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SEC's Cox needs courage--and wisdom.

THE NOMINATION of Rep. Christopher Cox as chairman of the Securities and Exchange Commission is welcome news. He has an opportunity to turn back the tide of regulatory creep. There will be many crucial issues before him--Sarbanes-Oxley, the expensing of stock options, hedge fund regulation, so-called shareholder democracy proposals and more.

Cox is a big believer in letting markets work. We like that. He needs the courage to do the right things as well as the wisdom not to go too far. We hope he will apply the wisdom of the Coase theorem, named for Nobel Prize winner Ronald Coase, which suggests that government should make a decision, then let the markets go to work.

Take Sarbox. We at Chief Executive and other business voices have made it abundantly clear that the law went too far. Intellectually, we won the argument. But politically speaking, Congress can't vote to "water down" or "ease up" on Sarbox.

That's why it's up to Cox to work within the SEC and with the Public Company Accounting Oversight Board to improve the regulations that guide Sarbox. There should be clarification of the fuzzy terms that drive CEOs mad--such as "material weakness." Cox also should labor to eliminate the overlapping work that different auditors do. And he should provide a different approach for small and midsized companies. None of this will be popular on Capitol Hill. That's why Cox needs courage.

But he shouldn't go too far. Companies of all sizes have spent millions of dollars and countless hours to come into compliance. Too much abrupt change, or a series of contradictory signals, would force everyone to go through another expensive learning curve. What CEOs want is predictability and a measure of stability. Cox should make the necessary tweaks, and then signal that it's time to move on.

A carefully modulated Coase-ian approach is necessary across his entire agenda. And Cox should not allow his position to become politicized. As much as we may have disagreed with Bill Donaldson, he displayed real integrity. Cox should take note of that as he attempts to strike the right balance in his new job.
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Title Annotation:EDITORIAL; Securities and Exchange Commission; Christopher Cox
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Jul 1, 2005
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