Company Directors Want to Repeal or Overhaul Sarbox. Prospects: Poor

The press release announcing Korn/Ferry International’s 32nd Annual Board of Directors Study reveals troubling findings on the impact of Sarbanes Oxley, and strong opposition to having it continue in its present form (HT Scatterbox):

Majority of Board Directors Feel Sarbanes-Oxley Regulations Should be Repealed or Overhauled

Significant Numbers Demand Amendments, According to Korn/Ferry International’s 32nd Annual Board of Directors Study

New York, February 23, 2006 – Just four years after the enactment of Sarbanes-Oxley, 58% of Board Directors surveyed feel that the regulations have served only to make boards overly cautious, and should be repealed or overhauled, according to the 32nd Annual Board of Directors Study, released today by Korn/Ferry International (NYSE: KFY), the premier provider of executive search, outsourced recruiting and leadership development solutions.

“Although gross corporate misconduct has necessitated recent landmark regulations, there is a growing contention that the impact of these rules has been negative,” says Charles King, head of Korn/Ferry International’s Global Board Services Practice. “Many directors believe boards have become exceedingly wary and are not taking necessary risks to drive company growth. These directors are demanding reform.”

….. Rather than being the catalyst for improved governance, 72 percent of responding directors in the Americas believe that Sarbanes-Oxley regulations have served to make their boards more cautious. Almost two-thirds (65 percent) of their peers serving on US-listed Japanese boards hold the same opinion.

The above is potential poison for economic growth. If companies are deciding NOT to get into business lines or take calculated risks they would have otherwise taken pre-Sarbox, the resulting shortage of the kinds of innovations that drive long-term economic growth will likely lead to stagnation instead.

This isn’t the most elegant language, but it will get the job done: An economy doesn’t primarily achieve long-term growth merely by having everyone get just a little better at what they’re currently doing every year. Long-term growth only occurs when entrepreneurs and innovators come up with superior ways of doing things, of doing more things, and of solving more problems.

So is there a groundswell for overhauling or repealing Sarbox, which Scatterbox notes has already cost companies $14 billion in out-of-pocket costs, heading soon for $20 billion? Unfortunately, no. The mindset that company managements are mostly criminals in waiting has been planted deep in the public consciousness, and that perception is not going to change anytime soon. The definitely-not-scatterbrained Scatterbox quotes a CFO.com article that shows just how deep the distrust is:

According to a new poll conducted by The Wall Street Journal and Harris Interactive, 55 percent of U.S. investors believe that financial and accounting regulations governing publicly held companies are too lenient. That figure rises to 77 percent for male investors ages 45 to 54.

That is grim. Expect more companies the size of formerly public Georgia-Pacific to say “the heck with it” and go private, or get taken private, if things don’t change soon.
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UPDATE: Related story — “CEOs: Regulations Hurting U.S. Businesses”:

NEW YORK — Increased regulation and raised standards for financial reporting are hurting the international competitiveness of U.S. businesses, a survey of chief executives found.

The survey released Tuesday by Chief Executive magazine found more than one-half of CEOs said current levels of regulation hurt competitiveness, with another 11 percent saying they “significantly hurt.”

Most corporate leaders also said they are spending more on compliance, having increased funding for staff training, technology infrastructure, and for new software.