| With one last Senate result to be confirmed, it looks certain that the Republican party has lost control of both houses of the US Congress for the first time in 12 years. This comes at a time that the US financial community has also been shocked by news that New York is now behind both London and Hong Kong in the value of initial public offerings (IPOs) in 2006. Will these events impact Sarbanes-Oxley (SOX)?
The authors of SOX, Republican Michael Oxley and Democrat Paul Sarbanes, did not to stand for re-election, Democrat Barney Frank, the new chair of the Financial Services Committee is a critic of SOX and there has been strong criticism from both Wall Street bankers and members of President George Bush’s Republican government. Critics believe that SOX is damaging US competitiveness and is a major factor in the trend of firms listing in London rather than New York. A forthcoming report by management consultants McKinsey, commissioned by New York Mayor Mike Bloomberg, into Wall Street’s global competitiveness, is expected to quote SOX as a huge problem for New York.
Before the elections, Vice-President Dick Cheney announced that the White House would be happy to work with Democrats on changing the law and Henry Paulson, who became Secretary to the US Treasury in the summer, and is an ex-chairman of Goldman Sachs, is committed to restoring New York’s primacy as the world centre for the raising of capital.
However the Democrats cannot afford to simply be seen as the supporters of big business. Opposition to corruption in business was a major influence in the swing to them and, with presidential elections coming up in 2007, the Democrats cannot afford to lose that support. Compromise appears to be the way out and Annette Nazareth, a commissioner with the SEC, said that SOX "has been the most important and influential single piece of securities legislation since the landmark Securities Exchange Act of 1934" but acknowledged that "discrete refinements" to Section 404, which requires companies to detail their internal financial controls, needed to be implemented.
These changes are already under discussion at the SEC and the PCAOB, the implementation body for SOX, and could be introduced as early as 2007. Charles Calomiris, a professor at Columbia Business School, supported SOX reform, saying "There’s a sense of urgency and we seem to be seeing a bi-partisan consensus emerge." He added that amendments to 404 could be a "window to even broader reform" and believed that, by January 2008, the changes will make Wall Street competitive once again.
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