Mandating responsibility, with predictable results

July 10, 2006
Being well intentioned is no guarantee of being right.

Nearly two years ago the U.S. government instituted the Sarbanes-Oxley standards for corporate accounting. These were the official response to widespread dismay at scandalous accounting and financial reporting records at public companies during the boom markets of the 1990s. As with most such laws, these were meant to be the final step toward safeguarding the public against insider malfeasance and corruption.

Sarbanes-Oxley may be having that effect, but only at companies that comply with these new standards. And, some of its other effects should be noted, too. New IPOs increasingly are listed on foreign exchanges, to avoid the more restrictive U.S. accounting standards. Stock-repurchase programs are on the rise, and some forecasters expect a record dollar volume in such moves this calendar year. And, private-equity funds continue to invest in small and mid-sized companies, where their administration is not subjected to one more layer of oversight.

There’s no single cause for these developments, and not all of them are objectionable. It’s important to note that the U.S. economy is booming by nearly every measure, including investor confidence, so Sarbanes-Oxley can take credit for that, too. And many of investors, especially those private equity groups, have grown to appreciate the return on investment they get from small and mid-cap companies, especially in manufacturing.

But, was it was necessary to create a whole new accounting expertise to reveal the value in these investments. It would be nice to think that the existing laws and people of good character could have achieved just as much.

I have a similar reaction to a story with a different "center of gravity." The U.S. Dept. of Labor is being sued under the federal Freedom of Information Act to force it to release the results of air and other data samples collected by the Occupational Safety and Health Administration during site inspections of all workplaces nationwide, from 1979 through June 1, 2005. A former OSHA regional administrator, who’s now an academic in environmental and occupational health, Adam Finkel, alleges that OSHA is withholding data he needs to "conduct statistical analyses of trends in beryllium concentrations by time period, geographic region, industry sector, etc., and to estimate the exposure potential of the OSHA compliance officer workforce, ...". Prof. Finkel also contends that OSHA is thwarting his effort because of his past role as a "whistleblower."

According to OSHA, Fnkel’s request may lead to publication of as many as 1 million test samples, each of which would include the name and address of the establishment, the identity and type of the substances sampled (personal, bulk, area, wipe, etc.), and the numerical results of the sample analysis. Other information may be included, too, and this may lead to the exposure of confidential information, such as trade secrets.

Is all this necessary? It would be easy to dismiss this whole affair as a personal crusade carried to the extreme. After all, the dangers of beryllium exposure are not new, and OSHA can hardly be accused of ignoring the threats posed to workers’, or its own inspectors’ safety. But, can it really be that some conspiracy is hidden in those +1 million records compiled over 25 years? I am skeptical, just as I doubt that a law or regulation can stop a person or organization from acting selfishly, or greedily, or stupidly.

We should all hope that good sense and good judgment prevail in court rooms and board rooms alike, but in this case, as in the experience of the Sarbanes-Oxley regulation, we ought to see that being well intentioned is no guarantee of being right. And, the fact that something is right is no guarantee that it is good.