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Business interests are mobilizing to roll back some of the more contentious provisions of the landmark Sarbanes-Oxley anti-corporate fraud law. Congress passed the law in 2002 to restore investor faith in the capital markets after accounting scandals rocked Enron Corp., WorldCom Inc. and Global Crossing Ltd. Rather than launching a frontal assault on SOX, as the law is known, specific industries are expected to seek narrow exemptions to certain key provisions. As a whole, however, the changes could reduce the reach of the government. Provoking the greatest furor among business groups is �404 of the law, which requires a company’s CEO to certify its internal controls and financial results. That is intended to hold senior officials accountable for the work of subordinates. But several Washington-based lobbyists for business groups said the law has become nothing more than a windfall for the accounting industry. These sources, who declined to speak on the record because their clients are still weighing their plans of attack, argue that big U.S. accounting firms developed comprehensive systems of checks and balances for Fortune 500 companies. These then became “best practices” for all businesses regardless of their size. Accountants are employing the same level of checks and balances at companies with 250 employees as they use for those with 250,000 workers, rather than tailoring their approach and seeking cost-effective solutions, the lobbyists said. One group that could seek �404 relief on Capitol Hill are small banks. Their argument may be the most compelling. These banks not only have internal and external auditors reviewing their operations, but also are subject to comprehensive oversight by one of the federal banking agencies. A banking industry source said that, given this additional layer of federal oversight, it is absurd to force smaller banks to dish out even more money to their auditors. This source added that small banks were not involved in any of the corporate scandals and that the entire banking sector survived the most recent economic downturn in good health. That indicates there is no need for the additional financial burdens imposed by �404, the source said. Small public companies, which also worry about �404 and its one-size-fits-all approach, also may make another push for reform. Among the evidence they could muster is the soaring number of listings by public companies, which tripled in 2003, according to a study by the University of Pennsylvania’s Wharton business school. The authors attributed the jump to Sarbanes-Oxley costs, which smaller companies said average about $500,000. But while bankers may be able to slip their request into broader regulatory relief bill for the industry, smaller companies would likely need to attack the law more directly. That would be more risky. Opponents could well cite the flip side of the Wharton study, which determined that many de-listing companies did so to avoid the kind of government scrutiny that could have identified excessive compensation or other corporate governance transgressions. Yet concerns in the small business community are making some in Washington nervous. The Securities and Exchange Commission has created a blue-ribbon panel to evaluate the effect of SOX on small businesses, a tried-and-true tactic in Washington for an agency to head-off legislative intervention. U.S. stock exchanges may also be forced to seek changes to placate foreign listers. Numerous reports indicate that foreign companies traded on U.S. exchanges are evaluating whether to delist because of the higher costs imposed by SOX. So far their pleas to the SEC for relief have fallen on deaf ears. Only Congress may be able to offer help. Another area of concern drawing attention in the business establishment is the new responsibilities SOX places on independent directors. Given the financial liabilities these directors incur, many companies contend it is increasingly difficult to find qualified people to sit on their boards. Though this issue has yet to turn into a crisis, business interests says it could quickly move to the top of legislative agendas if enough companies find themselves short of directors. Some Washington experts warn against reopening any part of SOX. “You may regret what you wished for,” said Bert Ely, president of a Washington consulting firm. “The rework of the bill could leave you worse off.” The private sector’s success snuffing out provisions in the final version of the law, including measures that would have required companies to separate the roles of chairman and chief executive, also could end up back in play. “They could lose control of it,” Ely said. Other parts of SOX appear safe. No one other than a few defense lawyers are complaining about the stiffer criminal penalties for corporate wrongdoing. It appears only a gross abuse of these penalties could prod Congress into acting. Also untouchable is the Public Company Accounting Oversight Board, which Congress created to oversee the accounting industry. Yet the mere fact that business groups are gearing for a fight suggests that the private sector, having concluded that investor confidence in the U.S. financial markets has been restored, has decided it is now safe to attack a law intended to keep the public from fleeing the stock market. Copyright �2005 TDD, LLC. All rights reserved.

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