Remember Sarbanes-Oxley? I most certainly do. While I was glad for the employment at the time, I look back on the 14 months I spent helping a company comply with this mess and wonder how much my employer wasted by the time we got done jumping through all the flaming hoops.
One of the things included in the bill, which came to be known as SOX, was the substantial personal penalties which could accrue to a corporation’s officers if they engaged in creative accounting a la Enron. The idea was that personal pain would help to take a bite out of white collar crimes. SOX was (and is) almost entirely a waste–but the idea that people respond to negative incentives aimed their way is anything but wasteful.
So, what’s this mean for us? Well, here’s one thought on how we might be able to get beyond the current imbroglio in DC:
The Congress that passed Sarbanes-Oxley concluded that the only way to ensure transparency in corporate numbers was to require corporate officers to certify that their numbers were correct. The penalties for falsely certifying are substantial — fines of as much as $5 million, and up to 20 years in prison — on the theory that the fear of personal liability will reduce the incentive to exaggerate future revenue or conceal future liabilities.
By contrast, congressional appropriators and federal agency heads, are under no similar constraints. True, the government does have its own accounting principles. But nobody faces liability if the numbers are off. Nobody has skin in the game.
Consequently, if we need Sarbanes-Oxley (as its supporters still insist) to give us reassurance that we can believe corporate America’s numbers, ought we not to have something similar (as Peterson among others has argued) to reassure us that we can believe the numbers coming out of Washington? [emphasis added]
Not a bad idea from where I sit–though the better idea would require that SOX be sunset by the end of 2012.