http://www.forbes.com/sites/frederickallen/2012/07/29/sarbanes-oxley-10-years-later-boards-are-still-the-problem/ This post on Forbes.com makes the point that corporate governance is still a major problem…and twigged me about the much broader implications of the failure to enforce Sarbanes Oxley.
The Sarbanes Oxley legislation was passed by Congress with great fanfare over 10 years ago in the wake of the Enron scandal. The potential penalties were significant for Board member malfeasance or even passive failure to investigate apparent corporate problems. The only problem is that Sarbanes Oxley has languished essentially unenforced, even in the aftermath of the 2008 Wall Street financial markets collapse. Rumors persist that as many as 200 Wall Street executives remain under government investigation and yet there has been no mention of Sarbanes Oxley, and to the best of my knowledge, no one, not one sitting member of a Board of Directors has been investigated or threatened with prosecution under the terms of Sarbanes Oxley.
Now we learn that in the wake of the massive $1.7 Billion Olympus losses and coverup by its Board, the Japanese prefer not to prosecute the wrong doers.
Michael Woodford was sacked as president of Olympus last year after he revealed the $1.7 billion accounting cover-up. The board of the Japanese cameramaker lied about the mystery for weeks. When the truth at last came out, the board kept their jobs and the whistleblowing boss lost his. Mr Woodford called it a “black comedy”. In no other developed market, he lamented, could this happen. Well, not exactly Mr. Woodford, as we now see a global pattern. Companies in Japan now have price-to-book ratios roughly half of the ratio in the rest of the World, Apparently, investors are voting with their money that there may be many more Olympus’ out there.
Other outrages following the global financial meltdown include the LIBOR scandal which has largely gone quiet, and the hundreds of millions of dollars spent by Wall Street to neutralize the Dodd Frank consumer protection act, designed to prevent abuses in the mortgage business and with credit cards.
My eyes were opened by watching the PBS Frontline documentary on Occupy Wall Street. I was flabbergasted to learn that many of the young MBA types who had participated in the unethical practices in derivative trading that led to the Euro meltdown, bravely walked out and joined Occupy. Their stated purpose was to confound the Wall Street law firms, by identifying all of the loopholes being proposed, and proposing changes to Dodd Frank to close them.