The most powerful czar in Washington will receive some long-overdue scrutiny today when the Supreme Court hears a challenge to the constitutionality of the Public Company Accounting Oversight Board (PCAOB).
This board, created by the Sarbanes-Oxley Act of 2002, regulates the auditors of publicly-traded firms. The members are hired by the Securities and Exchange Commission (SEC) and, say the plaintiffs in Free Enterprise Fund v. PCAOB, do not answer to the president. This violates the Constitution’s “appointments clause,” according to which senior executive-branch officials should be appointed by the president and confirmed by the Senate.
Yet Sarbanes-Oxley, or Sarbox, itself should be subject to scrutiny. New research suggests that the costs of this legislation far outweigh its benefits to the investing public.
Is all this fuss about board appointments just legal hairsplitting? Sam Kazman, general counsel of the Competitive Enterprise Institute, one of the plaintiffs suing the PCAOB, doesn’t think so. He notes that “responsibility for bureaucrats was a fundamental issue for the Framers,” and that the appointments clause was created “as an essential check on overweening bureaucracy. As colonists of England, they had seen offices created by both the king and Parliament spawn more offices with no accountability, creating what the Declaration of Independence refers to as a ‘multitude of new offices’ and ‘swarms of officers to harass our people and eat out their substance.’”
Today, people who work at public companies—and their investors—understand this problem perfectly.
