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May 15, 2005

Alan Greenspan Gives Sarbanes-Oxley Praise--Faint Praise, but Praise

Andrew Balls of the FT reports:

FT.com / US - Greenspan praises corporate governance law: Alan Greenspan, the Federal Reserve chairman, said on Sunday that the Sarbanes-Oxley Act, the legislation introduced in 2002 to improve corporate governance, had been surprisingly successful.... Mr Greenspan said there was scope for fine-tuning of the legislation. But he sounded a very different note to some business lobbyists, and some Bush administration officials, who have warned of excessive compliance costs and of the potential impact of the legislation on corporate risk-taking."I am surprised that the Sarbanes-Oxley Act, so rapidly developed and enacted, has functioned as well as it has," Mr Greenspan said. "The act importantly reinforced the principle that shareholders own our corporations and that corporate managers should be working on behalf of shareholders to allocate business resources to their optimum use." Mr Greenspan, in the commencement address to students graduating from the Wharton business school at the University of Pennsylvania, gave a wide-ranging lecture on the importance of ethical behaviour among business leaders. Chief executives, he said, held most of the decision-making power in US companies, and had a duty to promote ethical behaviour in their companies. Mr Greenspan said the US could not have achieved its strong economic performance over the past 200 years if corporate governance had been deeply flawed. He also said financial market punishment was the best antidote to business and financial transgressions. But he praised the Sarbanes-Oxley requirement that chief executives vouch personally for their company's financial statement, saying that mere adherence to generally accepted accounting principles had been shown to be inadequate by the "imaginative accounting" of recent years....

Posted by DeLong at May 15, 2005 07:06 PM