For a time, the business page became the front page of newspapers around the country. A series of scandals from Enron to the $107.5 billion bankruptcy of WorldCom - the largest in history - shook Wall Street the way 9/11 had shaken the confidence of the rest of America. On a single day, July 8, 2002, stock values lost $1.4 trillion in value. Investors learned the hard way that some corporate books were cooked to a mush.
The congressional response? The Sarbanes-Oxley Act of 2002, often labeled SOX, which aimed to make corporate bosses and their boards face up to their responsibility for keeping honest books - or else. Federal sentencing guidelines were later revised, toughening penalties for white-collar crimes.
Now SOX is making the news again. Some business leaders are pressing for a partial rollback of the law's regulations, saying its corporate financial-reporting requirements are too onerous. Some ethics experts say SOX should be left alone. The battle picks up some momentum this week, when business and government officials meet in Washington, D.C. to discuss the law.
Congress itself isn't likely to revisit SOX. It would be too embarrassing with the continuing parade of corporate misdeeds - such as mutual funds letting favorite customers buy or sell their shares after trading hours and insurance companies, in effect, giving undisclosed kickbacks to agents selling their products.
But there is a drive by major business organizations to soften some SOX regulations overseen by the Securities and Exchange Commission.
Three high-profile groups - the US Chamber of Commerce (with 3 million member firms), the Business Roundtable (chief executives of about 160 major American companies are members), and the Financial Services Roundtable (representing CEOs of 100 of the nation's largest banks and other financial firms) - reckon compliance with SOX is too expensive and time-consuming.
"Small companies are particularly hard-hit," says David Chavern, director of the chamber's corporate governance initiative.
In a letter sent to the SEC in April, Mr. Chavern complained about Section 404 of SOX, which deals with a requirement for internal controls over financial auditing. The section "has been implemented in such a manner as to damage the long-term competitiveness of US companies and the US capital markets and to create burdens on these companies and their management well beyond what Congress intended and what is needed to remedy acknowledged abuses," he wrote.
Section 404 could fit in a page. It basically says management must establish and maintain adequate internal controls and procedures for financial reporting, and assess their effectiveness each year. The company's auditor must attest to that assessment. But the regulation implementing it, Audit Standard No. 2, runs more than 200 pages.
Controversy over that standard has prompted the Public Company Accounting Oversight Board - a government agency created by SOX to draft standards - to schedule a meeting Wednesday in Washington of an advisory group to discuss the standard and hear panel discussions by representatives from public companies, accounting firms, and small business. Chavern and other players in this regulatory battle plan to attend.
Only a tiny minority of corporations engaged in the kind of fraud that triggered SOX, he argues. Yet survey estimates suggest that the nation's big companies spend an average $4.3 million for added internal costs and extra fees for auditors and other consultants and software in connection with Section 404.
But not everyone believes that SOX should be watered down because some corporate executives are complaining.
"They have short memories," says Elliot Schwartz, research director of the Council of Institutional Investors. Congress acted to prevent some future corporate fraud and restore faith in the capitalist system and its markets. Since then, "I have not heard an investor complain that too much money is being spent." The 140 members of his council, mostly major pension funds, manage about $3 trillion in assets.
To Mr. Schwartz, SOX has brought some progress in cleaning up the books of companies and reinstilling investor confidence. "Our valuation is that the benefits [of SOX] greatly exceed the costs," he says.
SOX wasn't crafted by Congress as tightly as it ought to have been, says Rushworth Kidder, president of the Institute for Global Ethics in Camden, Maine. It was done in a legislative rush.
Further, he adds, trying to bolster business ethics with regulation doesn't always work. Regulation becomes merely law, and some business people skate as close to the legal line as possible whether they meet a broader sense of real integrity or not.
"The public wants people they can trust, not just people checking off the [regulatory] boxes," Mr. Kidder says.