Call me a SOX skeptic: when it comes to regulating corporate governance, the 'magic of the marketplace' will work just fine, thank you.

• Author: Weidenbaum, Murray L.
• Position: ENDNOTE - Sarbanes-Oxley - Column

WE ARE IN THE MIDST of an unusually rapid expansion of federal involvement in corporate governance. As a long-term corporate director, I feel impelled to report a personal attitude that departs considerably from the views that we economists hold on the subject of regulation.

Just for the record, I have devoted a substantial portion of my academic research to evaluating the impacts of regulation on American business, especially manufacturing. Early on, I advocated the introduction of benefit/cost analysis to screen proposed regulations. This approach enables the analyst to take an ostensibly neutral position, giving equal weight to the benefits and the costs. I did learn that, if you are in the middle of the road, you will be hit by traffic going in both directions.

As a board member, however, I instinctively view regulatory requirements in a negative light--as an annoying and unhelpful intrusion. As a practical matter, I lean heavily on the general counsel and the chief financial officer to keep the bureaucrats at bay so that we directors can continue to exercise our independent and informed judgment on the important issues facing the board and the company.

To clear the air, the desired result is not passivity on the part of the board. Having led the ouster of the CEOs of two large companies, I may have a different view of the boardroom than others. Surely, there are serious matters that directors face in dealing with the chairman and the management--especially when the two roles are combined. My point is that I do not find government officials helpful in that process.

In any event, regulation is a rising influence on corporate governance. Surely, if the requirements imposed by Sarbanes-Oxley (SOX) result in substantially greater confidence in the financial reporting of American business, the results may well justify the added costs being imposed. I remain a skeptic, however, because I believe that the Enron experience had a greater--and more positive--impact. Indeed, Enron continues to be a presence in many boardrooms today. No director wants to suffer the fate of the Enron directors who were tossed off other boards just because they wore the Enron badge of shame.

Advocates of more governmental intrusion in corporate governance tend to ignore the demonstrated ability of private enterprise to reform itself. As I recall, the initial requirement for a board to have an audit committee of outside directors came not from the governmental...