SOX (Sarbanes Oxley) & the End of FIRE

[Glenn Black]

http://blog.mises.org/archives/009087.asp

SOX working for your business?

"It's probably doubled our accounting fees. And I would say that about eight and a half percent of that reflects value to the company. So there was some value from Sarbanes-Oxley, but we are paying an enormous price for that value." Loews Corporation CEO James Tisch

SOX (Sarbanes Oxley) was supposed to be the solution to a CEO and CFO claiming "plausable deniability" about them (or others) cooking the books, but SOX places a huge burden on the company, and that comes at significant costs.

Of course, it was the weakness in the GAAP (Generally Accepted Accounting Principles) that allowed the perps to get away with it in the first place.

• Who controls the GAAP? Chartered Accountants.
• Who helped write SOX? Chartered Accountants.
• Who benefitted most from SOX? Chartered Accountants.
• Who was supposed to be protected by GAAP and SOX?
  The small investor.
• Who was hurt most by lost productivity, lost profits, higher costs, lower dividends, ongoing risks not yet cured by SOX and GAAP?
  The small investor!

There's got to be a better way.

Madoff was enabled by an accounting firm with one retired partner, a secretary, and one accountant.

Enron, Tyco, etc. were more of the same.

Government needs to ensure that the shareholders are protected from corporate robbers and evil doers (both outside & inside).

The majority and the minority shareholders need to be adequately protected.

Did the corporations act, SEC regulations, SOX adequately perform this responsibility?

Was there adequate implementation & oversight of these legal requirements by government? Look here for part of the answer: http://itulip.com/forums/showthread....67886#poststop

For all the bailouts, if the shareholders had adequate means to know, and could vote against the hairbrain (or illegal or robberbaron) ideas and plans of the Board and Sr. management, then the bailout funds should be senior to the shareholder's dividends and equity, and the shareholders (who enabled the incompetency &/or illegal activity) lose everything.

Before we blunder off into the post-FIRE economy, we should learn our lessons, and implement the required solutions.

Exactly what needs to be done under this agenda?

If the government didn't have adequate protections in place for the shareholders, then the government has to take some responsibility, and some portion of the shareholder's investment should be protected in spite of the public money bailout.

[don]

Re: SOX (Sarbanes Oxley) & the End of FIRE

Maybe it's time to define The End of FIRE. Concentrated financial capital is going to continue to dominate the US economy for the foreseeable future and will not give up that role without a fight. Regulations and columnists will not alone oust them from dominating what's left of the production/consumption economy.

[Glenn Black]

Re: SOX (Sarbanes Oxley) & the End of FIRE

I think you have a good point. All systems tend to continue long past their usefulness.

FIRE has a huge amount at stake. They know how to play their game well.

I'm sure the best of them are saying, "Well, we made a few mistakes, and we have learned from them. Thank goodness that the government has stepped in to help. Thanks, we'll take it from here", expecting to go back to "business as usual".

As for the worst actors in FIRE, I'm sure they are muttering "Suckers!" as they collect their bonuses and receive the bailouts to prime their pump for Round #2 of "Screw Joe Public".

So exactly how does FIRE come to an end?

Can SOX, SEC, and other regulations, and the defined impact on shareholders by the bailout bring FIRE to an end, or at least under control?

[FRED]

Re: SOX (Sarbanes Oxley) & the End of FIRE

SOX was the usual government response after a market and economic crisis: collective punishment of the innocent, and a government jobs program for accountants.

The FIRE Economy is dead when the FIRE Economy industries lose influence over Congress. That happens after they fun out of money, and that happens after they go out of business, which they are busy doing.

Q: What will replace the FIRE Economy?

A: What industry will fight its way to the front of the line? Who still has money?

[Slimprofits]

Re: SOX (Sarbanes Oxley) & the End of FIRE

The FIRE Economy is dead when the FIRE Economy industries lose influence over Congress. That happens after they fun out of money, and that happens after they go out of business, which they are busy doing.

Q: What will replace the FIRE Economy?

