What the Heck Is Sarbanes-Oxley…

… and why was Newt Gingrich so hopped up on repealing it during the Ames debate?

I’m a teacher, so by and large, my knowledge in re: how one starts and maintains a business comes from my reading. Strangely enough, though, I actually have some personal experience with Sarbanes-Oxley (henceforth abbreviated SOX), so allow me to try to explain what it is and what it means for American businesses:

In brief, SOX is a regulatory law that was passed in 2002 in reaction to the Enron and World Com scandals. Its intent was to tighten the financial reporting rules for public companies so that investor confidence could be restored. But – of course – like any other law that is passed in response to an embarrassment or disaster, SOX had quite a few unintended consequences.

Many years ago – before I started teaching – I had a crappy office job with a relatively large construction business, and during my tenure there, said company had to go through the process of becoming SOX compliant. Oh, God, was that a nightmare of truly epic proportions. Number one, the company had to buy new reporting software to keep track of their payroll, inventory, etc. Number two, everyone in the office had to be trained on that new software. Number three, new employees had to be hired to complete all the extra paperwork. Each one of these steps no doubt cost the company in question a significant sum of money. It also caused the company president of 20+ years to quit because he couldn’t handle the stress.

SOX imposes additional compliance costs on businesses (an average of $4 million plus annually), makes it harder for new public companies to get off the ground — and by the way, it also didn’t do anything to avert the 2008 fiscal crisis. So yeah — I can see why Newt is not in love with it.


One thought on “What the Heck Is Sarbanes-Oxley…

  1. I obviously don't have the knowledge my sister does regarding Sarbanes-Oxley, but I do know that if a company wants to trade publicly, it has to be very strong right out of the gate to afford the cost of hiring the employees and accounting firms it needs to comply with today's regulations. My only experience with this stems from my significant hobby – baseball research. About 7 years ago, I was far more active in baseball research blogging. I had actually published a couple of white papers on some of my research methods into the (admittedly not peer-reviewed) publication lists at SABR. I was also the heart of a three-man team that attempted to start a competitive baseball news and analysis blog-wheel (a site that gathered excellent commentary from around the web in one place as well as contributing its' own original content). What remains of the site still exists, so I won't reveal the URL so as not to hinder its' owners. But I will say that I made a couple of different trips to Southern New England to speak directly to the site's owner about plans he had to get funding for the site by incorporating it and trading publicly.

    You see, it used to be that when you went public, you'd get an infusion of cash immediately to invest in the business (because you'd have speculators arriving on day one and buying up the price – hoping to get in on the ground floor). We were going to go public, acquire press passes and send out beat writers with a SABR perspective (one of which would theoretically be me).

    I knew that idea was a long shot the instant the site's owner realized how much start-up capital he'd actually need to comply with Federal regulations. When he started talking about needing to contract with an accounting firm and then got so frustrated with the process that he took a sabbatical to Australia and handed the site off to his chief news-writer, that was that.

    His plan might have worked 40 years ago (if the web had only existed way back then…LOL). You can't start a business in this country anymore…not if you aren't already rich or don't happen to know someone who is. And that is why our economy is choking to death.


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