Ruling Means Few Changes for Companies Under Sarbanes-Oxley

Originially posted in The Wall Street Journal
June 29, 2010
By: Erin White


The Supreme Court’s ruling on the Sarbanes-Oxley law means big U.S. companies will have to continue complying with a law that many have long criticized as overly burdensome.

The court ordered a change in oversight of the accounting watchdog created by the law, but it left intact the rest of the 2002 law, which was passed in the wake of several corporate-accounting scandals.

The change won’t likely have a big impact on companies, corporate-governance experts said. The bigger significance is that the rest of Sarbanes-Oxley survives.

In terms of changing the way companies operate, “essentially this is a non-event,” said Charles Elson, a director at HealthSouth Corp. and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “You’ve got this oversight vehicle over the accounting profession that remains, and you’ve got this significant regulatory structure around the auditing process that remains.

He addd that governance experts had wondered: “Would they knock the whole thing out? And obviously they chose not to.”

Douglas Skinner, an accounting professor at the University of Chicago’s Booth School of Business, said he didn’t anticipate major changes in the board’s makeup. “The board’s operations and what it does have survived pretty much intact,” he said. “It’s almost business as usual for these guys.”

The accounting industry applauded the ruling. “This is the least disruptive decision,” said Center for Audit Quality Executive Director Cindy Fornelli. “We’re pleased the court made it clear the PCAOB could continue to function. … It’s important for investors.”

Barry Melancon, president of the American Institute of CPAs, said, “The court rejected a transparent attempt to undermine the post-Enron reforms that have served our financial markets well.”

Bill George, a former CEO of medical-device maker Medtronic Inc. and current director of Exxon Mobil Corp. and Goldman Sachs Group Inc., agreed that Monday’s ruling was “narrow,” and wouldn’t affect Sarbanes-Oxley “in any significant way.”

He said he finds the law’s internal-controls requirements overly burdensome, and said he “would like to see that fixed,” but that wasn’t at issue in the court’s ruling Monday.

Overall, however, Mr. George said he believes the reforms have improved corporate governance by bolstering requirements for independent directors and executive sessions where board members meet without the CEO.

OfficeMax Inc. Chief Financial Officer Bruce Besanko said it would be “business as usual” at the office supply retailer. He said the sections of Sarbanes-Oxley that have more of an impact on his day-to-day activities deal with internal controls and corporate responsibility for financial reporting. “What happens as a consequence of the rulings today is frankly not important,” said Mr. Besanko.

For entrepreneurs leading high-growth private companies, the decision won’t lessen the compliance work they need to do before an initial public offering.

“From the business perspective, it’s not one of those cases where I say to my clients, it’s opened huge opportunity for you,” said Lori Hoberman, who often represents entrepreneurs as head of Chadbourne & Parke LLP’s emerging-companies/venture-capital practice in New York.

For most owners of private companies, Sarbanes-Oxley has been a “real deterrent” for going public, she said. Some small public companies have considered becoming private again because of the added cost of complying, she said.

“It’s not changing anything in any way that makes the environment more friendly for an entrepreneur to take the company public,” she said.

—Dana Mattioli, Emily Maltby, Brent Kendall and Fawn Johnson contributed to this article.