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Sarbanes-Oxley is Causing Board Members to Quit

May 11, 2005

Renowned Silicon Valley venture capitalist Tim Draper, founder of Draper Fisher Jurvetson, predicts that Sarbanes-Oxley "will have the exact opposite effect that it intended." One unintended consequence is the heightened legal liability of corporate board members.

Draper has removed himself from all public boards because of the potential of being subject to debilitating shareholder lawsuits. Companies are having a tough time attracting qualified individuals to serve on boards. Recruitment firms are also reporting an unprecedented exodus of public company CFOs due to SOX-related fears.

SOX defenders say the law is needed to protect investors from accounting scandals. Yet a Booz Allen report shows: "More shareholder value has been wiped out in the past five years as a result of mismanagement and bad execution of strategy than was lost because of all of the recent compliance scandals combined."

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