It turns out Treasury Secretary John Snow is a SOX fan.
I'm not talking baseball. SOX is the nickname for the Sarbanes-Oxley Act passed by Congress in 2002. The law toughens the accountability of corporate executives, boards of directors, auditors and lawyers charged with running publicly traded U.S. corporations.
SOX was passed in a hurry in the wake of an extraordinary series of corporate scandals - including Houston's Enron, the Big Daddy of them all - involving phony accounting, insider fraud and self-dealing. The impact of those scandals resulted in major corporate bankruptcies, the obliteration of retirement savings of tens of thousands of employees and the undermining of confidence of millions of investors in the stock market. It also fueled the government backlash that fast-laned the Sarbanes-Oxley Act into law.
"The damage done by Enron and Adelphia and Global Crossing and WorldCom and Tyco - that whole string - is hard to overstate," Snow said in a roundtable interview Tuesday at the St. Petersburg Times. "It shocked the conscience of all of us."
Well, not everybody. Plenty of U.S. companies are unhappy with what they consider the draconian impact of Sarbanes-Oxley. On Tuesday, the same day Snow praised SOX, the Wall Street Journal ran a front page story with the headline: "Companies Complain About Cost of Corporate-Governance Rules." The story cites several corporations that say Sarbanes-Oxley may have had good intentions but is actually a case of regulatory overkill.
The story is based, in part, on the results of a new survey by Financial Executives International that claims the estimated average cost of compliance with SOX is just less than $2-million for roughly 12,000 hours of internal work and 3,000 hours of external work. Adding to the bill are additional auditor fees of $590,000, a rise of 38 percent.
Well, Snow has a suggestion for Corporate America: Stop whining. SOX isn't about to go away.
"Long before Sarbanes-Oxley, it was a crime to cook the books," Sarbanes said.
What shocked Snow in the Enron era is that "all the gatekeepers at every level failed us." Audit companies didn't keep the books honest. Lawyers did not represent the best interests of corporations and did not uphold the law. Boards of directors. CEOs. Financial analysts. Credit rating agencies. They all caved.
It's the corporate version of the Domino Theory. If one big company is collapsing from internal corruption and the outside watchdogs won't act to stop it, more big companies will follow.
"In some fundamental way, the cords of corporate capitalism really got frayed," Snow said. "It was essential that there be a reaction against it. So that's why I say Sarbanes-Oxley was an imperative for the country.
"I don't read Sarbanes-Oxley as imposing a whole heavy new set of burdens on corporations."
Isn't that just the message of tough love you might expect a senior government official to deliver? Especially in an election year. Sarbanes-Oxley, Snow said Tuesday, was a "political necessity."
Snow was picked by President George W. Bush in late 2002 to take the treasury secretary job left vacant after the ouster of Paul O'Neill. O'Neill's recently published book, The Price of Loyalty, pans the Bush administration for pursuing conservative ideology over common sense. In an already infamous line from the book, O'Neill likens President Bush to a "a blind man in a roomful of deaf people."
On Tuesday, Snow indicated he has not read the book.
Only 15 months ago, Snow was on the other side of the corporate fence, serving his 14th year as CEO of railroad giant CSX Corp.
At CSX in 2002, Snow co-chaired a special panel on corporate governance organized by the Conference Board. The panel recommended that corporations control excessive executive pay by insisting that boards of directors adopt strong and independent compensation committees. Even then, Snow was criticizing U.S. business for its "clear breach of the basic contract that underlies corporate capitalism."
Snow, who holds degrees in economics and law, also served in several posts in the Ford administration.
Befitting his role as Treasury secretary, Snow addressed a broad range of issues in his interview with the Times. But is Snow really as passionate as he seems over the need for SOX?
Before joining the Bush administration, Snow was an outspoken advocate of balanced federal budgets while serving from 1994 to 1996 as a chairman of the Business Roundtable, an elite association of CEOs of major corporations. Snow dropped his antideficit stand after Bush chose him as treasury secretary.
Now Snow is the top salesman of Bush's pro-growth, pro-jobs agenda. He contended Tuesday that, with the administration's 2004 proposals for higher federal spending and more tax cuts, the severe federal budget deficit will correct itself as the economy rebounds and expands.
With corporation pressure rising to ease the burdens of Sarbanes-Oxley, here's hoping Snow turns out to be more than a fair-weather fan of SOX.
