Democrats loosening their SOX?

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With all the notice Senator-elect Jim Webb of Virginia is getting for his populist economic rhetoric, it's been easy to overlook some emerging positives on a related Democratic front. At least in words, several key House and Senate Democrats agree that the 2002 Sarbanes-Oxley accounting law unduly burdens publicly traded American companies, particularly smaller ones, and is in need of reform. We hope they weren't just bluffing to grab votes. For the record, here are the quotes, compiled by John Berlau of the Competitive Enterprise Institute.

"I don't think you need the whole package" of Sarbanes-Oxley, said incoming House Speaker Nancy Pelosi, who believes the law had "unintended consequences." Last year she called for "specifically tailored guidelines for small public companies to ensure Sarbanes-Oxley requirements are not overly burdensome." We like that agenda; let's see if she follows through in 2007. Sen. Chuck Schumer co-authored a Nov. 1 Wall Street Journal op-ed with New York Mayor Michael Bloomberg arguing, "Unless we improve our corporate climate, we risk allowing New York to lose its preeminence in the global financial services sector." Rep. Barney Frank, Massachusetts Democrat, slated to chair the House Financial Services Committee beginning in January, said after the election that Sarbanes-Oxley could be "relaxed" in some of its elements.

Of course, right now this is just rhetoric. Mr. Berlau sees it as evidence that Sarbanes-Oxley reform is a winner politically as well as good policy, pointing out that no cosponsor of the bill to reform Sarbanes-Oxley sponsored by Rep. Tom Feeney and Sen. Jim DeMint lost their re-election campaigns, including Rep. Randy Kuhl, a New York Republican who won a difficult race.

If true, this would be great news for American business. We'll see. But at the very least, Democrats can now be judged by a praiseworthy standard they've set for themselves.

There is no question that the relative slowdown in the number of companies choosing to list on American stock exchanges compared to counterparts overseas can be partly explained by the onerous regulations of Sarbanes-Oxley's Section 404. There is no question that some smaller companies choose to remain private rather than enjoy the benefits of listing stock publicly because the costs can outweigh the benefits for some. And there is no question that a loosening of the rules for smaller companies would be the correct thing to do. We hope Republicans push the Feeney-DeMint bill in the upcoming lame-duck session. But failing that, we now have an excellent benchmark by which to judge the incoming Democratic leaders.