President-Elect Barack Obama just nominated former Senate Democratic Leader Tom to be his Secretary of Health and Human Services. Much is being written about Daschle being a Washington insider, which he certainly is, but after leaving the Senate after his defeat in 2004, Daschle has commendably taken on the Beltway conventional wisdom on an important issue: The Sarbanes-Oxley accounting mandates.
In late 2005, Daschle became one of the first Democrats to criticize the 2002 law, rushed through Congress in the wake of the Enron and WorldCom falures, for its unintended consequences on entrepreneurs. In doing so he helped make the cause of Sarbox relief and reform biparisan. In a Wall Street Journal op-ed Daschle co-wrote with former Senate Republican Leader Bob Dole, the authors told readers of “small and mid-sized capitalization companies who say that their access to capital from publicly-traded stock markets has been made prohibitively expensive.” They pointed out that “studies have shown that the additional cost per company for compliance averages $1.4 million to $4.4 million,” and explained that “although increased auditing fees amount to a small burden for Fortune 500 companies as a percentage of revenue, the doubling or tripling of auditor bills, accompanied by additional accounting and legal fees, can be the difference between a profit and a loss for emerging businesses.”
Daschle and Dole also wrote critically of the accounting standad that forced companies the expense the value of stock options — even though there is no cash outflow. They argued, correctly, that the rule was causing smaller public companies to “have difficulty attracting and keeping top talken without option-based compensation.”
For a while, many other Democrats, including House Speaker Nancy Pelosi, began publicly talking about Sarbox relief, particularly for smaller companies. But much of this has fallen by the wayside with the financial implosions and Wall Street bailout. But Sarbox reform is needed precisely for those small entrepreneurs not receiving taxpayer dollars, but who still need “bailing out” from overregulation that could keep them from becoming the next Microsoft, eBay, or producer of lifesaving drugs.
Unforunately, Daschle will not be at the Securites and Exchange Commission, where he can directly affect changes to these rules. But hopefully, he will still make his voice heard in reforming these regulations. He could talk, for instance, of Sarbox’s burdens on pharmaceutical startups that might create the next breakthrough drug. And hopefully, the Sarbox experience will lead him to have a greater skepticism of regulation and an eye for possible unintended consequences of grand government schemes in the medical area.