Feeling the Pain

Are the benefits of Sarbanes-Oxley worth the cost?

Bob Ross used to love his job as controller of clothing and housewares retailer Urban Outfitters. Today, he says, “I have no passion for this at all. If something doesn’t change soon, I’ll have to throw in the towel.”

Ross says he now spends his days “documenting countless procedures and processes, which to most employees of this company are second nature.” Section 404 of the Sarbanes-Oxley Act, which requires companies to document their controls, cost his company at least a penny per share in 2004, he says, and turned his job into “a struggle to explain common sense.”

“I implore our lawmakers to repeal the internal-control requirements of 404,” wrote Ross in a recent, heartfelt comment letter sent to the Securities and Exchange Commission.

Wrong crowd, right address. If companies get any relief from 404, it will come not from Capitol Hill, but from the SEC.

Last month saw a veritable orgy of regulatory navel gazing—including an oversight hearing by Rep. Michael G. Oxley’s (R-Ohio) Financial Services Committee scheduled for April 21. But the main event was an SEC roundtable in which businesses vented their frustration with 404. (Ross, ironically, couldn’t make it, because he was putting in 18-hour days to prepare his company’s 10-K). Any changes to 404 rules that result will depend heavily on SEC chairman William H. Donaldson and, to a lesser extent, his counterpart at the Public Company Accounting Oversight Board (PCAOB), William McDonough.

Strong Supporters?

Chalk up this concentration of power in part to the government’s unified front just as the first big wave of 404 certifications began rolling in. The normally business-friendly White House has been noticeably silent on the issue. And Oxley and Sen. Paul Sarbanes (D-Md.) shut down any suggestion of legislative changes during a joint appearance at Georgetown University on March 10. “Most CFOs I talk to can quote [the act's] cost down to the dollar,” said Oxley. “Actually, they’ll quote it down to the dime.” But, he argued, that cost “is an investment in the strength of the United States capital markets.”

“The voices calling for a rollback of portions of Sarbanes-Oxley, citing Section 404 as the poster child for overregulation, are shortsighted,” Donaldson wrote in a Wall Street Journal op-ed piece on March 29. On the facing page, Oxley himself also took issue with “the pro-business voices now loudly calling for rollback.”

But exactly whose voices are these? Certainly, Ross begged for a repeal of 404 in his comment letter (which, he says, was originally intended for his senator). And a survey released March 22 by executive search firm Christian & Timbers claims a third of 186 executives at Fortune 1,000 companies favor repeal of Sarbox.

Yet, in the week before Donaldson’s and Oxley’s comments appeared in the Journal, not a single major business or finance association contacted by CFO would admit to any legislative effort to repeal or even change the act. Quite the contrary, most were quick to describe themselves as strong supporters.

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