Post Enron Regulations – The Good and the Bad

You may or may not know this, but the WSJ started targeting bloggers a while back and sending them free article to link to. Normally I don't care for this kind of thing, but I agreed to be on the email list because there are lots of cool articles I have wanted to link to in the past but couldn't. Now, if they send me something that happens to be free and is interesting, you will see it here.

Today was the first link that I really like, a piece about what's good and bad with the regulation that resulted from the whole Enron thing.

Don't buy recent headlines declaring the post-Enron era of corporate regulation to be over. For better and worse, it isn't.

The proof can be found in Washington, where business lobbyists have decided not to push for even modest revisions in the Sarbanes-Oxley law. Why? Because they know public opinion is still against them. If new legislation is unleashed, there is no telling where politicians, with their fingers to the wind, might let it go. (Limits on executive compensation, anyone?)

I still maintain the position that Congress did little of substance. SOX has led to slightly better internal controls at some companies, and maybe a little more auditor independence. But a lot of it (like CEOs signing off on financials… sheesh…give me a break) is just for show. The ultimate goal of Congress is to get re-elected, which means they need to pass laws that don't do anything, but appease the public. Hence SOX.

Government has two roles when it comes to business.

1. To enforce taxes or regulations that account for negative externalities of doing business that don't accurately get reflected in the market.

2. Increase the amount of information companies have to disclose so that investors, customers, etc. can review it and make their own decisions.

Trying to regulate companies into certain behaviors will never work as well as giving them incentives to do so, or giving the market incentives to police them.