Corporate Governance Regulation: How Poor Management Is Destroying the Global Economy

Chapter 6

An Audit of Sarbanes-Oxley

Introduction

Consider that “rationality is an ideal that represents the best in our civilization.”¹ To the degree that this statement is true, a conspicuous rational basis should be evident in U.S. policy. Thus, the immediate and direct concern of this chapter is to evaluate the rational basis² for modern U.S. corporate governance policy, particularly as it relates to the policy enactment decision vis-à-vis Sarbanes-Oxley.

Recall that the general focus of this book is to provide a comprehensive analysis of U.S. corporate governance regulation in the era of Sarbanes-Oxley.³ To achieve this objective, multiple analyses are conducted from a variety of divergent perspectives, thus facilitating an accurate portrait of the law: one that is not only three-dimensional, but framed in the appropriate context. As required, the general analytic approach employed throughout this book leans heavily upon empirical evidence that became available only after the law's enactment. Nearly a decade of empirical research confirms that the current regime of U.S. corporate governance regulation, as typified by Sarbanes-Oxley,⁴ lacks efficacy.⁵

However, this encourages a potentially important objection: “hindsight is 20/20,”⁶ thus effectively begging the question: As of July 30, 2002—the date Sarbanes-Oxley was formally signed into law—was there an adequate rational basis⁷ to warrant the tremendous display of confidence (e.g., one suggesting that the law might actually ...