Sarbanes-Oxley Act Essay
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The Big Apple Strategy, an article by Mortimer Zuckerman, editor-in-chief at U. S News & World Report, summarizes the down turn businesses in New York have suffered due to the Sarbanes-Oxley Act.
Since 1950, New York has claimed to be the financial capital of the world; claiming the broadest liquid capital markets and highest concentration of the world’s financial firms. Yet in 2005, only two of the 25 largest international initial public offerings were issued using American capital markets. Mr. Zuckerman posits that this is due to the Sarbanes-Oxley Act.
Sarbanes-Oxley was initially enacted in the wake of the Enron and Tyco scandals to provide investor protection, transparency, and accountability. Unfortunately, in order to comply with the provisions of the Act, companies have doubled budgets for outside audits that the law requires. While large companies are able to absorb increased costs of compliance, small and mid-cap companies have suffered under enormous increased costs. Sarbanes-Oxley has strained the relationship between corporate boards and management with the boards focusing more on compliance than competitive strategies.
Class action lawsuits as a result of Sarbanes-Oxley have sky-rocketed with frivolous lawsuits. Mr. Zuckerman posits that the future trend is for companies to either remain private or go back to private status, or move operations overseas away from the American system of regulations. Ticket Master is one such company that has spent millions complying with Sarbanes-Oxley. For example, employees must account for every 15 minutes of their time spent on different work projects in a computerized data-base (Cimino, 2006).
This allows Ticket Master to correctly identify for shareholders and board members where costs are being generated to be compliant with Sarbanes-Oxley. This time accounting is time consuming and keeping employees from focusing on projects to further company strategy. While regulation is necessary for sound corporate governance, when the regulations reach a tipping point that drives businesses out of the public sector and into more inviting environments, the United States business community loses. A revised version of Sarbanes-Oxley is needed in order to lower costs for smaller companies in the public markets.