Tuesday, April 26, 2005

The (Good) Unintended Consequences of SOX

The unintended consequences of Sarbanes Oxlex might not be all bad. We've all heard how the increased costs of compliance drive more firms private (or keep them from going public in the first place). Jeff Cornwall at Entrepreneurial Mind has some interesting thoughts on some good things that could result from this:

...One outcome that I hope for is that this growth in privately held firms will allow more CEOs to take ethics and values more seriously in how they grow and build their firms.

One stumbling block for public companies being more ethical has been the responsibility to the public financial markets to maximize returns. Those CEOs who do not, particularly in small cap companies can find themselves out of work if they miss quarterly financial expectations of the market.

Private businesses are in a better position to look at a broader array of criteria for what defines success, be it job creation, work environment and so forth. Entrepreneurs and the other shareholders define the rules and can set their own definitions for effectiveness in their companies. Profits remain the primary goal, but private companies can place this goal within a context of ethical and moral considerations that address other stakeholders and broader considerations.

I hadn't thought of that. I guees that's why he teaches Entrepreneurship and I teach Finance.

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