March 05, 2005
sarbanes oxley 404
Posted by David Skeel

Larry Ribstein has an interesting post (here) noting the some of the second thoughts on SOXA 404's internal control system requirement -- including the SEC's decision to allow small and medium sized firms to delay their compliance. Larry predicts that there may be a backlash agst the backlash, with defenders pointing out that the much-discussed costs of the provision may be mostly just the transition costs of point the programs in place. Another part of the backlash agst the backlash, I suspect, may be an argument that if companies had put these systems in place without federal prodding, it wouldn't be so costly now. Ever since Caremark, Delaware judges (Chief Justice Veasey esp'ly) had been calling for compliance programs in their extra judicial speeches, but most companies weren't really listening.

More important than the cost in the long run, tho related, is the question whether requiring these systems will actually make a difference. My worry is that the requirement will calcify into a standard system that's put in place simply to satisfy the SEC, but doesn't significantly improve companies' internal controls.

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