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Reform gone wrong

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  • Nov 1, 2017
Reform gone wrong

When a series of accounting scandals, such as those at Enron and WorldCom, shook corporate America in the early 2000s, the U.S. government responded with a new federal law to reform business practices.

Among other things, the 2002 Sarbanes-Oxley Act (SOX) required the boards of publicly-traded companies to have a majority of outside, independent directors and for the firms to implement audit, nominating, and compensation committees comprised solely of independent directors.

And with a hefty price tag – it’s estimated SOX investments cost $1.4 trillion – the big question is: Did SOX work?

New research from Karin Schnarr, EMBA ’08, PhD ’15, an assistant professor at Wilfrid Laurier University, and Associate Professor Glenn Rowe shows the SOX provisions did not have the intended effect, neither reducing levels of managerial entrenchment nor having the potential to improve shareholder value.

“SOX has not done what it was supposed to do and, in fact, it has done the opposite in a couple of cases, and has probably been a waste of time and money,” said Rowe. “My sense is that SOX should be repealed and its requirements should be done away with.”


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