Oxley is hurting U.S. financial markets. Unfortunately, when it comes to taking action, with very few exceptions, Democrats are retreating to their anti-business comfort zones. Instinctively, they would keep in place expensive audit requirements that have little or no demonstrated benefit.

Investor-class voters are sophisticated enough to know the difference between talk and action, and they are eagerly anticipating the Democratic leadership’s solution to the Sarbox problem. They have heard Democrats make statement after statement indicting Sarbox for regulatory overkill. And now they want to know: Where is your reform amendment? Where is your bill?


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