Business is good. Corporate profits are setting records, and Wall Street bonuses are predicted to set records in 2006 for the second year in a row. Business is reaping the benefits of a relatively strong economy.
But the good times don't seem to be good enough. Industry leaders are arguing that regulations and tax burdens are hurting business. And this comes after six years of a federal government that was very friendly toward big business. SOX 404, which requires strict audits of a company's financial controls, is drawing most of the fire. Some reformers are (correctly) looking to reduce SOX 404's reach so it doesn't place undue burdens on smaller public companies that cannot handle rigorous SEC oversight. However, some are calling for SOX 404's outright repeal, or at least scaling it back and significantly reducing associated legal liabilities.
One argument in support of repeal is that regulation is discouraging foreign companies from issuing stock on the U.S. exchanges. Reformers cite a couple of recent high-profile IPOs that occurred offshore, especially the listing of Rosneft, a Russian state-owned oil company, that supposedly chose to list in London rather than in the U.S. because of the SEC's strict regulations and oversight.
It is true that Rosneft's $10.4 billion IPO is one of the largest of all time. But what many fail to mention is that Rosneft's lack of internal controls and accounting practices, its rather strangely comprised board of directors (six of the nine members of the board also are Russian government officials) and other legal liabilities would have hampered any U.S. IPO -- SOX or no SOX.
While regulatory burdens are hefty, some regulations are useful. Despite its drawbacks, SOX helped to restore investor confidence post Enron and WorldCom. Are there ways to make sure that SOX compliance isn't an all-consuming, all-the-time process? Yes. Technology already has, and will continue to, streamline much of the SOX reporting process. And regulators need to work more closely with market participants and industry associations to find ways to reduce the largest compliance pain points while still safeguarding investors.
But one thing is for sure: The answer is not to repeal useful legislation just because it is inconvenient. One can make the argument that excessive regulation is hampering business. But when business is good, the audacity to claim that regulation is hurting profits and discouraging investment should be met with skepticism by regulators and legislators -- both Democrats and Republicans.Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio