Document Type
Essay
Publication Title
Brooklyn Journal of Corporate, Financial & Commercial Law
Publication Date
2008
Volume
2
First Page
421
Abstract
(Excerpt)
The question for participants in the Securities Regulation Section’s program at the 2008 AALS Annual Meeting was whether recent securities regulation reforms hit their mark. I focus in this essay on The Sarbanes-Oxley Act of 2002 (SOX or the Act), the most important legislative reform of securities markets in recent decades. Enacted to assuage public outrage about corporate greed and malfeasance ignited by media reports describing debacles at Enron, WorldCom, Adelphia, Tyco and other companies in 2001 and 2002 (the Corporate Scandals), SOX represented a legislative and political response to public resentment of what some considered a morally impaired corporate America.
In the immediate aftermath of its enactment, the mark at which SOX took aim was the allaying of public indignation. The mark was not only the protection of investors, or reviving their confidence in U.S. markets. SOX also took aim at the general public by attempting to redeem corporate America’s public image. Donald Langevoort sees the Act as reflecting “a political instinct that incentive structures in modern public corporations generate risks that require public (not just investor) accountability to be legitimate.” He observes that some of the Act’s provisions “address the public interest.”
Aware of increased public scrutiny, it is clear that in the immediate aftermath of the Corporate Scandals, business leaders were concerned with their public images. Politicians, legislators and regulators made speeches about corporate responsibility. These factors conflated to create a social and political climate that inspired business leaders to construct corporate climates in which the consideration of ethical business practices would take center stage. This new focus on ethical business climates extended beyond issues relating to financial reporting and other traditional corporate governance matters. There is evidence that business leaders were open to cultural and climate changes that would benefit not just shareholders but stakeholders also.
The discourse about SOX has shifted in recent years. Praise for SOX is dramatically outweighed by criticism and complaints, primarily from corporate directors, managers and others within the business community. The business community’s exuberant criticism of SOX has reversed the brief trend to place discussions about ethics at the forefront of corporate governance discourse. It is also clear that now, more than five years after its enactment, the Act’s mark is construed more narrowly, focusing only on the investing, rather than the general, public. The legislation’s goal shifted from one of restoring public confidence to restoring and maintaining investor confidence.
Only a fragment of the population participates in today’s discourse about SOX. This is significant because it changes the parameters of corporate and legislative accountability. The general public no longer has easy access to (or interest in) news about the Act’s shortcomings, or the changes in the way the Act is interpreted or implemented. This may affect the nature of the business community’s compliance with the Act’s principles. The general public’s power to influence the behavior of business leaders who care about their public image disappears when the public is unaware. If the public is no longer paying attention, the business community no longer needs to concern itself with its public image.
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