A: What industry will fight its way to the front of the line? Who still has money?

The answer to the second part is lawyers and health professionals.

[FRED]

Re: SOX (Sarbanes Oxley) & the End of FIRE

The answer to the second part is lawyers and health professionals.

I'm not so sure. Perhaps we need to narrow the list down to Health Professionals.

Do We Need an Associate Bailout for Gen Y Lawyers?
Gail E. Cutter
New York Law Journal
December 22, 2008

This holiday season is looking less than merry and bright. The global credit crisis has spawned a domino effect of gloom at law firms everywhere. Lucky associates may find a half-bonus under the tree this year; others, a pink slip.

With billable hours and associate productivity plummeting, law firms are left with two unenviable options: layoffs and terminations. Some firms have undergone such dramatic contractions in specialized practice areas (structured finance and securitization, M&A, real estate) that massive layoffs were inevitable.

Others opt for "stealth" layoffs, essentially performance-based terminations, raising the bar on associate expectations in the face of the economic crisis. Of course, associates are cut every year for failing to make the grade; a bad year just ups the ante. When a lawyer doesn't see it coming, or is not given a chance to address the weakness, that's when concerns arise -- but that's an issue for another column.

Whether associates are displaced on a "no fault" basis or for cause, this recession is derailing the professional progress of a startling number of highly credentialed Gen Y lawyers. And it's just getting started. Is there any way to launch an Associate Bailout? One that, like its financial counterpart, will benefit the system -- the clients and firms -- as much as it helps the associates?

Necessity is the mother of invention, and this economic crisis has inspired some creative and controversial moves by law firm leaders. In a law firm first, DLA Piper, the world's largest law firm, asked income partners to contribute capital to the firm. Those partners will now have "skin in the game" and a greater stake, literally and figuratively, in the firm's future. Bryan Cave has postponed raises and bonuses to attorneys and staff for three months, staying off the dreaded layoff list for now. more...

This does not read like a report on a robust industry that is weathering the economic storm.

[Slimprofits]

Re: SOX (Sarbanes Oxley) & the End of FIRE

Yeah, that slipped my mind. I actually know a few lawyers and and secretaries in Boston that have been passing on information about layoffs at all of the big firms.

Still, should we seperate the trial lawyers from the corporate lawyers?

[BobH]

Re: SOX (Sarbanes Oxley) & the End of FIRE

Glenn, my take is very different.

You have a market system that is a ponzi system regulated by the government. Much like FIRE! The general public does not understand this and they never will. Every newly elected president wants the economy to grow while he/she(?) is in office. Thus asking for protection for systems set up to produce results for the government - first and foremost - will never happen.

As to responsibility ... forget about it! Remember the term ... buyer beware! I'm sure the Governement, the SEC, FASB, NYSE, and NASD would all remind you of this.

Sorry, they are very guilty but thinking about getting a payback from them for it is not a good use of your time, imo.

[grizam303]

Re: SOX (Sarbanes Oxley) & the End of FIRE

SOX is the response to corporate accounting scandals. It placed a lot of new requirements on businesses in the realms of internal audit and other control mechanisms. It is perceived by the business community as being a gross over-reaction to Enron.

It's part of the "we have to do something about it" legislative mentality.

[swgprop]

Re: SOX (Sarbanes Oxley) & the End of FIRE

It's part of the "we have to do something about it" legislative mentality.

Coding Logic for Congresspersons

if Crisis occurs

Express outrage and public condemnation
Hold press conferences
Hold hearings to conduct public floggings
Go on Larry King Live
Pass knee-jerk ineffective legislation
Pat self on back and effervesce over the bipartisan achievement

endif
Await next crisis
loop

[kingcopper]

Re: SOX (Sarbanes Oxley) & the End of FIRE

I'm not so sure. Perhaps we need to narrow the list down to Health Professionals.

Do We Need an Associate Bailout for Gen Y Lawyers?
Gail E. Cutter
New York Law Journal
December 22, 2008

This holiday season is looking less than merry and bright. The global credit crisis has spawned a domino effect of gloom at law firms everywhere. Lucky associates may find a half-bonus under the tree this year; others, a pink slip.

