White House pushing for a temporary exemption from Sarbanes-Oxley for small businesses. This post-Enron “reform” was supposed to punish big business and prevent fraud. It punished all right, but had no effect on fraud. The cost to major corporations runs in the billions and it’s just walloping small public companies to the tune of $1 million a year each. You drain a small business of a million dollars and guess what? They can’t expand and hire people. Even Democrats know this, of course, but they don’t want to get rid of their shiny new law so they want to postpone its effect on the smallest of businesses until after the election.
The administration may be seeking the delay, which investor advocates oppose, to help Democrats retain control of Congress, said James Cox, a law professor at Duke University in Durham, North Carolina. Unemployment climbed to a 26-year high of 9.8 percent in September, putting pressure on the Obama administration to bring it down before the 2010 elections.
“The Democrats are getting clobbered over the unemployment rate,” he said. “In a recovery, a vastly disproportionate number of new hires are made by small businesses. The White doesn’t want to be perceived as doing things that hurt those companies.”
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Emanuel Supports Amendment
Emanuel, a former congressman who in 2006 helped his party win control of the House, has made it clear to Democrats on the financial services panel that he supports Maloney’s amendment, said the people, who declined to be identified because the discussions were private.
White House Spokesman Jen Psaki said the administration is working with Congress to pass financial regulatory legislation to “prevent the kind of irresponsibility that caused the recession of the past two years.” She declined to comment on Emanuel’s conversations with lawmakers.
U.S. Representative John Adler, a New Jersey Democrat, has proposed going further. His amendment would exempt companies with market values below $700 million from the audit rules until the SEC can figure out how to reduce their compliance costs.
Lawmakers in 2002 passed Sarbanes-Oxley, imposing checks on corporate financial statements after meltdowns at Enron and WorldCom shattered investor confidence. The law requires companies to have adequate safeguards to prevent misstatements and make sure employees don’t falsify results. Controls must be scrutinized and assessed by an outside accounting firm.
Disproportionate Burden
Business groups and venture-capital firms, which profit by investing before companies sell shares to the public, argue that the law imposes a disproportionate burden on smaller companies.
The U.S. Securities and Exchange Commission in 2007 revised the requirements to reduce compliance costs after Treasury Secretary Henry Paulson questioned whether Sarbanes-Oxley was driving companies to sell shares overseas.
The SEC has never required compliance for businesses with market capitalizations below $75 million, providing multiple exemptions dating to 2004.
SEC Chairman Mary Schapiro last month granted a further reprieve, giving small firms until next year to start paying auditors to scrutinize their internal controls. There won’t be any more SEC extensions, she said in an Oct. 2 statement.
Small companies voluntarily adhering to the audit requirements said they spent $690,219 on average in their most recent fiscal year, according to an SEC survey in October. Businesses with market capitalizations from $75 million to $700 million spent $1 million and the largest U.S. corporations spent $3.99 million, the SEC said.
Here’s the thing: this law and its burdens also hurts hiring and expansion at big companies but the effect isn’t so readily apparent. But if the administration can see that its harmful, wouldn’t it make sense to repeal the act, rather than just postpone it for only a segment of our businesses? Not to Democrats.
Wasn’t SOX a GOP creation?