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

Chapter 9

Why Sarbanes-Oxley?

Introduction

Thus far, this book, when viewed in light of the extant research, offers a compelling and arguably convincing portrait of what Sarbanes-Oxley is not. For instance, it is immediately apparent that the spate of corporate failures that occurred from 2000 to 2002 provided the necessary motivation for lawmakers in the 107th Congress to respond in some way. What remains hidden—and what a decade of research and a series of detailed and comprehensive analyses, as contained in the preceding eight chapters, has failed to unearth—are the precise factors that compelled lawmakers to enact Sarbanes-Oxley, per se, versus any one of a broad array of alternative models that, as indicated by the empirical evidence, would have offered far greater potential for success.

Over the preceding decade, policy researchers have essentially insisted that because the magician successfully pulled a rabbit out of the hat, the hat contained a rabbit.¹ Thus, the specific question—for example, why Sarbanes-Oxley?—has been considered a nonissue. However, a comprehensive and painstaking review of the available evidence—as contained in the preceding chapters, and as corroborated by a relative wealth of leading research²—strongly suggests otherwise. A “three-dimensional” portrait of the law—as achievable only through an eclectic analysis that employs multiple methodologies and perspectives—argues, as a conspicuous outcome, the need to decouple Sarbanes-Oxley, at a fundamental ...