WASHINGTON -- Ask nearly any business executive to name the biggest menace facing corporate America, and the answer is apt to be a number: "404." That refers to Section 404 of the Sarbanes-Oxley Act, which requires massive reporting by publicly held companies to prevent recurrences of WorldCom, Enron, Tyco and other scandals. For honest corporate officers, this is classic governmental over-regulation -- a dagger aimed at the heart of the U.S. economy.
The implementation of 404 by the Securities and Exchange Commission (SEC) has created painful demands that drain corporations, large and small, of funds. This is springtime for auditors, with requirements for more of their number to perform the investigations. The most dangerous aspect of this regulatory overkill is a further inclination by corporations to hold onto money rather than put it into productive investment, thereby threatening to stifle economic growth.
This is a peculiar state of affairs to be brought about by a government under Republican control. William H. Donaldson, the Bush-picked SEC chairman, sides with his commission's Democratic members in tightening the screws on business. There are Bush administration officials alarmed over 404, but not enough to ask Congress to bail out business. Rep. Michael Oxley of Ohio, the Republican chairman of the House Financial Services Committee, bristles when anybody speaks harshly about the law that bears his name. The rest of Congress ignores this worsening situation.
In 2002, when Congress was under pressure to move quickly against corporate corruption, the Senate was under Democratic control and the House was Republican. That produced the odd couple of Democratic Senate Banking Committee Chairman Paul Sarbanes of Maryland, a fierce liberal, and conservative Republican Oxley.
Their collaborative product roared through a panicky Congress (passed 99 to 0 by the Senate and 423 to 3 by the House), which hardly gave a second glance at Section 404. It seemed innocuous, directing the SEC to order annual financial reports from corporations. But it imposed unimaginable new burdens on American business.
Seldom has there been a major national problem that has received so little attention from the news media (other than financial publications) or the political world. Yet, for more than a year, CEOs and CFOs have been telling me that 404 is a costly nightmare.