By Moore, Stephen
The American Spectator , Vol. 38, No. 7
Why do Republicans so easily accept Neobolshevism as a cost of doing business? BY STEPHEN MOORE
It's BECOME ALMOST ACCEPTED WISDOM that the Sarbanes-Dxley law, passed in the wake of the corporate iccounting scandals of the late 1990s, is one of the nest economically imbecilic new regulations ever macted in Washington. CEOs of major U.S. corporaions now routinely point to these new onerous iccounting standards and the attendant reams of paperwork, legal bills, and auditing costs-which can easily stretch into the tens of millions of dollars per firm-as one of the major new public policy impediments to growth and profitability. Sarbanes-Oxley, proclaimed one CEO, who for obvious reasons insists on anonymity, "is a politically well-crafted wealth destruction machine."
What is not well known is the real chilling effect of this law, and other white collar crime laws like it, which carry social and economic costs that go well beyond the quantifiable monetary price tag of compliance. Sarbanes-Oxley also imposes hefty criminal penalties, including 10-to-20-year jail terms, for management and directors associated with, for example, signing false financial statements. In a recent interview, one CEO showed me a stack of financial statements nearly four inches thick and noted that he could go to jail if there were any arithmetic errors contained therein. The criminalization of falsely signed financial documents is meant to deter accounting fraud; instead, its impact is to deter top-quality talent from serving on boards and in management positions. As Hick Sharp, the chairman of Carmax, notes, "Managers and directors now ask the logical question: Is this job really worth risking going to prison over if I inadvertently sign a misleading quarterly earnings report? Is that a gamble really worth taking?"
The entire Sarbanes-Oxley fiasco-which passed on a 98-2 vote in the Senate and almost unanimously in the House-is symptomatic of a new cancer that has invaded our criminal justice system. This cancer could be more hazardous to our financial health than even the excesses of the tort system and the trial lawyer bounty which extracts tens of billions of dollars a year in dead weight loss from our economy.
The more dangerous problem is that our legal system is being transformed from one that provides protection for our personal and economic freedoms, to one that in the name of fighting white collar crime is increasingly at the service of the state in the pursuit of exacting tribute from our economic system. SarbanesOxley and other such laws criminalizing economic behavior have become a toll on the free market system. Rather than protect the interests of shareholders, they reduce corporate profitability and thus shrink shareholder wealth.
As a corollary, I might add that the certainty and reliability of the system so essential to our freedom is compromised as the rules of the road evolve from case to case and we move toward a system of ad hoc justice that changes from prosecution to prosecution. New York's Eliot Spitzer, at least a dozen other anti-growth states attorneys general, and a bevy of prosecutors around the nation have become America's new regulators on the beat and their stick reaches to whole swathes of the U.S. economy. They have come to realize that the power to indict is the power to destroy.
Contributing to this atmosphere of a prosecutorial witch-hunt against CEOs and the successful firms they run is the erosion of any clear requirement of criminal intent on the part of the wrongdoers. Even inadvertent errors under Sarbanes-Oxley and other white collar crime laws can lead to massive fines and jail terms. It should not be surprising that the anticapitalist left has enthusiastically embraced this fearsome weapon of using the criminal law for the endgame purpose of striking down the productive class in America that they so envy and despise. But what of supposed free-market Republicans in Washington and in the states? …