The Instigator
jason_hendirx
Pro (for)
Losing
8 Points
The Contender
DarrowDobaksa
Con (against)
Winning
10 Points

Sarbanes Oxley and All Similar Legislation Should Be Repealed

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Voting Style: Open Point System: 7 Point
Started: 1/24/2009 Category: Politics
Updated: 8 years ago Status: Voting Period
Viewed: 1,989 times Debate No: 6641
Debate Rounds (3)
Comments (7)
Votes (3)

 

jason_hendirx

Pro

I would like to thank my opponent for choosing to engage with me in debating this point.

First, some definitions.

Sarbanes-Oxley Act: An act signed in 2002 mandating stringent and expensive corporate reporting standards for the sake of protecting investors. http://en.wikipedia.org...

Similar Legislation: Any other act mandating reporting standards for the sake of protecting investors.

Social Benefit: A benefit to society as a whole external to a select group.

Social Cost: A cost to society external to a select group.

I have three reasons for believing that Sarbanes-Oxley and similar legislation should be repealed.

First, the "social cost" of corporate failures are borne almost solely by the investors and the employees and therefore are not a concern of the people.

Second, investors and employees are perfectly capable of policing said corporations without the help of the government, making government help in doing so something of a public subsidy to the corporate sector.

Third, corporations that fail due to an inability to prevent fraud and negligence through organizational control or ability to boost morale and loyalty deserve to fail and should not be prevented from doing so by the government.

My first point is that the costs of corporate failures are borne by a very select group of people, the employees of the failed corporations and their investors. The public does not really suffer from organizational collapses in anything but the short term. Factories are sold off, employees find new jobs, office buildings are re-branded.

The fact that the suffering is limited to a select group of people would not, of course, normally stand on its own, since murder victims are also a select group of people. It is, however, substantially strengthened by my second point, that investors are perfectly capable of policing their investments themselves. Bernie Madoff's Ponzi scheme was flagged by a small investment advising firm called Aksia long before it collapsed. http://www.bloomberg.com... This goes to show that investors have all the resources needed to ensure the soundness of their investments and then some. Of course, the fact that investors are able to defend themselves from fraud does not mean that the government shouldn't step in. After all, even if one carries a gun, one can still reasonably expect the police to help him if he is mugged or robbed. However, if one is to assume that the government should protect investments, where does it end? Should the government have a hand in making sure that employees spend their time as productively as possible, that secretaries don't make personal calls and swipe office supplies? Yes, embezzlement is theft, but technically, so is goofing off on "company time".

And finally, corporations that are unable to prevent fraud, either through intelligent policy or through inspiration, should fail. In either case, the shareholders are simply incompetent. Incompetent people simply should not benefit from a capitalistic society, especially if they are at its apex. Corporate enforcement by the government is, in many ways, subsidized management. Corporations are meant to be self-interested capitalistic entities; they should not receive subsidies of any kind.

Ultimately, the only real purpose Sarbanes-Oxley and other legislation of its kind really serve is that of legally cementing shareholder control. They transform the corporation, normally a free-market entity, into an authoritarian one. Actions that are normally motivated by rational self-interest become instead forced by law. The virtue of capitalism is that it ensures cooperation not through punishment, but through reward. To bring the legal system into the world of corporate governance is to betray this principle.
DarrowDobaksa

Con

Thank you for the opportunity. However, I disagree with your argument on several points.

Your first claim is that corporate failures are not a social cost. This proposition assumes that SOX was designed to prevent corporate failures, but such is not the case. Corporations can fail for a number of reasons aside from fraud and shady bookkeeping practices. Failing to adapt to a changing market is one example. (http://www.utvi.com...). SOX does not insinuate itself into marketing decisions or product development. It merely says, if you're going to do business in this country, you're going to do it honestly and fairly... or else.

