In the Wall Street Journal Today (no subscription required) the mounting costs of Sarbanes-Oxley are discussed. Some of these estimates are huge, suggesting the average public company is paying an additional $4.4 million for S-Ox auditing per year.
These dollar guesstimates are merely the 'seen' cost of S-Ox. What of the unseen? The article points out that in addition to the rise in auditing costs "[one survey found] that 21% of public companies were considering going private or selling the company "as a result of new corporate governance and disclosure reforms."
But even if a company decides to remain public the increasing the cost of governance pushes the company to invest less in the non-mandated areas of governance. For example, experienced and qualified outside directors will now seek to reduce their own personal liability by reducing the number of boards on which they sit. This reduces the availability of quality outside directors who help govern public companies resulting in a decline in the quality of the average outside board member. If the involvement of outside board members is crucial to good governance, and the sponsors of S-Ox believe it is then this decline in quality is a very undesirable consequence of the legislation.
S-Ox is simply another example of legislation producing unintended consequences which often undermine their well intentioned objectives.
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