Lynn Turner of Glass Lewis gives us a history lesson: “Often one reads that SOX was hastily created by Congress without much thought. However, that position is usually espoused by people who had – or have – no knowledge of the legislative history, or quite frankly oppose the regulation.
The intial “roots” of Sarbanes-Oxley go back to the ’72-’73 Bear market and scandals such as Penn Central, Equity Funding, National Student Marketing – as well as the corporate corrupt payments and bribes that came to light during the Watergate investigations and other such shenanagins. During that time, Congress held many hearings into corporate governance practices and the accounting profession in general. The Congressional Staff also undertook an investigation and created a Staff Report on the accounting profession.
As a result of these deliberations, legislation was introduced in 1978 on these problems and further hearings were held. However, after the death of one key Congressional backer and another backer decided not to stand for re-election, this legislation stalled. This legislation would have created an oversight body for the accounting profession – similar to today’s PCAOB – and would have strengthened audit committees.
Similar legislation was considered once again by members of Congress, regulators and the profession during the debate over the ’95 tort reform legislation known as PSLRA. However, no legislation was enacted.
In 2002, after 42 further witnesses presented during 10 days of public hearings, the Senate passed a precursor to Sarbanes-Oxley. Then, the House conducted numerous hearings and heard from many witnesses. After the WorldCom scandal came to light, both the Senate and House overwhelmingly adopted Sarbanes-Oxley – which included many similarities to the ’78 legislation (in some places, it is nearly word for word). Not exactly what one might call a ‘rush to judgment.'”
Throwing Stones in Glass Houses?
Lynn’s history lesson above is clearly directed towards beating back the recent lawsuit that questions the constitutionality of Sarbanes-Oxley. Many commentators have expressed similar sentiments that this would be a mistake, such as this editorial.
As an aside, it is interesting that the co-plaintiff CPA firm – Beckstead & Watts – that brought this lawsuit (which would disband the PCAOB if successful) was recently the subject of a highly critical PCAOB inspection report. According to the September 2005 report, this small firm was auditing 61 public companies, despite having only one partner and two staffers! And that my friend is not a typo…
[Side note: In relation to my comment yesterday that the mainstream press wouldn’t necessarily be familiar with the plurality voting concept, a member reminded me that no candidate in the 2000, 1996 and 1992 Presidential elections reached a majority. Not quite on point, but a pretty interesting fact. Check out the Presidential voting results from the past 150 years on this cool site.]
Thoughts on CEO Succession Planning
In this podcast, Jo Bennett of Battalia Winston International (an executive search firm) provides some pointers regarding CEO succession planning, including:
– How should boards plan for orderly succession planning?
– How about emergency succession planning?
– Are there any developments recently changing how boards plan?
– Should boards have any written policies regarding planning – or is it more of an informal process?