Oxley: “But it was not normal times”

by Erin McCune on March 9, 2007

in Financial Reporting, Regulatory Environment

They say hindsight is 20/20. 

Michael Oxley, co-sponsor with Paul Sarbanes, of the infamous Sarbanes-Oxley bill recently retired from congress and took questions from at a dinner for accountants in Paris. He expressed his regret over the consequences of his legislation.

As reported in the International Herald-Tribune:

Was Oxley aware, his questioners asked, that the law that he and
Senator Paul Sarbanes, a Maryland Democrat, rushed onto the books five
years ago after the collapse of Enron and WorldCom had contributed to a
sharp decline in listings on U.S. stock exchanges? And, knowing what he
knows now about the cost and effects of the law, would Oxley — who
retired in January after 25 years in Congress — have done it any
differently?

"Absolutely," Oxley answered. "Frankly, I would have written it
differently, and he would have written it differently," he added,
referring to Sarbanes. "But it was not normal times."

Oxley goes on to characterize the mood in congress in the wake of the major accounting scandals in late 2001 and early 2002.

"Everybody felt like Rome was burning," Oxley, 62, recalled during an
interview after the dinner in Paris. "People felt like they were
getting cheated. It was unlike anything I had ever seen in Congress in
25 years in terms of the heat from the body politic. And all the
members were feeling it."

Until that moment, a bill to tighten corporate controls had been
languishing in the Congress for years, held back by lobbying by big
business. But suddenly, the impetus was there, and the firestorm led
Oxley, then head of the House committee that oversees America's
financial services industry, to quickly push forward a solution based
on that measure to calm the hysteria of voters.

At the same time, Sarbanes was pushing through an even tougher
version of the bill in the Senate, adding a requirement that companies
conduct internal and external audits of their financial controls. That
measure, known as Section 404, rang alarm bells among U.S. companies
and foreign ones that feared it would exact punitive costs for good
governance.

Oxley said he felt at the time that Section 404 could spell trouble.
But in the summer of 2002, with pressure also mounting from the
administration of President George W. Bush, there was no question that
the bill needed to be pushed through, however imperfect.

"The president called Paul and I down to the White House almost
immediately after the Senate passed its bill, 97 to 0" on July 15,
Oxley recalled.

"I remember it was in the Cabinet Room and you could see the
pressure he was under because the Democrats were pressing his
relationship with 'Kenny boy'" — a reference to Kenneth Lay, the chief
executive of Enron, who had sought help from the administration to
avoid a bankruptcy filing in the weeks before the giant energy trading
company collapsed.

"The president basically said, 'Get this wrapped up,'" Oxley said. The
House and Senate quickly agreed on a new draft, and Bush signed the
bill into law on July 30.

Lessons learned?

Beware of hasty decisions in reaction to an unsettled "body politic" – or unsettled members of your board, your senior staff, or your department.

Thanks to businesspundit.com for pointing me to this article:

Spotlight: Michael Oxley
By Liz Alderman
International Herald Tribune
Published: March 2, 2007

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