With billable hours and associate productivity plummeting, law firms are left with two unenviable options: layoffs and terminations. Some firms have undergone such dramatic contractions in specialized practice areas (structured finance and securitization, M&A, real estate) that massive layoffs were inevitable.

Others opt for "stealth" layoffs, essentially performance-based terminations, raising the bar on associate expectations in the face of the economic crisis. Of course, associates are cut every year for failing to make the grade; a bad year just ups the ante. When a lawyer doesn't see it coming, or is not given a chance to address the weakness, that's when concerns arise -- but that's an issue for another column.

Whether associates are displaced on a "no fault" basis or for cause, this recession is derailing the professional progress of a startling number of highly credentialed Gen Y lawyers. And it's just getting started. Is there any way to launch an Associate Bailout? One that, like its financial counterpart, will benefit the system -- the clients and firms -- as much as it helps the associates?

Necessity is the mother of invention, and this economic crisis has inspired some creative and controversial moves by law firm leaders. In a law firm first, DLA Piper, the world's largest law firm, asked income partners to contribute capital to the firm. Those partners will now have "skin in the game" and a greater stake, literally and figuratively, in the firm's future. Bryan Cave has postponed raises and bonuses to attorneys and staff for three months, staying off the dreaded layoff list for now. more...

This does not read like a report on a robust industry that is weathering the economic storm.

I agree Fred and this is where the circle jerk started in the mid 1970's. As the son of a Pediatric Cardiologist in a mid-sized US city, I can't tell you how many times my father almost had a coronary as he watched in disdain the lawyers and businessmen take over the university and hospital administration back then.

He seriously doesn't like the lawyers and insurance companies; generally any businessman that gets involved in a doctor's/hospital's practice is greedy and evil. Medicine was for everyone prior to the mid 1970's. Thats when the greedy lawyers and businessmen saw opportunity. The bankers still see it! A banker's favorite client is always the physician.

[dbarberic]

Re: SOX (Sarbanes Oxley) & the End of FIRE

SOX was the usual government response after a market and economic crisis: collective punishment of the innocent, and a government jobs program for accountants.

As an employee at one of the big-4 audit/tax/advisory firms, I happen to like SOX, but the spending craze has died down.

The next big gift to accounting firms is IFRS (international financial reporting standards). Sometime within the next five years, US companies will have to convert US GAAP accounting/reporting to IFRS standards. Massive public works program for accountants and consultants that will provide a nice windfall of fees for a few years.

[Glenn Black]

Re: SOX (Sarbanes Oxley) & the End of FIRE

In my experience, lawyers take a percentage off other people's game, justifying their existance as a necessary evil, or a facilitator, or enabler, or as a catalyst. Little of original efforts & projects come out of the legal sector.

Are their exception to this generalization? Sure, but few.

[Glenn Black]

Re: SOX (Sarbanes Oxley) & the End of FIRE

Perhaps we need a different system. Who said "Government by the people, for the people..." Let the people have the money. Unfortunately, it is dis-organized and low density.

The government becomes powerful only because they aggregate together the wealth collected from the individuals.

How do we aggregate together the strengths of millions to focus the attention of the government?

If an industry pays taxes, they deserve a voice to government. Hence the birth of lobbyists.

You get what you pay for (in more ways than one).

Can the Internet, and sites like iTulip help individuals work together, make it worthwhile to work together, to drive the government in the right direction?

What other alternatives are there to overcome the very effective voice of lobbyists?

Should lobbyists have another appendage tied behind their back so as to make it a more fair fight for government's attention?

[labasta]

Re: SOX (Sarbanes Oxley) & the End of FIRE

I'm not so sure. Perhaps we need to narrow the list down to Health Professionals.

My Dad will be ok then.

He's never been busier.

He is in a very niche market though. He takes out amalgam fillings and detoxifies people intravenously. Tries to be as poison free a dentist as possible. He's booked out months in advance.