Republicans have long been accused of being the party of Wall Street, a campaign charge that's again being leveled in this election. But on the issue of Sarbanes-Oxley, the Elephants have moved very slowly for fear of being allied with big business and the corporate scandals that prompted the 2002 law, which was largely crafted by the then-Democratic-controlled U.S. Senate.
The irony of Republican inaction is that it has given leading Democrats the opportunity to outflank the GOP in advocating regulatory relief on this issue, one that's vital for entrepreneurs. Democrats may have been vague on solutions, but they have gone further than leading Republicans who've hardly acknowledged that there was a problem. Earlier this year, when the House Democrats' “Innovation Agenda,” introduced by House Minority Leader Nancy Pelosi, promised legislation to “ensure Sarbanes-Oxley requirements are not overly burdensome” for small public companies, CEI praised the passage in a press release. I noted in this space that “[w]hile modest, this is further than most Republicans have been willing to go.”
Since then, about 20 House Republicans, 10 Senate Republicans, and one House Democrat have signed on to a bill to scale back some of Sarbanes-Oxley's most onerous provisions. But many leading Republicans, from retiring House Financial Services Committee chairman Mike Oxley to Securities and Exchange Commission Chairman Chris Cox, still have maintained that no legislative changes are necessary. The Bush Justice Department even weighed in against the lawsuit that CEI launched with the Free Enterprise Fund on behalf of small-business accountant Brad Beckstead to challenge Sarbanes-Oxley's Public Company Accounting Oversight Board.
Some interesting things happened this week. On Monday, in an interview on CNBC, President Bush finally addressed some of Sarbanes-Oxley's burdens and said some things should be changed. But a day later, on the same network, Pelosi went further still on Sarbox reform.
Bush told interviewer Maria Bartiromo that he wanted to “live within the spirit of Sarbanes-Oxley but make sure that we don't overregulate here in America.” But when Bartiromo asked if he thought the law should be scaled back, he argued that it should be “fine tuned” but not “rolled back.”
But on Tuesday, in an interview with CNBC's free-market pundit Larry Kudlow, Pelosi essentially said that some sections of the law should be rolled back. After saying that, “everything that we do should be to encourage the markets, not to discourage them,” she spoke of Sarbanes-Oxley's “unintended consequences.” Then, explaining what needed to be done about the law, Pelosi said: “You need the transparency. You need the focus on it. But you don't need—I don't think you need the whole package.”
I don't think you need the whole package. Wow! It sounds like she's saying she's open to parts of the Sarbanes-Oxley package being repealed. And this time, she is saying that rules should be eased for all public companies, not just the smaller ones.
We know, of course, with all politicians, that words are often different from deeds. Some parts of Pelosi's party's constituency oppose any rolling back of Sarbox.
But Pelosi deserves credit, again, for moving the Sarbanes-Oxley debate forward from how to tinker here and there to what parts of the law need to go. CEI will soon have a paper for all interested policy makers that details which Sarbox provisions are the most destructive parts of “the package”: The required audits of the broadly defined “internal controls” in Section 404, of course, but also sections like the rules governing boards of directors that discourage many of the most qualified experts from serving on the audit committees of corporate boards. Look for the paper on CEI's site in the next few weeks.