The Sarbanes-Oxley Debacle.The Sarbanes-Oxley Debacle Henry N. Butler & Larry E. Ribstein American Enterprise Institute The American Enterprise Institute for Public Policy Research (AEI) is a conservative think tank, founded in 1943. According to the institute its mission "to defend the principles and improve the institutions of American freedom and democratic capitalism — limited government, for Public Policy Research 1150 Seventeenth Street, NW Washington DC 20036 0844771945 $25.00 www.aei.org Written by economics professor Henry N. Butler and law professor Larry E. Ribstein, The Sarbanes-Oxley Debacle: What We've Learned, How to Fix It is a sharp-tongued denouncing of the Sarbanes-Oxley Act See SOX. of 2002, or SOX. SOX was a legal measure created in response to the misconduct of the Enron Corporation, with the intent of protecting investors by improving the accuracy and reliability of corporate disclosures. Yet the strict new rules affecting financial practices and corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. regulation that comprise SOX cause a heavy direct and indirect cost--one so great, according to The Sarbanes-Oxley Debacle, that it harms the very investors it was supposed to protect as surely as the companies themselves. By creating opportunities for excessive litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. , increasing risk aversion risk aversion The tendency of investors to avoid risky investments. Thus, if two investments offer the same expected yield but have different risk characteristics, investors will choose the one with the lowest variability in returns. by managers, and distracting executives' attention from maximizing shareholder value, among other flaws, SOX's disadvantages far outweigh its advantages according to the authors--who have come up with a far more viable plan to repeal or legally challenge SOX and address the issues SOX was meant to handle in a more effective manner. Especially recommended reading for policymakers and professionals in the field of corporate business law. |
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