Schumer’s Sarbanes-Oxley Surprise and Frank’s Frankness

One of this election’s “October Surprises” may have come on Nov. 1, when Chuck Schumer, Democratic Senator from New York and chairman of the Democratic Senatorial Campaign Committee, declared in a Wall Street Journal op-ed (available by subscription to WSJ) that the Sarbanes-Oxley corporate accounting law “needs to be reexamined.” Schumer and the op-ed’s co-author, New York Mayor Michael Bloomberg, wrote 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.” This criticism is similar to what CEI has been saying practically since the law went into effect.

Schumer joins House Minority Leader Nancy Pelosi in appearing to be open to substantial reform of Sarbanes-Oxley. These Democrats have outflanked many Republicans, at least in their rhetoric, on Sarbanes-Oxley reform, due to Republican cowardice and stupidity. In so doing, they have moved the debate forward

But free-market corporate governance expert Larry Ribstein is rightly skeptical as to whether these politicians’ rhetoric will match their reality. He notes on his blog that Schumer “was one of the key proponents of a strict version of SOX.” In fact, at a heaing earlier this year, Schumer bemoaned the fact that foreign companies weren’t listing here because they were supposedly shirking American corporate governance standards.

And this is the crux of the new call for Sarbox reform, London’s taking business away from U.S. stock exchanges. Ribstein notes that “jurisdictional competion … can chasten even the most pro-regulatory forces.”

But not all Democrats are having Schumer’s reaction. Barney Frank, who is slated to be chairman of the House Financial Services Committee should Democrats take the House, still maintains that no legislative changes are necessary. And his solution for global competition: a global financial regulator, he recently told the Financial Times

This why everyone should differing global regulatory regimes not as a problem, but sometimes the only thing that forces a good solution to regulatory monstrosities.