Four years after the passing of the Sarbanes Oxley Act, the accountancy firm Mazars conducted a survey of foreign firms doing business in the United States. It was common knowledge that the “Sarbox” imposed strictures that caused a commotion in the corporate world. The most telling and costly demand is the 404 section which requires firms to document and certify the effectiveness of their internal controls. The Sarbanes Oxley Act was passed in direct response to the Enron scandal so by tracing the intervening sequelae of that rather infamous scandal we can see that the results of the Mazars survey can then be traced to Enron fallout.
About 20% of the European firms currently listed in the United States are considering pulling their stock out of the United States stock markets in order to avoid the strangling effect of the Sarbanes Oxley Act. I use the term “about” because there is a bit of waffling involved in the decision making but it is clear that European firms are still feeling peevish about the “Sarbox” even after four years. According to Barney Jopson, writing for the Financial Times, about 4% said they would leave markets in the United States, another 4% qualified that to “probably” leave and 9% waffled even more by saying they “might” quit.
While the “Sarbox” has been blamed for driving some companies to near bankruptcy in this country and for destroying the appeal of the United States markets to foreign companies, the United States Chamber of Commerce has been warning that the regulatory environment in the United States is so strict that the Financial Markets based there are in danger of losing their position in the capital markets globally if regulatory strictures are not eased.
Firms based in the United States have had to comply with the Sarbanes Oxley rules already and have noted that in spite of the initial pinch it has improved their accounting transparency, efficiency and internal control mechanisms. European and other foreign firms have not had to comply with the act yet because the Securities and Exchange Commission has delayed the deadline. At this point the July 15 filing will have to be compliant unless a firm’s market caps are less than $75m.
Asian and Latin American companies took the new regulations in stride and except for Mexico, no company from those areas was contemplating removal from the United States Markets. The reactions of the companies from the separate areas of financial activity may reflect more the prevailing political ambiance than actual financial distress caused by the Sarbanes Oxley Act, or it may reflect the cultural attitudes of compliance in order to obtain a more harmonious outcome. Whatever the case, it seems interesting that the Mazars survey interviewed 88 major corporations in 13 countries and it was the Europeans who still have not recovered from their initial negative reaction to the Act.