An article in the Wall Street Journal Acquittal Casts Cloud Over Sarbanes-Oxley Law (subscription required) discusses acquittal Richard M. Scrushy, the former CEO of HealthSouth, under the new Sarbox law.
The certification provisions of Sarbanes-Oxley were intended to prevent the type of defense that Mr. Scrushy's attorneys mounted, in which they said he had no knowledge of the accounting improprieties that occurred while he ran the company. Congress, responding to a wave of financial fraud at companies such as Enron Corp. and WorldCom Inc., included the provision in the 2002 corporate-overhaul law to make it easier for authorities to hold executives responsible for fraud that happened on their watch.
While I am certainly supportive of the aims of Sarbox, I am cautious about its use for smaller companies because the enormous associated costs. And if Sarbox proves to be a paper tiger, then I am even more cautious about its use for companies of all sizes.
Update: Thursday, 29 June 2005.
A bad day for the prosecution in The Economist is an excellent article on this topic.
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