The Social Construction of Sarbanes-Oxley
Part I will take a close look at the legitimacy of SOX by examining the two plausible stories of SOX’s origins and considering the early post-SOX evidence on its costs and benefits. There is no clear-cut answer to the question of how much SOX benefits investors; both positive and critical positions are plausible. Costs have been far greater than expected, but more from SOX’s implementation than from the legislative text. Before turning to how and why implementation has occurred that way-which to me is the central question of interpretation-Part II considers whether there is an alternative interpretation of SOX that explains its motivations and likely long term effects. This raises the possibility that SOX’s most important effects may be less about investor protection than about renegotiating the boundary between the public and private spaces in big corporations, a much deeper ideological issue. The legislation may reflect a political instinct that incentive structures in modem public corporations generate risks that require public (not just investor) accountability to be legitimate. I suggest the “independent” director, currently seen largely as an investor advocate, is being pushed toward becoming a “public” director whose main assignment is to keep risks and rewards in a socially acceptable balance. Part III then turns to the various interpretive communities debating SOX’s meaning, anticipates how they are likely to respond, and considers the resulting behavioral impact of their criticism or praise. In Part IV I predict, consistent with neither enthusiasm nor harsh criticism of the legislation, that the interpretive pluralism will gradually moderate both costs and benefits, slowly tilting toward the “public values” account described in Part II. Part V addresses the most specific criticism of SOX, involving so-called going-dark transactions and the impact on foreign issuers. I conclude by connecting SOX to larger questions about how law becomes part of social and economic practice.