Monthly Archives: April 2007

Jonathan Macey and SOX

Editor’s Note: This post is by J. Robert Brown, Jr. of the University of Denver Sturm College of Law.

In the weekend edition of the Wall Street Journal, Jonathan Macey (deputy dean at Yale Law School) embarked on an assault on SOX in an article entitled What Sarbox Wrought.  He describes the Act as an “intrusive, circulatory and duplicative grab-bag of rules” and concludes that, because of the adoption of SOX, it is “now fashionable for issuers to avoid U.S. markets.”Put aside that there is evidence suggesting that companies are moving overseas because of the improved quality of foreign trading markets–something one would think would win accolades from those who rely so extensively on market solutions.  Put aside that the decline in IPOs in the US predated the adoption of SOX and that some evidence suggests that the percentage is again increasing

The most interesting thing about the editorial is that the proposed solutions are not directly related to SOX at all.  Macey dismisses recent efforts to decrease the costs of compliance with Section 404.  Instead, he calls for a reduction in the “[m]assive litigation risks” and the underwriting fees that “are an order of magnitude higher in the U.S.” than elsewhere.

SOX did not increase underwriting fees, and the so-called “massive” litigation risk predated the Act (it was, after all, the impetus for the PSLRA).  If anything, the data on the Stanford Securities site (and the opinions of Joe Grundfest) suggest that, in a post-SOX world, litigation risks (at least as measured by the number of securities suits filed) are declining (2006 had the lowest number of securities class action fraud suits filed since 1996).  There is at least room to argue that independent audit committees and truly independent auditors have reduced the instances of mistake and fraud, causing a decline in litigation.


SEC Chairman Cox Expounds on CD&A and Plain English

Editor’s Note: This post is by Broc Romanek of

A few weeks ago, I blogged about SEC Chairman’s Cox‘s first comments on incoming executive compensation disclosures under the new disclosure rules.  Chairman Cox recently gave another speech further explaining why he believes that executive compensation disclosure, and particularly the CD&A, is not in plain English.  The part of the Chairman’s speech that deals with compensation disclosures is quite long.  Below are just a few excerpts to give you a sense of his message:

– “I have to report that we are disappointed with the lack of clarity in much of the narrative disclosure that’s been filed with the SEC so far.  Based on the early returns, the average Compensation Disclosure and Analysis section isn’t anywhere close to plain English.  In fact, according to objective third-party testing, most of it’s as tough to read as a Ph.D. dissertation.”


A Lobbying Approach to Evaluating SOX

This post is by Lucian Bebchuk of Harvard Law School.

Yael Hochberg, Paola Sapienza, and Annette Vissing-Jorgensen have a new study, A Lobbying Approach to Evaluating the Sarbanes-Oxley Act of 2002, that pursues a novel and interesting approach to assessing SOX.  The Abstract of the paper is as follows:

We evaluate the net benefits of the Sarbanes-Oxley Act (SOX) for shareholders by studying the lobbying behavior of investors and corporate insiders to affect the final implemented rules under the Act.  Investors lobbied overwhelmingly in favor of strict implementation of SOX, while corporate insiders and business groups lobbied against strict implementation.  We identify the firms most affected by the law as those whose insiders lobbied against strict implementation, and compare their returns to the returns of less affected firms.  Cumulative returns during the four and a half months leading up to passage of SOX were approximately 10 percent higher for corporations whose insiders lobbied against one or more of the SOX disclosure-related provisions than for similar non-lobbying firms.  Analysis of returns of the post-passage implementation period indicates that investors’ positive expectations with regards to the effects of the law were warranted for the enhanced disclosure provisions of SOX.

The full Article is available for download here.

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