Court Strikes Down Part of Sarbanes-Oxley

My first day back at work as a married woman has been an exciting one at, among other places, the Supreme Court.

Yes, the gun ban was struck down--more on this later.  But first, financial regulation.

Sarbanes-Oxley is not very popular in large swathes of the financial world, and among some financial pundits.  Arguably, it doesn't do much except intensify the compliance burden of public companies.  Higher compliance requirements are a disproportionate burden on smaller companies, who have less revenue across which to spread the cost of attorneys, accountants, and administrators required to meet the new burden.  In effect, then, it raises the minimum level of assets at which it makes sense to operate as a publicly traded company.  To the extent that you believe that the financial reporting requirements for public companies increase the transparency and efficiency of the economy and the financial markets, this is counterproductive.

The law's defenders argue that these costs are a small burden to bear in exchange for greater accountability for larger firms (with whom we naturally tend to be more concerned--microcaps rarely deal body blows to the stock markets, much less national or regional economies).

Whichever side you believe, you're probably pretty interested in the court's latest decision, which ruled part of Sarbanes Oxley unconstitutional.

But don't get too excited--as far as I can tell, the ruling was actually pretty narrow.  Basically, it says that the president has to have some control over the board that oversees Sarbanes-Oxley; otherwise, it violates separation of powers.

How much does this matter?  If your biggest worry is, say, that Bush would otherwise have been busily attempting to pack the board with his pro-business cronies, then this is a really important decision.  But I really doubt that this is going to much impact the independence of the board's decisions.  It's not like the Congress is an apolitical body with only the best interests of the nation at heart; in fact, I'd argue that it's both more parochial, and more open to manipulation by specific lobbies, than the presidency.

On net, I'd expect that this might shift the ideological drift of the board slightly towards the president's side of the spectrum; but that it will also slightly temper the parochial and partisan influences.  But overall, I don't see this making a huge difference in the quality of financial regulation.  Of course, over the next day or so, observers with firmer positions on the merits of Sarbanes-Oxley (and presidential oversight) will no doubt hasten to elaborate those positions, so I reserve the right to change my mind.