Heed Jim Clark's SarbOx Warning

Jack Ciesielski posted a critical comment on Jim Clark's resignation from Shutterfly's (SFLY) board (you should read the whole post, including excerpts from Clark's letter). He essentially accuses Clark of using Sarbanes-Oxley as a cover up for his real reasons for resigning.

Says Ciesielski:

"A couple of things to note. His first reason is this: the man calls himself a technologist, and uninterested in a manufacturing environment. He’s just got little to offer a manufacturing concern. And if that’s so, and it makes sense to him not to be at Shutterfly on those grounds - why be so concerned about constraints imposed by Sarbanes-Oxley? Seems like just an opportunity to vent on the law, if the first reason is the most important one. And the one that makes leaving a sensible thing to do for a fellow like him.

If there’s “little that I can offer to guide what has become a manufacturing company” - why, then, is SarbOx such a constraint? Why is it necessary for Mr. Clark to be chairing any of the various committees? In truth, what he’s doing may well be the right thing for the company, but for the wrong reasons. This shows how SarbOx is sapping entrepreneurship? Be serious: how material do you think his interest in Shutterfly may be to Clark’s portfolio? Think he’d be sweating long nights writing code if he stayed? He may be more beneficial to the company on the outside as a resource - both financial and networking - than staying on the inside as chairman and “chief manufacturing officer.”

This is the comment I posted in response to his piece:

"Say what you want about Jim Clark's true motives but he is completely right about SarBox (a.k.a the Universal Accountant Employment Act) . It is hurting the American economy, the US stock markets and empowering Stock Markets like AIM and the LSE at a time when the US economy, shareholder and tax payer can ill afford it.

SOX is too expensive and unwieldy, especially for small companies; SOX makes it difficult and expensive to recruit talented outside board members; it is filled with paranoia about conflicts of interest like the ones Clark described.

Jim Clark has been a very important entrepreneur for our economy (do you remember Netscape? SGI). I suggest that instead of looking for ways to undermine his credibility, the new Congress and the investor community should heed his warning. "

Comments

[David Lentz]

So Sarbanes-Oxley is tough on small businesses. No news there. Do you have suggestions (other that throwing it completely out and returning to the no-rules-obeyed times of yore) that could lighten it's load on small businesses, and yet still hold larger firms' feet to the fire of accountability and truth?

While SarbOx has undeniably been a heavy burden to bear for small businesses, I can see that it has had an impact on the community of robber-baron CEOs loose in corporate America at large, people like Ken Lay, Bernie Ebbers, Dennis Kozlowski, Jeff Skilling, ... People who are intent upon using the resources of large corporations to line their pockets at the expense of the stockholders. I've seen corporate heads who formerly thought nothing of indulging in round-the-world parties on the company's dime get tossed out, and others rein in their conspicuous behavior.

So what's your answer? I'm sure that the requirements could be streamlined (it was, after all, a solution devised by Congress), and I'd think that revising the tax code to allow accountants who are employed solely to deal with SarbOx to be deductible expenses to a company would go a long way toward lifting the burden from the shoulders of start-ups and small companies. Throw in some sort of "shield legislation" to protect corporate officers from the flood of shareholder lawsuits that always descends any time the company stock takes a dip -- a shield that would be removed once the company was found to be not in compliance with SarbOx -- and I think things might be improved.

But throwing out SarbOx (which the tone of your piece seemed to indicate was your solution, sorry if I read you wrong), and returning to the bad old days is not the answer.

We still have way too many CEOs (e.g., Whitacre at T, Tillerson at XOM) who are using the corporate resources not in order to compete, but instead opting to buy out or lobby/legislate out the competition, enormously growing their compensation while doing a miserable job of running the business. The gutting of anti-trust by the current administration is responsible for this sad state of affairs. I don't favor extending SarbOx to deal with this, just putting teeth back in the DoJ.

But to return to the original point, so you don't like SarbOx -- what's your better plan?