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Oxley: Sarbanes-Oxley Went Too Far, and Will Stay That Way

July 11, 2005

Michael Oxley, Republican co-author of the Sarbanes-Oxley Act, admitted during a London conference that the law "was not a perfect document" and that some of it was "excessive."

He complained that after WorldCom collapsed, "it was difficult to legislate responsibly in that type of hot-house atmosphere." He added: "But I am proud of the bill."

Oxley said: "If I had another crack at it, I would have provided a bit more flexibility for small- and medium-sized companies."

Too bad that didn't happen. The House Financial Services Committee chairman declared that "Congress will not re-visit this issue. The SEC reform is not going to happen either."

Meanwhile, Judge Leo Strine, a vice chancellor of the Delaware Court of Chancery, has spoken out against SOX for usurping the traditional role of state governments in setting corporation law. Under SOX the federal government undercut the "innovation and flexibility that Delaware's approach to corporation law creates."

About 60% of Fortune 500 corporations have chosen to incorporate in Delaware due to its market- and investor-friendly legal climate. Most states tend to follow the highly influential Delaware chancery court's legal precedents for fear of scaring off businesses.

Strine concluded: "Congress needs to avoid stifling the wealth-creating potential of companies through costly mandates that not only do little to protect investors, but also distract boards from their fundamental duties to develop and oversee the implementation of an effective corporate strategy, to select excellent managers and to monitor the corporation's compliance with its legal and ethical responsibilities."

Here is Oxley's response to Judge Strine's defense of federalism: "The idea that we could leave corporate governance reform to 50 individual states is rather quaint. Investors were looking for a national response to a national problem."

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