Where's the Boat-Rocking?

| Thu Sep. 22, 2005 5:38 PM EDT

In the New Republic today, Clay Risen argues that Chris Cox, the new SEC chairman who recently replaced Bill Donaldson, may not be as business-friendly as many—including the free-market folks who leaned on Bush to oust Donaldson—had hoped:

One of the business community's biggest beefs with Sarbanes-Oxley--and Donaldson--was its cost to small businesses, which have to pay proportionally more than larger firms to meet new regulatory requirements. Donaldson refused to create a small-business exemption, and his opponents had hoped that Cox would be different. No such luck. "There have been amply expressed concerns about the costs," he recently told The Wall Street Journal. "No one should think that the law will not apply. Of course it will. It's simply a matter of how." True, that last sentence still leaves Cox room to create looser requirements for small businesses; but, then, Donaldson was willing to consider the same thing.

In the Journal interview, Cox also said that he would not back down on monetary fines against corporate wrongdoers. Many in the business lobby--as well as SEC Commissioner Paul Atkins--have serious philosophical objections to such fines, arguing that corporate crime is usually the result of a few "bad apples" and that such fines penalize innocent employees and shareholders. But reformers, Donaldson included, believe that fines are often necessary because such crime is also the product of malignant corporate cultures and because they are the only way to deter future wrongdoing. Cox, though cognizant of the dissent, appears to agree with his predecessor. "[P]enalties are meant to exact justice in the specific case and also to provide a measure of deterrence against future offenses ... the law needs to be applied to mete out justice," he told the Journal.

This jibes with a lot of what various industry insiders were saying when Cox was first appointed. For instance:

"There may be some rethinking of [the rules,]" says David Ruder, a former SEC chairman and professor of law at Northwestern University. "[But] the reasons that led the Commission to adopting those rules are quite real. Once [Cox] understands the potential for conflicts of interest in that industry, he will want to go quite slowly in reversing protections that have already been adopted."

On the other hand, maybe Cox really does intend to rock the whole boat and move towards deregulation, but has decided to take a guarded stance for now. That would make sense—after all, he's something of a political liability for the White House, and the Republican Party, if an Enron-style corporate regulation breaks in the next few years. (It would be one thing if a scandal happened on Donaldson's watch; quite another if it happened after the Bush administration ousted a reformist chairman and installed a business-friendly ally.) Ultimately, as Risen notes, we won't know whether Cox wants to steer the SEC towards a more deregulatory stance until he starts appointing various department-head positions. Granted, liberals ought to be ecstatic if Cox—and by extension, the Bush administration—ultimately takes a more responsible stance on corporate regulation than Bill Clinton and Robert Rubin did, but let's wait to see if it actually happens.