Conventional wisdom says that the Sarbanes-Oxley Act was rushed into law without very much meaningful consideration. Lynn Turner and Broc Romanek are arguing that the conventional wisdom is wrong:
The intial "roots" of Sarbanes-Oxley go back to the '72-'73 Bear market and scandals such as Penn Central, Equity Funding, National Student Marketing - as well as the corporate corrupt payments and bribes that came to light during the Watergate investigations and other such shenanagins. During that time, Congress held many hearings into corporate governance practices and the accounting profession in general. The Congressional Staff also undertook an investigation and created a Staff Report on the accounting profession.
As a result of these deliberations, legislation was introduced in 1978 on these problems and further hearings were held. However, after the death of one key Congressional backer and another backer decided not to stand for re-election, this legislation stalled. This legislation would have created an oversight body for the accounting profession - similar to today's PCAOB - and would have strengthened audit committees.
Similar legislation was considered once again by members of Congress, regulators and the profession during the debate over the '95 tort reform legislation known as PSLRA. However, no legislation was enacted.
In 2002, after 42 further witnesses presented during 10 days of public hearings, the Senate passed a precursor to Sarbanes-Oxley. Then, the House conducted numerous hearings and heard from many witnesses. After the WorldCom scandal came to light, both the Senate and House overwhelmingly adopted Sarbanes-Oxley - which included many similarities to the '78 legislation (in some places, it is nearly word for word). Not exactly what one might call a 'rush to judgment.'"
One problem with this theory is that you'd have to show Congress has a functional institutional memory, such that the 1978 and 1995 legislative efforts were actually pertinent to the deliberations in 2002, which seems implausible. Second, 10 days and 42 witnesses really isn't all that much. President Bush called SOX the most far-reaching change to the securities laws since the New Deal. Jack Ellenberger's collection of the legislative history of the 1933 and 1934 laws fills 11 volumes! Finally, there were key provisions (such as section 307 on legal ethics) that were adopted on the floor with almost no debate.
Larry Ribstein makes the point quite well:
The idea that SOX is anything other than a misguided rush to judgment is refuted absolutely by Roberta Romano in her dissection of the Act and its legislative history, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance. Nothing more clearly shows the haste and lack of care in the act that the lawsuit against the PCAOB threatens the entire Act because Congress forgot to add a severability clause.
The fact that SOX finally adopted the oversight board idea that refused to die for 30 years is hardly an argument for the Act. If anything, it’s a demonstration that SOX sprouted from pro-regulatory soil so fertile it would let anything grow, even an idea that had been squashed for 30 years. The idea that Elvis lives has been around as long as the accounting oversight board idea, and wouldn’t become less idiotic if Congress finally enacted it into law.
Finally, as Steve Bainbridge points out in response to Romanek, none of this has anything to do with the lawsuit. If the Act is unconstitutional, it doesn’t matter whether it’s good or bad.
Sometimes conventional wisdom achieves conventionality by virtue of being true.