Masked in James H. Quigley's May 25 editorial-page commentary "Please Be Patient" was an ugly fact: Few people have a greater pecuniary interest in a complicated and expensive Section 404 implementation than the CEO of one of the four remaining firms capable of rendering audit services in this area. If one of Mr. Quigley's employees found such a conflict of interest at a 404 audit client, you can bet he would have written up a notice of material weakness post haste.
In the hands of most of Mr. Quigley's colleagues, Sarbanes-Oxley's Section 404 is not a top-down device for assuring internal controls relate to material concerns, but rather an ever more complicated pursuit of picayune and non-material risk factors. Both in the pages of this paper and boardrooms around the world, Mr. Quigley and his colleagues deftly wield the specter of financial fraud (or even the Great Depression!) to leverage their position.
A better measure of national interest lies in the fact that the center of the global capital markets is slowly moving its focus from New York City across the Atlantic. Why else are the NYSE and Nasdaq shopping in Europe? Twenty-four of the 25 most recent large IPOs took place in markets outside the U.S. Many foreign share offerings expressly prohibit U.S. shareholders from participating in capital-raising for fear of being drawn into the scope of U.S. securities law or litigation. As more and more companies go to London, its market becomes more and more robust and liquid. In a cascade effect, soon the rationale for London will no longer be a more sensible regime of investor protections, but rather the very size, scale and liquidity of its marketplace.
Mr. Quigley's earnest arguments should be met with a dose of skepticism. His firm is dependent on the Section 404 process being as complicated as possible, with the lowest possible standard of materiality, and with little regard to the fact that his very expensive bills are ultimately borne by the shareholders that the law ironically is seeking to protect.
Todd M. Malan
Washington
(Editor's Note: The writer is president and CEO of the Organization for International Investment.) |