However, even assuming the intention of SOX is to somehow stabilize corporations from collapse, the failure of a corporation through deceit and fraudulent practices most certainly exacts a social cost beyond investors and employees. Notwithstanding, to minimize investors and employees as a "select group" within society belies the large number of individuals who are employed by Corporate America. In 2007, 63% of the American public comprised the civilian labor force in this country. (http://www.census.gov...). I'd venture to say that a large portion of the population works for Corporate America in some capacity or another - a number in the tens of millions. Those people make up the employees and investors whom you say are the "very select group" that corporate failures affect.

Whether you define "costs" in financial or moral terms, the effects of the insidious type of corporate failure marked by Enron and the like, have rippling effects not only throughout a large part of our county, but the world as well. On top of the financial effects of losing one's job or investments, the feeling that one can't trust one's employer or business partner to act with integrity and fairness stifles growth, prosperity and career aspirations within the workforce. Further, it tarnishes the image of Corporate America in the eyes of the nation and the world. Such a pessimistic view also negatively influences domestic and international economic stability. When you state "[t]he public does not really suffer from organizational collapses in anything but the short term," you admit that there is some social cost that reaches beyond just investors and employees. However, the current economic climate, which is predicted to last for a substantial period, should tell you that corporate instability can have long-ranging effects both in terms of time and scope. Factories and homes don't get sold, and people don't get new jobs as easily as you write it.

Your second claims posits that investors can police their own investments. I agree. However, they can only do so to a certain extent. The natural structure of a corporation involves a dissemination of certain information that goes from top to bottom. Information that the average investor has limited to no involvement in gathering, analyzing, compiling, or presenting. Those tasks are entrusted to a select few, such as top-level executives, board members and accountants. If the information is false and misleading, should the investor be held at fault for relying on the fraudulent actions of those people? Moreover, should the crooks be let off with a mere slap on the wrist and an empty wallet? People lose their life savings, their pensions, their kids' college funds. People lose their dreams because of these greedy, selfish liars.

You point to Aksia's work in the Madoff case of to show that investors have resources available to them to monitor their investments. However, the availability of resources is not the issue. Aksia became suspicious because of the three-person accounting firm and the "high degree of secrecy" surrounding the trading of the feeder funds. Based on those "red-flags," Aksia advised its clients not to invest. (http://www.bloomberg.com...). Nothing in their work revealed the depth of the deception Madoff employed. The only thing the Madoff case proved is that people are going to act irresponsibly despite the law, and its relevance with respect to SOX is minimal at best.

SOX does not protect investments as you state. In sum, it provides for auditor regulation, executive accountability, independent oversight, timely and accurate dissemination of information and stricter penalties. (http://en.wikipedia.org...). SOX won't prevent criminals from breaking the law, but it does make it harder for them to get away with it. When it comes to corporate fraud, it's not the incompetent people that are at fault, but the greedy ones. I agree that corporations should stand or fall on the strength its ideas and leaders, and if someone isn't smart enough to get his money out when the ship is sinking, then tough on him. However, I do have a problem with liars and crooks. There are too many tragedies in the past decade to ignore the problem and let Corporate America to its own devices.

Perhaps there may be some flaws in SOX in its current state, but not enough to repeal it. Changes and amendments can be made over time, just like any law can be altered or created to adjust to the current social climate. Even the document upon which our nation is founded can be changed if the people so choose it. The benefits of accountability and integrity that SOX exacts from Corporate America ring true to the values that many Americans hold, and outweigh any minor imperfections it may have at present. That said, I respectfully disagree with your position on the issue.
Debate Round No. 1
jason_hendirx

Pro

Thank you, DarrowDobaksa, for taking up this debate. I do, however, disagree with your disagreement on several of my points. :)

>It merely says, if you're going to do business in this country, you're going to do it honestly and fairly... or else.

Why must those statements be honest by law? Is it because they are economically potent? Then pretty much every advertisement would be banned. Yes, there is "truth in advertising" legislation, but if one were to take this principle to the logical conclusion, then advertisements that imply that their ultimately inconsequential products will make you happy should also be illegal.

>I'd venture to say that a large portion of the population works for Corporate America in some capacity or another - a number in the tens of millions

This statement assumes a homogeneity between corporations that doesn't necessarily exist. Some companies fail because of corporate malfeasance, but not all of them. In fact, the vast majority of them don't.

