The Sarbanes-Oxley Act: altering the fabric of American business.

• Author: Longnecker, Brent M.
• Position: Law & Justice

"Those empowered by the [Sarbanes-Oxley] Act--the SEC, IRS, and Oversight Board--have been put in a position where they easily could overstep their boundaries to the point where they almost are running America's companies."

IN AN ERA WHEN Corporate America is plagued by corruption and scandal, strict regulatory legislation such as the Sarbanes Oxley Act might seem like an obvious remedy. When Sarbanes-Oxley was passed on July 30, 2002, stories of shady accounting practices and poor ethical standards dominated the news media. The passage of the bill itself almost was lost among headlines filled with Enron, WorldCom, and a host of corporate wrongdoers from the elite legion of leading global companies.

Now, however, it has become obvious that the Sarbanes-Oxley regulations are punishing not only those executives and accountants who were corrupt, but thousands more who were not--and never will be. Therefore, while regulation and legislation may appear to be the necessary medicines for what ails the financial world, we should be wary of how much we swallow, and remain vigilant of potential side effects that might have a greater negative impact than the actual symptoms themselves.

The load leading to Sarbanes-Oxley begins with the tale of the thriving energy company Eaton Corp. The rise and fall of Enron runs the gamut from brilliance to bankruptcy and everything in between. It has been about three years since executives admitted to using complicated financial practices to hide millions of dollars of debt, while an internationally known and revered accounting and auditing firm (Arthur Andersen) turned a blind eye. This massive case of fraud and executive dishonesty opened the door to a string of accounting-related scandals that shook not only Wall Street, but the global business landscape, the media, millions of investors, and the general public. The fallout is expansive. Enron faces what is sure to be years of investigation and litigation from numerous stakeholders impacted by its demise. While a number of congressional committees already have conducted investigations anti several tip per-level executives have had their day in court, others surely will follow.

If the story ended with Enron, the issue of corporate responsibility might not have been as prominent in the media or even entered the political agenda--but it did not, In fact, hardly a day passes thai corporate scandals and highly irregular accounting procedures are not in the news as a constant reminder thai white-collar crimes continue to plague the country.

As the...