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Sarbanes-Oxley may be only part of the problem

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KAI RYSSDAL: Apple is the biggest company so far to have been caught backdating its stock options. The company did its own internal investigation and cleared high-profile CEO Steve Jobs of any wrongdoing. But the company’s former chief financial officer told a different tale today. Fred Anderson has agreed to pay $3.5 million to the SEC to settle his role in the scandal. And he says he told Jobs all about the potential problems back-dating could bring.

Stock options are just the latest example of companies not always being on the up and up. Congress tried to fix corporate misbehavior after Enron with the Sarbanes-Oxley law. But that’s now being blamed for driving businesses out of American markets.

Benn Steil runs the international economics program at the Council on Foreign Relations. He says Sarb-Ox isn’t entirely responsible.

BENN STEIL: Foreign companies that, in the early 1990s, would have listed on the U.S. Stock Exchange, are leaving the country as it were. They’re much more likely to list in London than in New York. Where it’s not as if U.S. investors don’t have access to these stocks, but it is a blow to U.S. stock exchanges — in particular, the New York Stock Exchange and NASDAQ.

RYSSDAL: And your take is that it’s not really Sarbanes-Oxley — the corporate reform law that we passed after Enron — that’s making this happen, is it?

STEIL: Well, it’s certainly not the original cause. Even foreigners that have concerns about raising capital in the United States understand that Sarbanes-Oxley was addressed mainly to U.S. firms in the wake of the scandals at Enron and WorldCom. One of the most influential initiatives, interestingly enough, came from the man who is now head of the Securities and Exchange Commission, Christopher Cox. Back in 1999, when he was in Congress, he reported on the activities of Chinese companies that were alleged to be involved in things like weapons proliferation and technology acquisition in the United States and very sensitive areas. And Cox was the first to suggest that by controlling their access to the U.S. capital markets, we might be able to deter them from engaging in activities we didn’t like. So many in Congress decided that the SEC needed to get involved. That raised very great concern among foreign companies who feared that if they listed on a U.S. Securities Exchange, then the SEC might be investigating their activities, and at some point make it very difficult for them to continue their business. And that gives London a significant competitive advantage.

RYSSDAL: You can see how it’s a delectable tool for Washington, right? The U.S. predominance in the markets, and they say, “Ooh, we have this tool we can use?”

STEIL: That’s precisely correct. It was considered to be costless. Congress didn’t have to allocate any money to do this. And of course, it was bloodless — we didn’t have to send Marines around the world in order to pursue our foreign policy interest. We could just impose restrictions on the ability of companies to list on the New York Stock Exchange or issue bonds in the United States. And somehow, our foreign policy would be served by this. But precisely the opposite has happened.

RYSSDAL: So here we find ourselves in the spring of 2007 with Christopher Cox, one of the first people to get on board with the

capital sanction movement, now running the Securities and Exchange Commission. We have people like New York Mayor Michael Bloomberg and New York Senator Charles Schumer, in addition to the Secretary of the Treasury, saying we are losing competitiveness because of Sarbanes-Oxley — that is, domestic corporate governance laws. Do you think there’s a movement afoot to try to right the balance here and try to figure out what might be the cause of foreign companies moving overseas?

STEIL: Well, I think they’re missing the key causes. Even if you were to eliminate Sarbanes-Oxley today, even if you were to eliminate the sort of class-action law suits that foreign companies are very concerned about, this would not stop the exodus of foreign companies to London. What foreign companies want to see is a return to the days in which that they felt the U.S. capital markets were not politicized.

RYSSDAL: Benn Steil at the Council on Foreign Relations in New York. He directs the international economics program there. Mr. Steil, thanks for your time.

STEIL: Thank you.

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