SEC Commissioner Daniel Gallagher from a recent speech:
It seems that the standard response to severe economic downturns or epochal corporate scandals is reactive and hurried federal legislation and regulation, often impacting corporate governance standards. A hallmark of this trend is the presentation of proposed new, sometimes misplaced and usually onerous, requirements as “feel good and cure all” responses to perceived problems that one would be hard pressed to disagree with. After all, who could be against “better” corporate governance? The result is that the lofty goals of such legislation and their implementing regulations, often rushed out without serious analysis of costs and benefits, are superseded by a higher law: the law of unintended consequences. Indeed, the risk of unintended consequences looms particularly large in the case of corporate governance, a field in which states have long enjoyed the role of primary steward.
This has been, of course, a longstanding argument advanced by myself and others such as Roberta Romano and the late Larry Ribstein. See, e.g., my book Corporate Governance after the Financial Crisis
Indeed, Commissioner Gallagher goes on to cite yours truly at two points in his argument:
Although the stated purpose of Sarbanes-Oxley was to help protect investors, if you were to ask executives and boards of directors today who they believed were the biggest beneficiaries of the passage of the Act, many would answer that it was accountants, foreign markets, and lawyers that truly benefited. One example relates to compliance with Section 404 of Sarbanes Oxley, which the Commission estimated would cost on average roughly $91,000 a year to implement.5 Section 404 of Sarbanes-Oxley (in conjunction with the related PCAOB Auditing Standard 2) caused a fury when the associated costs of compliance ended up being substantially higher than anticipated by policymakers. Most of the costs related to auditors, who were perhaps overly cautious in the wake of the failure of Arthur Andersen. Or maybe they simply found Section 404 compliance to be a lucrative new revenue source. ...
... As Professor Stephen Bainbridge wrote in his article Quack Federal Corporate Governance Round II, the proponents of say-on-pay ignore “the probability that say-on-pay really will shift power from boards of directors not to shareholders but to advisory firms[.]”7
5 Stephen M. Bainbridge, Dodd-Frank: Quack Federal Corporate Governance Round II, 95 Minn. L. Rev. 1779, 1781 (2011). ...
7 Bainbridge supra note 5 at 1811.
