One of the principal GOP figures in Congress’s response to the corporate accounting scandals at the beginning of the decade is leading a coalition of healthcare, high-tech and venture-capital groups in an effort to relax the enforcement of the Sarbanes-Oxley Act.
Former Rep. Jim Greenwood (R-Pa.) is president of the Biotechnology Industry Organization (BIO), which represents many of the kind of smaller publicly traded companies that have been among the most vocal critics of Sarbanes-Oxley and the burdens its corporate integrity standards have placed on businesses.
BIO and the other groups are hoping to convince a Securities and Exchange Commission (SEC) advisory committee set to meet tomorrow that it should carve out certain exceptions to the law for smaller businesses.
Greenwood has assembled a coalition of likeminded interest groups representing sectors that, like biotechnology, employ a high-risk, research and development business model that depends on public capital investment but most years generates low revenues. In addition to BIO, the coalition consists of the National Venture Capital Association, TechNet, the Advanced Medical Technology Association, the California Healthcare Institute and the semiconductor industry group SEMI.
As chairman of the House Energy and Commerce Committee’s Oversight and Investigations Subcommittee, Greenwood helmed a series of hearings in 2002 that helped cast light on the shady business practices of companies such as Enron, WorldCom, Global Crossing, ImClone and Arthur Andersen. Greenwood retired from Congress and took over at BIO in January.
Greenwood was among a cadre of House Republicans who pushed the leadership and the rank-and-file to adopt aggressive new requirements to promote corporate accountability. After tough negotiations with the Democrats who controlled the Senate at the time, and the late support of the White House, Congress enacted Sarbanes-Oxley in 2002.
But the transition from congressional investigator to corporate advocate has left him open to criticism, Greenwood acknowledged.
To some, calls to revisit Sarbanes-Oxley that come from one of the law’s supporters might be considered exceptionally credible, but to others, Greenwood risks appearing as if he’s done an about-face on corporate responsibility.
“That can cut both ways,” he told The Hill.
Greenwood insisted, however, that he has not changed his position on Sarbanes-Oxley. He observed the unanticipated difficulties businesses, especially smaller ones, were beginning to encounter as the law took effect.
“I had lots of discussions as a member of Congress” with business owners in his suburban Philadelphia district, he said.
Since joining BIO, “I’ve continued to hear what I was hearing when I was a congressman,” Greenwood said.
The effect of the bill on smaller companies was a source of concern among congressional Republicans when the bill was authored, Greenwood noted.
BIO member companies and others complain that the cost of complying with the law sometimes approaches or surpasses their annual revenues. Many of these companies also have fewer than 30 employees and therefore lack the staff resources that larger businesses can direct toward Sarbanes-Oxley compliance. The relatively small number of large accounting firms qualified to audit publicly traded companies’ compliance with the law also has driven up the price of the service, BIO says.
Greenwood insisted that the BIO-led coalition is not lobbying Congress to change the underlying law and is asking the SEC only to make narrow exceptions to the internal-controls requirements for small companies under Section 404 of the law.
“It’s politically difficult” for Congress to weigh re-opening Sarbanes-Oxley without being accused of going soft on corporate governance, Greenwood said. Nevertheless, the business community at large has been grumbling about the law since before it took effect and are sure to begin flexing their lobbying muscles, possibly as early as next year, to convince lawmakers to relax the law.
The SEC advisory committee meeting tomorrow will consider a draft proposal that would move toward creating the exceptions for some firms, but BIO and its partners want the definition of “smaller public companies” to include more firms.
Opponents of the small-business exceptions to Sarbanes-Oxley maintain that shielding investors and guaranteeing corporate integrity should take precedence over easing the burdens on any publicly traded companies, explained Barbara Roper, director of investor protections at the Consumer Federation of America.
Roper did not contest that complying with Section 404 is costly but blamed the companies themselves for failing to have adequate internal controls in place already.
“The first-year costs are going to be high” because of the “frighteningly bad” state of corporate governance among smaller companies before Sarbanes-Oxley was passed, Roper said.
She also proposed that smaller companies would not benefit from the exceptions anyway because investors would shy away from firms that lack the strictest internal controls.
“They’re completely misguided,” Roper said of the companies.
Smaller firms that find the burdens of complying with the law too onerous should get out of the public capital markets, Roper asserted.
“If they don’t want to do what it takes to become a public company, then stay private,” she said. “That’s a business decision.”