The Sarbanes-Oxley Snare
Sarbanes-Oxley has been one hellish nightmare for the free market. I work for a very large public company, in the auto industry, in the corporate finance group, and we concentrate on North America, Mexico, and (formerly) Singapore. With our 4Q financials and year-end, financial reporting wrap-up, the SarbOx nightmare is at the forefront of my mind.
The auditors (public accounting firms) are having boom times, thanks to government's Sarbanes-Oxley, and so are the consultants. (All large companies employ a host of outside consultants to run the actual compliance projects, because it could never be done completely in-house.) The Financial Times reports that KPMG is reaping huge rewards with its SarbOx coup. Of course, midsize companies are heading to the bottom of the pool under the weight of SarbOx.
In short, I've lived in the trenches of the effects of SarbOx. We came to the end of our SarbOx compliance as of the end of 2004; at least the initial compliance to get us through the year-end audit (Round One; 14 to go). Perhaps the most important issue pertaining to the SarbOx mess is the coerced diversion of resources from their best use to a most useless use. As usual, government decree has caused the diversion of resources from that which was desired and necessary to that which was forced upon us.
The auditors are SarbOx Nazis to the hilt. This massive body of rules and regulations touches every aspect of my job, including that which is immaterial in accordance with revenues or corporate net worth, and barely stops short of making me keep excel spreadsheets of my daily toilet paper use at the office, and having the CFO sign off on the roll.For a company of our size ($6+ billion), it takes a very long time to streamline the SarbOx needs, and then fix it all. Therefore, in the corporate finance environment, important projects have been negated, stopped, slowed, or put on the back burner indefinitely, due to the immediacy of SarbOx compliance, which has been going on for over a year.
These neglected projects are those that are essential to external financial reporting; internal analysis; projects for improving management decisions; and process improvement (cost-cutting measures). It all goes on hold because available resources are limited, and internal management focus is quickly switched at the behest of government edict. SarbOx has also caused the abandonment of potential and profitable acquisitions, due to the fact that large companies have to comply with what they already have before they toss another SarbOx target into the mix.
Overall, SarbOx has caused top-end managers and corporate financial people (incl. me) to abandon value-added analysis, decision-making, and process improvement for the sake of compliance. The network of planning and tasking involved in compliance of SarbOx is a monster to behold. Also, I work closely with our corporate IT (Information Technology) group, and their technology support of the Finance group, especially concerning financial statement reporting and accuracy. Indeed, even corporate IT groups get heavily audited for SarbOx compliance, separately from the financial group.
Throughout the SarbOx process, as only free-market economists will realize and address, government coercion skews the processes of an entire, multi-billion dollar company, all the way from individual employee/stress issues, to the production of first-rate information, to the end process of making profits. This is the worst piece of legislation to ever put the bite on corporate America.