The Sarbanes-Oxley Act
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The Sarbanes-Oxley Act, named after sponsors Senator Paul Sarbanes and Representative Michael Oxley, was passed in 2002 as a response to some of the accounting issues related to Enron and WorldCom. The law created the Public Company Accounting Oversight Board (PCAOB) to regulate the accounting industry. The five Board members were accounting specialists appointed by the Securities and Exchange Commission. The SEC could remove board members if there was a good cause to do so.
On June 28, the US Supreme Court voted that the law violates the Constitution’s separation of powers mandate. Anand Rao, a partner in PwC’s Diamond Advisory Services’ Insurance Practice, explains what the decision means.
Ananad Rao: They said this particular body has so much power and it’s not under the direct control of the president because the president appoints the SEC and the SEC appoints this particular board and the act that prescribes that the SEC could get rid of board members only at cause. In other words, if they found a cause for it or they found a procedure lapse, they have to give some rationale for why they are getting rid someone from the PCAOB board. They basically said that means less control of the president on this particular body. It’s almost a fourth branch of the government and it’s not really reportable to anyone. So that was the position they took. If you look at the Supreme Court decision, what the Supreme Court essentially did was to say that instead of removing the board members at cause, the SEC can remove them at will. In other words, they don’t have to give any reason for why they were removing certain board members. That was the only change they did and when they did that, they also made absolutely clear that the rest of the Act, there’s no change to it. It’s business as usual for everyone else, and the law is legal and every other aspect holds.
