The Sarbanes-Oxley Act was put into effect after the string of scandals that rocked America in the early 21st century, with Enron being at the forefront.
The background of the Sarbanes-Oxley Act is best described in terms of the slew of scandals that cropped up, all at around the same time. These scandals depicted an American business world that was devoid of integrity and business ethics.
The Sarbanes-Oxley Act might never have been created had it not been for the perfect storm of events that surrounded its origins. Indeed, were the bill to be proposed today, there is a fair argument to be made that it would be voted down by those in Congress too worried about the costs that it would incur.
But at the time it was proposed, the Sarbanes-Oxley Act met with near unanimous support, thanks to all the scandals that had rocked the nation in and around the time of its passing. It actually came from two different bills, one of which originated in the House of Representatives, the other of which originated in the Senate, which were later combined into the Sarbanes-Oxley Act. The bill was originally designed to plug in several holes left by common business rules.
The importance of the Sarbanes-Oxley Act will not be understood for some time to come, as its effects are currently too close to the current situation in America. Though there can be no doubt that the Sarbanes-Oxley Act had an effect and has certainly changed the country, the issue of whether or not the costs of the Act outweigh its benefits or vice versa will not be decided with certainty in favor of one argument or the other for some time.
For now, the arguments rage on, as some politicians argue that the Sarbanes-Oxley Act has not only failed to perform its intended function, but has actually significantly hampered American businesses, thereby ensuring that the American economy has become weaker, potentially even contributing to the recent financial crisis. Others argue the opposite, that the Sarbanes-Oxley Act has fulfilled its function and has strengthened the American economy by leading to greater investor confidence, thanks to the renewed reliability of financial statements coming out of America’s major companies.
It is entirely possible that elements of both arguments are accurate, that the Sarbanes-Oxley Act has simultaneously increased investor confidence while also increasing the costs for companies to operate publicly in America, and therefore, pushing more companies to operate outside of America.
But regardless of whether or not those benefits outweigh the drawbacks, the Sarbanes-Oxley Act holds definitive importance as one of the strongest pieces of modern legislation for enforcing business ethics through government (for more on business ethics and government, see also the Foreign Corrupt Practices Act). To learn more about the effects and importance of the Sarbanes-Oxley Act, click the link.