And when one corporation fails, its productivity in society doesn't evaporate forever. Its factories don't burn down, and its employees don't commit mass suicide. Other corporations absorb what one corporation loses. Capitalism is exceedingly efficient on this point with or without the government.

>On top of the financial effects of losing one's job or investments, the feeling that one can't trust one's employer or business partner to act with integrity and fairness stifles growth, prosperity and career aspirations within the workforce.

I do not think it is the business of the government to manipulate what people feel about their career aspirations simply because it is not the business of the government to manipulate what people feel, period. To say otherwise is paternalistic and naive at best, totalitarian at worst.

>However, the current economic climate, which is predicted to last for a substantial period, should tell you that corporate instability can have long-ranging effects both in terms of time and scope.

This current economic crisis is occurring for reasons that have nothing to do with embezzlement and everything to do with inflated government credit.

>Your second claims posits that investors can police their own investments. I agree. However, they can only do so to a certain extent. The natural structure of a corporation involves a dissemination of certain information that goes from top to bottom. Information that the average investor has limited to no involvement in gathering, analyzing, compiling, or presenting.

I agree that there are limits to the ability of investors to collect specific information. However, it is sufficient that investors detect "red flags", as your citing of my Bernie Madoff example shows. When you're on the edge of an inner city neighborhood, you don't need to know the names of the gangs patrolling the area or the exact number of drug-related murders to know that you should avoid the area. All you need to do is look at the not-so-hidden dereliction of the area. The same is true of bad investments.

>SOX does not protect investments as you state. In sum, it provides for auditor regulation, executive accountability, independent oversight, timely and accurate dissemination of information and stricter penalties.

Whose interests do these concerns serve if not those of shareholders? Who would care about any of this besides the shareholders?

>I agree that corporations should stand or fall on the strength its ideas and leaders, and if someone isn't smart enough to get his money out when the ship is sinking, then tough on him. However, I do have a problem with liars and crooks.

There are many ways for smart shareholders to protect themselves from liars and crooks. They can run the companies themselves, they can gather enough competent, trustworthy contacts to fill those positions, etc. Why should the government have a hand in this? Assuming it should, what are the limits of their involvement?

Ultimately, the private sector should be exactly that, private. When you own a company, that company is yours. At the same time, a corporation is not nearly as concrete or vital to the owner's survival as, say, a house. You live in your house; your house is necessary for your warmth and protection, and so the police help protect it. The same is not true of a corporation.
DarrowDobaksa

Con

Thank you. Your points are marked as >>.

>>Why must those statements be honest by law? Is it because they are economically potent? Then pretty much every advertisement would be banned.

Are you saying that there should be no law against falsifying financial statements? Advertisements employ the art of persuasion, where rhetoric and innuendo are appropriate. Financial statements should be factually accurate by law because altering them with incorrect information and causing people to invest money based on that false information is exactly the kind of thing which people should be prohibited from doing.

>>Some companies fail because of corporate malfeasance, but not all of them. In fact, the vast majority of them don't… [a]nd when one corporation fails, its productivity in society doesn't evaporate forever.

I understand that most corporate failures don't occur from corporate malfeasance. In fact, I spoke on that point in the first round. I also understand that economies eventually recover and that successful businesses absorb their weaker and defunct competition. However, just because corporate fraud doesn't affect every company does not mean it should be left unregulated by law.

>>I do not think it is the business of the government … to manipulate what people feel, period. To say otherwise is paternalistic and naive at best, totalitarian at worst.

I never said or implied that the government should manipulate the way people feel. I was discussing the social harm associated with the dishonest and fraudulent activity of corporate executives – which you argue does not exist because Corporate America is not homogeneous? You argued in the first round that corporate failures do not cause a social harm. Your blanket assertion did not distinguish between the different causes of those failures. However, even if you intended to limit your argument to corporate failures caused by white collar crime, my position still holds. Corporations are connected to every part of society in some form or another. A corporate failure creates problems for society beyond its employees and investors. Corporations are suppliers, distributors and manufacturers of goods and products that keep society going. The effects of corporate failures, without distinction, are not isolated to investors and employees. A failure caused by white collar dishonesty just brings a criminal element into the mix and that is why SOX is there. SOX is not intended to protect investors from corporate failure; it is intended, in part, to protect investors from crooked practices.

