Regulation is damned no matter the consequences. For many prior to 2008, the largest long-term cost of Sarbanes-Oxley was the fact that many U.S companies failed to list on American stock exchanges. A Wall Street editorial on December 20, 2008, slammed Sarbanes-Oxley, concluding that: “For all of this, we can first thank SarbanesOxley. Cooked up in the wake of accounting scandals earlier this decade, it has essentially killed the creation of new public companies in America, hamstrung the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.”
Certainly, it helped make the London Stock Exchange rich, but it didnt make NASDAQ and the NSYE poor. If anything, it forced the American stock exchange less dependent on IPOs. NYSE bought Euronext in 2007, making it the first transatlantic stock exchange, while the LSE fought off bid after bid from American and European rivals. Here, regulation had positive consequences, whether or not anyone intended it to be the case.
For all the continued criticism Sarbanes-Oxley received throughout this decade regarding the move of IPOs away from New York, the regulation failed in its original objective in making CEOs responsible for the companies they ran. It is interesting to note that the Act was also known as the ‘Public Company Accounting Reform and Investor Protection Act’ in the Senate and ‘Corporate and Auditing Accountability and Responsibility Act’ in the House.
2008 taught us that there was hardly a responsible CEO in the entire financial services industry. But did anyone notice? No. Commentators were so busy criticising Sarbanes-Oxley that they failed to notice the benefits increased executive responsibility could bring to companies.
It is amazing that debates are now raging about how to tie employees self-interest to the long-term profits of their companies, only seven years after a bill was approved by the House of Congress by a vote of 423-3 and by the Senate 99-0, that aimed to set new standards of company management.
Regulation is damned. When times are good, we berate regulation for stopping them being better. When times are bad, we berate regulation for making them worse. You cant win.
Kenneth Griffin, founder of Citadel Investment Group wisely pointed out in the FT why regulation in the derivatives market the medium of the past crisis must continue. It is a good read.