Sarbanes Oxley: Public comments on SOX Section 404

The Securities and Exchange Commission is holding a public meeting on December 13th to consider change requests to section 404 of the Sarbanes-Oxley Act of 2002.

It will be interesting to see what sort of proposals come up at that meeting.  A number of high-profile financial wonks have come out against the existing SOX requirements as being too onerous.

Alan Greenspan, former chairman of the US Federal Reserve, has predicted that SOX regulations are due for an overhaul.  Greenspan has publicly commented that he has concerns that SOX is driving away stock listings from the US exchanges to the London exchange.  The London exchange has used SOX as a selling point in recruiting and attracting new Asian listings.

The Wall Street Journal has referred to the US exchange as “Death Valley”.  Six years ago nine of the top 10 IPOs listed on US exchanges.  In 2005, only one of the world’s largest IPOs listed in the US.  And so far in 2006, only one of the 10 biggest IPOs have listed here.  Many attribute SOX as the reason for that sharp change in listings.

Treasury Secretary Henry Paulson has commissioned a blue-ribbon panel (The Committee on Capital Markets Regulation) to study the damaging side-effects of SOX regulations.  This group headed by former White House economic adviser Glenn Hubbard and former Goldman Sachs President John Thornton plans to come up with a set of recommendations before the end of November.

Nasdaq CEO Bob Greifeld says that he believed initially that SOX was overall good for our country and good for business, but after four years he has seen that the threat of SOX compliance costs cause up to 90% of new public offerings to list outside the US.  Obviously, as CEO of Nasdaq, he can’t be too happy with that statistic.

In a June Financial Times Opinion piece, former SEC chairman Harvey Pitt was highly critical of SOX.  Pitt says that SOX’s “one-size-fits-all approach to regulation stifles innovation, creativity, risk-taking, and competitiveness.   Congress’s exportation of SOX’s standards has created huge difficulties for multinational companies and produced scorn for US standards.”

Senator Paul Sarbanes, original author of the regulation, has needed to actively defend the legislation.  It is very likely though that some sort of reform/change will occur for SOX during the next session of Congress.

As part of the announcement of the December SEC meeting for comments, Christopher Cox, SEC Chairman, also said that the SEC plans to follow up with guidelines from the SEC for companies on how they can most cost-effectively meet SOX compliance rules that are currently on the books.