>>This current economic crisis is occurring for reasons that have nothing to do with embezzlement and everything to do with inflated government credit.

I did not address the causes of the current economic crisis in the first round. I discussed the current economic crisis in the context of social harm, specifically in connection with Corporate America, which includes banks, car manufacturers and finance companies. You claim that a social harm does not exist. When businesses fail, it affects more than just the investors and employees, who make up a large portion of society anyway. It affects consumers, related businesses and economies as well. This effect equates to a social harm.

>>[I]t is sufficient that investors detect "red flags[.]"

Sufficient for what? Early detection of a dubious investment is a utopian notion. In reality, deception often goes undetected for a substantial period of time or occurs after a period of ostensibly legitimate activity and practices. Such was the case in all of the pre-SOX corporate debacles. Red flags don't just pop up at the first instance of fraudulent activity. By the time they do, it may already be too late. To equate spotting a crack-head on the edge of a sketchy neighborhood to recognizing sophisticated and surreptitious white collar crime is a bit of a stretch.

>>Whose interests do these concerns serve if not those of shareholders? Who would care about any of this besides the shareholders?

SOX serves the interests of people who disagree with the notion of getting ripped off, which includes me, the government and an overwhelming majority of the country.

>>There are many ways for smart shareholders to protect themselves from liars and crooks. They can run the companies themselves, they can gather enough competent, trustworthy contacts to fill those positions, etc. Why should the government have a hand in this? Assuming it should, what are the limits of their involvement?

A large number of shareholders cannot practically or effectively run a corporation without delegating certain roles to certain members. SOX sets a legal standard for these trusted positions, as it should for the power they hold. It is not an intrusion into capitalism. It is a barrier to crooked capitalism. It is a response to the pattern of corrupt and selfish behavior of Corporate America where criminal minds use numbers as weapons. The government should "have a hand in this" because it carries the authority of law and the teeth of enforceability. Businesses cannot put people behind bars.

>>When you own a company, that company is yours. At the same time, a corporation is not nearly as concrete or vital to the owner's survival as, say, a house. You live in your house; your house is necessary for your warmth and protection, and so the police help protect it. The same is not true of a corporation.

Are you saying the law should only protect property that is necessary to survival? The law protects me from someone stealing my wallet, even if I only had $1 in it. So why shouldn't it protect me from someone stealing my investments? In the context of Corporate America, SOX decreases the incentive, opportunity and means to cheat the public and allows for the harsh punishment of those who attempt to do so. I see nothing wrong with that purpose, and I support the government's role in effecting that goal.
Debate Round No. 2
jason_hendirx

Pro

>Are you saying that there should be no law against falsifying financial statements? Advertisements employ the art of persuasion, where rhetoric and innuendo are appropriate. Financial statements should be factually accurate by law because altering them with incorrect information and causing people to invest money based on that false information is exactly the kind of thing which people should be prohibited from doing.

Aren't financial statements generated by the bank? I am all for making sure that banking standards are a strict as possible.

>I understand that most corporate failures don't occur from corporate malfeasance. In fact, I spoke on that point in the first round. I also understand that economies eventually recover and that successful businesses absorb their weaker and defunct competition. However, just because corporate fraud doesn't affect every company does not mean it should be left unregulated by law.

My point wasn't that most corporate failures don't occur from corporate malfeasance. My point was that most companies don't fail from corporate malfeasance, period.

>You argued in the first round that corporate failures do not cause a social harm. Your blanket assertion did not distinguish between the different causes of those failures.

My "blanket assertion" was with regard to isolated corporate failures like Enron's, not nationwide economic recessions. Hopefully, your last rebuttal will address the former kind of failure rather than the latter.

>SOX is not intended to protect investors from corporate failure; it is intended, in part, to protect investors from crooked practices.

