WASHINGTON – Sen. Paul Sarbanes for the first time Thursday publicly defended the landmark corporate financial legislation he co-authored against criticism that its regulations hurt U.S. markets.
Sarbanes, Maryland’s senior Democratic senator who plans to retire at the end of his current term, accepted a lifetime achievement award from the Consumer Federation of America. He used the opportunity to answer detractors of the Sarbanes-Oxley Act of 2002, which improved corporate financial accountability and disclosure in the wake of scandals at Enron, Tyco, WorldCom and other companies.
“Critics who are attacking the seriousness of the situation should not go unchallenged,” said Sarbanes. “The law is working as intended; auditor independence has been restored.”
Sarbanes rebutted charges that the law was passed too quickly and hurts small businesses that cannot afford its mandates. He cited more than a dozen sources, including professors, statistical analyses, and editorials from within the business community.
Sarbanes, who co-authored the law with Rep. Michael Oxley, R-Ohio, defended Congress’s action on the law, saying its approval came only after 10 hearings involving 40 witnesses who came to a “remarkable consensus.”
“We had an extremely, thorough and careful set of hearings,” he said. “We tried to do this right and cover all the bases.”
He also said that the number of restatements — financial statements reissued after a mistake is found in the original — has decreased since 2002.
But critics, including New York Attorney General Eliot Spitzer, a Democratic candidate for governor who has received nationwide name recognition for fighting corruption on Wall Street, recently have said the law might need to be changed.
And last month, The Free Enterprise Fund, a D.C.-based lobbying group, joined Beckstead and Watts, a Nevada-based accounting firm, in suing the Public Company Accounting Oversight Board, the five-member panel created through the law, calling the legislation unconstitutional by setting excessive financial demands that hurt U.S. markets.
Mallory Factor, chairman of the Free Enterprise Fund, said the legislation does have perks, such as its call for financial disclosure, but that the law’s audit compliance requirements are bad for free markets.
“It hurts the United States,” he said. “Those (regulations) which have the most costs are the least important. Those with the least benefits are the most costly.”
Sarbanes dismissed that allegation and told his opponents to check reviews performed by the American Law Division of the Congressional Research Service, and the Senate Legislative Counsel. Both agencies reviewed drafts of the law before it passed and have done so again in recent weeks, he said.
Among the evidence he cited to prove his law was having a positive effect were newspaper editorials from members of the business community, including an opinion piece by two former partners of Goldman Sachs, a banking and investment firm.
“It has brought a blast of fresh air to business-as-usual boardrooms and to once-dispirited investors – no small achievement following a wrenching period of corporate excess,” Thomas Healy and Robert Steel wrote in London’s Financial Times last July.
Problems within the financial community are inevitable, but there must be control, Sarbanes said, adding that if small businesses are given an exemption they could run into trouble.
“This is time to move forward, not backward, in a steady and deliberate manner,” he said. “Problems can be resolved without undermining the framework.”
He also cited a report from a PricewaterhouseCoopers’ executive that surveyed 1,200 chief executive officers worldwide and found those who viewed compliance audits as “investments” — or good for their companies — outweighed those who view them negatively as “costs” by 2 to 1.