Nearly two years after Congress passed corporate reform legislation, the law still gets enthusiastic public reviews from chief executives. But behind the scenes, there is growing pressure to scale back some of its provisions.
At a hearing yesterday to mark the July 30 anniversary of the Sarbanes-Oxley Act, lawmakers and corporate officials raised the prospect of reopening debate as soon as next year on the part of the law that requires companies to assess how well their internal financial controls work, a provision that a study by Financial Executives International said cost some large companies more than $5 million each this year.
Also under attack is a provision that prohibits companies from making loans to top executives -- an idea that picked up momentum after disclosures that WorldCom Inc. chief executive Bernard J. Ebbers accepted $408 million in loans when the company's earnings were being misrepresented.
Business executives now complain that the law went too far by prohibiting relocation loans and insurance payments that are common in business.
"Is there a legitimate concern?" Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee and co-sponsor of the law, asked at yesterday's hearing. "Is there a way we can deal with that problem to make it work?"
James H. Quigley, chief executive of accounting firm Deloitte & Touche USA LLP, responded: "That's perhaps one issue where we might want to swing the pendulum back. . . . Some modification would be prudent and would facilitate business in the ordinary course."
But Richard L. Trumka, secretary-treasurer of the labor federation AFL-CIO, warned that rolling back any part of the law "would send the wrong message" to investors burned by collapses at WorldCom and Enron Corp. only a few years ago.
"Corporate reform is only starting to take root right now," Trumka said.
Trade-group representatives said in recent interviews that amending the Sarbanes-Oxley Act is unlikely this year, when elections will consume much of the public's attention and when little major legislation is expected to move through Congress.
"We'd like to work on a 'technical corrections' bill very much, but in the near term there is no way," said R. Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce. "At best, working on SOX is a next-year challenge." SOX is the nickname by which the Sarbanes-Oxley Act has become known.
Lobbyists already are laying the groundwork in public statements and meetings with members of Congress and regulators at the Securities and Exchange Commission and the Public Company Accounting Oversight Board, an independent group created by Sarbanes-Oxley to oversee the accounting industry.
John A. Thain, chief executive of the New York Stock Exchange, recently wrote a commentary published in the Wall Street Journal that blamed disclosure and accounting requirements in Sarbanes-Oxley for a reduction in the number of foreign companies that trade on the exchange. Thain later met privately with the law's chief sponsors in Washington to air his complaints -- and to hear their concerns about his commentary.
David W. Smith, president of the American Society of Corporate Secretaries, said his group also has been talking with the accounting oversight board to try to ease internal control requirements, which he said have caused problems for small and mid-size companies.
"It really has been incredibly time-consuming," Colleen A. Sayther, president of Financial Executives International, said of the control requirements. "We really don't believe there's a lot of benefit based on the current rules," compared with their cost.
Proponents say reviewing internal financial controls helps reduce fraud and other abuses, and is worth the expense if it prevents another accounting scandal. The expense involved amounts to less than 1 percent of annual revenue for companies in the Fortune 500, the proponents say.
Rep. Paul E. Kanjorski (D-Pa.), a proponent of Sarbanes-Oxley, said a congressional vote this week on stock options was the first step toward repealing reforms enacted after corporate scandals.
The House voted 312 to 111 Tuesday to override accounting standards-setters and modify a proposal by the Financial Accounting Standards Board that companies treat stock options for any workers as an expense. Just two years ago, in passing Sarbanes-Oxley, Congress cited the importance of having an independent body set accounting standards.
"How in the world is this good public policy?" Rep. Carolyn B. Maloney (D-N.Y.), who opposed the change, said on the House floor earlier this week.
Some shareholder and labor advocates are pressuring regulators to go further toward cleaning up boardrooms.
Their priorities include giving dissatisfied shareholders the right to nominate board members under limited circumstances and prohibiting accounting firms from providing tax advice to their audit clients because such tax-consulting arrangements might compromise the objectivity of audits.
The shareholder proxy proposal is under review by the SEC, where Chairman William H. Donaldson is trying to develop a consensus on the plan. The accounting oversight board held a roundtable last week on the issue of auditors offering tax services and may develop a proposal this year.