My friend Phil Kerpen rightly takes to task the Congression Democratic leadership in his column on National Review Online for what seems to be their forgetfullness on their pre-election promises to scale back Sarbanes-Oxley.
Kindly citing a post of mine in Open Market that appeared in October, Kerpen notes many Democratic statements in support of Sarbox relief, including Pelosi’s statement on CNBC two weeks before the election: “I don’t think you need the whole package.”
Chuck Schumer also criticized the excesses of the law in a Wall Street Journal op-ed he co-wrote a few days before Election 2006. Schumer and New York City’s liberal Republican mayor Michael Bloomberg charged that “auditing expenses for companies doing business in the U.S. have grown far beyond anything Congress had anticipated” and that “there appears to be a worrisome trend of corporate leaders focusing inordinate time on compliance minutiae rather than innovative strategies for growth.” These were criticisms that Open Market has been making since day one.
But when an amendment from Sen. Jim DeMint gave Schumer and other Democrats the opportunity to allign their actions with their new anti-Sarbox rhetoric, all but one balked. DeMint’s measure would have exempted small public companies from the act’s most onerous (though far from the only onerous) provison, the requirement in Section 404 that has forced companies to go through expensive audits to document vaguely defined “internal controls.” This action was recommended by the McKinsey report that Schumer himself commissioned with Bloomberg.
Yet Schumer voted “nay” when this recommendation came to an actual vote. As did all Senate Democrats, except for Mary Landrieu of Louisiana. Tellingly, in a sign that Sarbox relief is becoming popular politically, Landrieu dissented from her party in the face of a tough reelection campaign in 2008. As Kerpen wryly notes, “Landrieu always seems to find her pro-growth conscience when she’s up for reelection.”
This brings up the intriguing political dynamics of the issue. With so many Americans who want to start or invest in the next Microsoft, and so much global competition for financial services, “Democrats know they can’t politcally afford to ignore the issue,” Kerpen writes. “Unfortunately, when it comes to taking action, with very few exceptions, Democrats are retreating to their anti-business comfort zones.”
One of the few other exceptions among Democrats so far is Gregory Meeks, a member of the Congressional Black Caucus from New York City. Meeks is the main sponsor of the COMPETE Act, which is essentially the same as a Sarbox relief bill he co-sponsored last year from Rep. Tom Feeney, R-Fla., a co-sponsor of the current bill. Because of the change in control, Feeney-Meeks cleverly became Meeks-Feeney.
But except for fellow New Yorker and Black Caucus member Edolphus Towns, no Democrat has co-sponsored Meeks’ bill nor introduced their own Sarbox reform bill. All the other co-sponsors are conservative Republicans like Feeney and Rep. Scott Garrett. (Garrett has also introduced his own bill, which corrects the unaccountable and unconstitutional structure of the Sarbox-created Public Company Accounting Overboard. Click here to see him speak about it at CEI’s recent Entrepreneurship conference. Click here to see me, at the same conference, interview CEI counsel Hans Bader about recent developments in the lawsuit against the PCAOB.)
Yet what is even more unbelievable is that, despite the rhetorical cover Democrats have now given them, so many Republicans are still gutless wonders on Sarbox reform. House Minority Leader John Boehner has not gotten behind the Meeks-Feeney or Garrett bills, and Senate Minority Leader Mitch McConnell hasn’t talked up the issue either (though, to her credit, Senate Republican Policy Committee Chairwoman Kay Bailey Hutchison is making statements and has written a wonderful op-ed about Sarbox’s ill effects.)
Too many Republican who are normally free-market on other issues seem to be scared in their boots, that if they advocate Sarbox relief, they’ll be tied to Enron. They dont realize that much of the public now rightly sees the real victims hurt by this law as legtimate businesses such as Max & Erma’s.
The problem for the GOP stems, as it has many times recently, from the top. Led on this issue by disappointing Securities and Exchange Commission Chairman Chris Cox, the Bush administration’s still stubbornly insists that the law doesn’t need to be changed, just fine-tuned. “We don’t need to change the law,” Bush said in a speech on Wall Street in January. “We need to change the way the law is implemented.”
So Bush has effectively put himself, and Republicans by extension, in a rhetorical stance slightly to the Left of Nancy Pelosi and Chuck Schumer, who have called for at least some legislative changes to the law. Because of Bush’s muddying of the parties’ positions, there is diminshed political competition in Congress to reform this monstrosity. For Republican members of Congress looking for an issue to buck the Bush administraton on, they not likely to find a better one than Sarbox reform.