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Who's Overseeing Those Who Have the Power of Oversight?

June 28, 2006

Tags Financial Markets

Thanks to Sarbanes-Oxley,

In 2005, 23 of 24 firms that raised over $1 billion in capital didn't register in U.S. markets, according to the New York Stock Exchange. Of the 129 companies listed with the London Stock Exchange last year, only 6 listed on the NYSE and 14 on Nasdaq. Ninety percent of companies that chose London over New York said Sarbox was a factor.

Now I'm not sure where Mr. Kerpen got his numbers, however, I've seen about a half-dozen examples containing similar figures. According to an Inc.com. story:

a record 198 companies delisted in 2003, the first full year after the passage of Sarbanes-Oxley, and another 134 did so in 2004, according to a study by Christian Leuz, a professor of accounting at the University of Pennsylvania's Wharton School. That compares with just 67 that jumped in 2002 and 43 in 2001. Another study by law firm Foley Lardner found that 21% of public companies have considered going private or selling out as a result of the act.

More important is Kerpen's analysis of the appointment of U.S. Federal Reserve Board governor Mark Olson to Chairman of the Public Company Accounting Oversight Board (PCAOB).

But for some reason the news stories about the Olson appointment did not say he was nominated by the president. Nor did they say that the Senate will hold hearings. No, reports said that he was named PCAOB chair by the Securities and Exchange Commission.

There's something wrong with this picture.

The PCAOB exercises governmental powers, therefore its members are officers of the U.S. who must be appointed according to the Appointments Clause of the Constitution: The president must make this appointment, with the advice and consent of the Senate. Because Sarbanes-Oxley establishes that PCAOB members are appointed by the SEC, however, the law violates the Appointments Clause and is unconstitutional.

This might seem like a technicality, but it isn't. The proper appointments process is crucial to political accountability. Even if Mark Olson is fantastically well-suited to the job, and all indications are that he is qualified and competent, the process through which he was selected did not involve any elected branch of government. Indeed, Olson, like his predecessors and now-fellow board members, is not accountable to any democratically elected branch of government.

Olson's pay? $615,000 per year to rule the roost over all publicly-traded companies.

Buy wait - might the dreaded Sarbanes-Oxley be someday following the fleeing compaines to London if Nasdaq takes over the London Stock Exchange?

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