Sarbanes defends legacy measure

THE BALTIMORE SUN

WASHINGTON -- Hanging on a wall in Sen. Paul S. Sarbanes' office is a gavel used in the impeachment hearings on President Richard M. Nixon in 1974. Nearby, there's a framed newspaper page with pictures of the House Judiciary Committee, including the then-congressman from Baltimore.

The impeachment hearings provided Sarbanes' first wide recognition, but perhaps his most enduring political accomplishment is a highly technical piece of legislation, one that has made his name known, and sometimes cursed, across the planet.

At 73, and roughly six months from retirement, the liberal Democrat does not indulge much in conversation about the end of a Washington career that has spanned more than 35 years. But events of recent days are a reminder that once he leaves office, Sarbanes' legacy will be the corporate governance and accounting law that bears his name, a fitting monument, perhaps, to a man who cultivated a cerebral image and seemed to recoil from the backslapping behavior usually associated with politicians.

That legacy - which, like Watergate, will be debated for years - is the 2002 Sarbanes-Oxley Act. Born out of the collapse of Enron Corp., a scandal that resulted in the convictions last week of two of the company's top executives, the landmark law has had a profound impact and remains, nearly four years after its passage, a burr under the saddle of the corporate world.

The usually low-key Sarbanes speaks with passion about the need to protect investors and workers from corporate scam artists. Opponents of the measure complain about the expense caused by more stringent auditing and other accounting safeguards, but he seems to see such criticism as a personal affront to his belief that regulators must keep a close eye on the titans of industry.

Under the law, executives must vouch for the accuracy of their books and face much tougher penalties for dishonest behavior.

The law bars the once-common practice of allowing external auditors to also serve as consultants to the company.

The legislation has significantly changed the way companies keep their books. Many businesses complain that complying with the regulations has cost them millions of dollars.

Sarbanes bristles at the suggestion that the measure hurts companies. Opening his copy, he points to the few short paragraphs that have drawn the most ire, his usual mild tone becoming more heated.

Investors, he said, need accurate information. Without it, the system is imperiled.

"What would you do - repeal the statute?" Sarbanes asked, his voice rising. "What's the rationale for that? When companies go public, they assume certain benefits. But they also assume certain responsibilities."

Sarbanes said critics overlook the benefits of forcing corporations to be more transparent and keeping firms from auditing and consulting for the same companies - a requirement that, he said, has lessened the likelihood that auditors can be pressured by CEOs.

"I have accountants who come up to me and say, 'Thank you very much for your bill,'" Sarbanes said.

Sarbanes' stature, and the vigor with which he slaps down complaints about the legislation, is such that even those who want to retool it acknowledge that they probably won't be successful until he and Rep. Michael G. Oxley, an Ohio Republican, have left Congress. Like Sarbanes, Oxley is not running for re-election.

"I think when Senator Sarbanes and Chairman Oxley retire, you're going to have 50 or 60 senators and 300 House members" pushing for changes to the law, said Rep. Tom Feeney, a Florida Republican and a chief sponsor of legislation that would make some of the rules voluntary for small and medium-size companies.

"I think out of deference to these two very distinguished fellows, a lot of people are holding their fire," he said.

Sarbanes, ranked this year by National Journal as the nation's fourth-most liberal senator, has a zeal for government regulation that is out of step with the pro-business, laissez faire philosophy of the majority Republican Congress.

"We really think that the law as a whole needs to be revisited, because most of the evidence is that it's been a negative for investors," said Phil Kerpen, policy director for the Free Enterprise Fund, a Washington advocacy organization that pushes free-market economic principles.

Three years ago, Enron and other scandals were fresh enough to pressure Bush to sign the bill. Now, that urgency has faded.

Duke University law professor James D. Cox, who has written extensively on corporate governance and the Sarbanes-Oxley Act, said the rhetoric of the law's opponents is "largely uninformed and irrational," and ignores the enormous social costs to the economy of another Enron.

"I find it really amazing the sort of pandering that's going on to business interests," he said. "I can't believe anybody's really serious about this, because I think this is an act that's done marvels."

Sarbanes dismisses suggestions that exempting small companies or making the rules voluntary would improve the law. He says that Sarbanes-Oxley remains a strong but reasonable law, one that might need tweaking by the regulators charged with enforcing it but not another dose of political nitpicking.

"This legislation came out of this disastrous collapse of investor confidence in American capital markets," he said. "Memories are short. Some people have a highly ideological viewpoint of being against regulations of any sort."

He said he's confident that the legislative proposals won't get very far, whether he is in the Senate to fight them or not. To Sarbanes, the issue is about more than safeguarding his place in the history books; it is about protecting the nest eggs of millions of people.

"This law was not done in haste," he said. "My reports are that it's working pretty well."

Sarbanes sees symmetry between the two scandals that are the bookends of his career: Watergate, and the crisis of confidence in the American presidency, and the collapse of Enron and other corporations, which sent tremors through the national economy.

"The impeachment of a president is a very rare thing - and ought to be," Sarbanes said in a recent interview.

At the same time, he said, "You don't often get an issue that raises basic questions about how well the economic system is going to work.

"I think that we faced a serious problem of real significance - the whole economy was being shaken," he said. "I take a certain amount of satisfaction in having accomplished that."

gwyneth.shaw@baltsun.com

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