Why should they be protected by the government? Why can't they just hire their own auditors? Why shouldn't they be forced to do so? If they can't afford it, they obviously shouldn't be running a corporation.

>When businesses fail, it affects more than just the investors and employees, who make up a large portion of society anyway. It affects consumers, related businesses and economies as well. This effect equates to a social harm.

Again, we're talking about isolated corporate failures here. When A business fails, its assets are bought out by other companies and put back to work.

>Sufficient for what? Early detection of a dubious investment is a utopian notion. In reality, deception often goes undetected for a substantial period of time or occurs after a period of ostensibly legitimate activity and practices. Such was the case in all of the pre-SOX corporate debacles. Red flags don't just pop up at the first instance of fraudulent activity. By the time they do, it may already be too late. To equate spotting a crack-head on the edge of a sketchy neighborhood to recognizing sophisticated and surreptitious white collar crime is a bit of a stretch.

Your model of the investor/executive relationship presupposes that investors will have very little to do with how the business will be set up and run. If the investors were more involved in the process of creating Enron, I doubt that the byzantine accounting practices that made the debacle possible would have been put in place. I have no trouble with economically forcing investors to work on their investments.

>SOX serves the interests of people who disagree with the notion of getting ripped off, which includes me, the government and an overwhelming majority of the country.

The "notion" of getting ripped off is not nearly as important a reality as the fact that the group of people getting ripped off is very select.

>A large number of shareholders cannot practically or effectively run a corporation without delegating certain roles to certain members. SOX sets a legal standard for these trusted positions, as it should for the power they hold. It is not an intrusion into capitalism.

And the ones with the most power should be peopled with those the shareholders can trust. If they can't screen their most important employees with the kind of competence necessary to prevent fraud, they shouldn't be investing in a company.

>Businesses cannot put people behind bars.

They can make sure that some people never work again. They can blacklist people and shut them out of the workforce. They can actually do a lot of things if they can be bothered to.

>Are you saying the law should only protect property that is necessary to survival? The law protects me from someone stealing my wallet, even if I only had $1 in it. So why shouldn't it protect me from someone stealing my investments? In the context of Corporate America, SOX decreases the incentive, opportunity and means to cheat the public and allows for the harsh punishment of those who attempt to do so.

This is where we just have to agree to disagree. I make a very clear distinction between "private property" and "personal property", you do not. The difference between the two is almost a matter of taste, and so can't be debate very clearly.
DarrowDobaksa

Con

DarrowDobaksa forfeited this round.
Debate Round No. 3
7 comments have been posted on this debate. Showing 1 through 7 records.
Posted by jason_hendirx 8 years ago
jason_hendirx
I'm simply surprised to see someone agree with what could be construed as a brazenly pro-corporate stance that isn't actually a brazenly pro-corporate stance.
Posted by jason_hendirx 8 years ago
jason_hendirx
explanations plox
Posted by jjmd280 8 years ago
jjmd280
All votes Pro
Posted by jason_hendirx 8 years ago
jason_hendirx
Could the one dude that voted besides pro and con please explain his vote? I'd really like to know. The other side wasn't played out to my satisfaction, and this might help it.
Posted by DarrowDobaksa 8 years ago
DarrowDobaksa
I tried to get on yesterday, but my internet went down. It's ok.
Posted by jason_hendirx 8 years ago
jason_hendirx
Why didn't you show up? I couldn't get a hold of you because you weren't taking messages.
Posted by jason_hendirx 8 years ago
jason_hendirx
I think the reason nobody's taking me on is that the only kind of person who would disagree with me is a "classically" conservative "status quo/social stability" is automatically good kind of retard. If I'm wrong, then I would love for someone to prove it.
3 votes have been placed for this debate. Showing 1 through 3 records.
Vote Placed by InquireTruth 8 years ago
InquireTruth
jason_hendirxDarrowDobaksaTied
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Vote Placed by jjmd280 8 years ago
jjmd280
jason_hendirxDarrowDobaksaTied
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Vote Placed by DarrowDobaksa 8 years ago
DarrowDobaksa
jason_hendirxDarrowDobaksaTied
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