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Tyranny, Sarbanes-Oxley -- Or Do I Repeat Myself?

January 23, 2006

From Jason Hollon comes an interesting quote on Sarbanes-Oxley that made it to the mainstream Business Week (pay only):

(BusinessWeek, January 23, 2006). Maria Bartiromo interviewing Steve Schwarzman of Blackstone Group:

Q: The buyout boom in the '80s was fueled by opportunistic buyers of broken companies. But today corporations are lean and flush with cash. Are the pickings getting slimmer?

A: We haven't found that to be the case yet, and one of the major reasons is Sarbanes-Oxley. What we're finding is that it's a dual tyranny of Sarbanes-Oxley and the relentless disappointment of the quarterly earnings that institutional investors require. As a result of those factors, many more boards, and particularly senior managements, are very happy to go private because they aren't enjoying running public companies. They're not able to do some of the things they know should be done to fix their companies. If it requires their earnings to be depressed for two or three quarters or write-offs, they'd rather, in many cases, not do the right thing, because if they do the right thing, they'll be penalized by their shareholders or they'll be put under more scrutiny by their board or they feel they'll have more legal liability under Sarbanes. Sarbanes has companies very risk-averse. So we've been lucky beneficiaries in the private equity business of both those factors, which make our lives, frankly, very easy.It's quite peachy to see a mainstream publication with "tyranny" and "Sarbanes-Oxley" listed in the same breath.

Back in about 1936, Raoul Desvernine had this to say about Sarbanes-Oxley 70 years before its stranglehold on corporate America:

The Securities and Exchange Act not only attempts the Federal control of all securities markets, but, by asserting jurisdiction over the stock exchanges as alleged instrumentalities of interstste commerce, reaches into the field not only of the regulation but also of the prescription of corporate and financial practices and accounting methods of private enterprises, many of which are wholly interstate in their activities.

...The Securities and Exchange Act, and the Public Utility Holding Act, were proposed as needed reforms of abuses and malpractices and for the necessary protection of the public, but, as finally enacted, they far exceed any such specific and worthy purposes and extend the "spheres" of government activities into a rather complete management of private enterprises. They are not merely regulatory; they are, in fact, managerial.

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