Blair criticises Sarbanes-Oxley Act
Prime minister in surprise attack on accountancy profession and Sarbox
Prime minister Tony Blair has publicly joined in criticism of the US Sarbanes-Oxley Act, complaining it has added disproportionately to the cost of corporate governance.
Link: No magic wand for compliance
And he said there was ‘a delicious irony’ that the Act has provided a bonanza for accountants and auditors – the very professionals thought to be to blame for the Enron and Worldcom scandals that provoked it.
The prime minister launched his attack in a high-profile speech at London’s University College, while launching a debate about risk in public policy making.
Blair said Britain and Europe are not alone facing the perverse consequences of overzealous red tape.
He said: “The response of the US Congress to the Enron and Worldcom scandals shows what governments can do wrong.
‘In 2002, the Sarbanes-Oxley Act was, in the words of The Economist, “designed in a panic and rushed through in a blinding fervor of moral indignation”.
‘The point about Sarbanes-Oxley was not that the underlying problems it was addressing were not real. It was quite right to put some distance between a company’s auditors and its managers, between whom a severe conflict of interest had arisen.
‘The problem was that the Act was not limited to the remedy of that specific defect. Inspired by the need for Congress to be seen to do something dramatic, Sarbanes-Oxley has imposed the threat of criminal penalties on managers and substantial new costs on American business: an average of $2.4m extra for auditing for each company.
‘The burden is especially heavy on smaller companies, the real risk-takers in the market. Firms with a revenue of less than $100m per annum now pay out more than 2.5% of turnover in compliance costs. Cumulatively the costs run into billions of dollars.’
He added: ‘There is a delicious irony in this, which illustrates the unintended consequences of regulation. Sarbanes-Oxley has provided a bonanza for accountants and auditors, the very professions thought to be at fault in the original scandals!’