NOTE: This blog was written in conjunction with the 2007 Gartner Financial Services Technology Summit held in New York City from Aug. 27-29.

It was too bad that Michael Oxley, former U.S. congressman, co-author of the Sarbanes-Oxley Act and currently Vice Chairman of the NASDAQ and Advocate for Corporate Accountability, didn't take any questions after his keynote presentation Monday to kick off Gartner's Financial Services Technology Summit 2007, which wraps up today in New York City. If he had there probably would have been some interesting queries about the mushrooming subprime mortgage mess and how things could have gotten so bad, when Sarbanes-Oxley was intended to improve corporate governance.

Oxley's comments were fairly interesting as far as they went (over the years I've heard many politicians say a heck of a lot less at other financial services conferences). He talked about "the crisis in confidence and loss of trust" that was pervasive -– especially in the capital markets -– in the wake of the Enron and WorldCom failures. This crisis was made more dramatic not just because of the huge amount of money at stake -– "$8 trillion in market cap was lost" as a result of the various corporate meltdowns of the early 2000s, according to Oxley -– but also because of what he described as "the democratization of the capital markets," meaning that it was "average" citizens, not just Wall Street traders or other investment professionals, who were affected (and let their elected officials know about it).
Oxley related how his committee based much of its work on research that reported how "all the gatekeepers had fallen down -– attorneys, accountants, stock analysts, credit rating agencies." Thus "the basis for Sarbanes-Oxley was [enabling] transparency and accountability," Oxley said. "Governance [and] best practices have become the byword. Transparency was one of the least-appreciated aspects of the Act."
Sarbanes-Oxley has been a success, Oxley said, because its reforms have contributed to a "restoration of confidence" in the markets, and have improved "the ability of the average person to feel comfortable investing his or her money in the capital markets."
However, even though Oxley reflected that "the country seems to have business scandals about every 25 years" -– referencing the high-profile insider-trading cases of the mid-80s -– he did not offer any thoughts about today's subprime lending crisis. Maybe that's because this is occurring only a few years after the events that spurred the passage of Sarbanes-Oxley, or maybe the former Congressman thinks the legislation is only applicable to accounting practices and the capital markets and believes (wrongly, I think) that it has no relevance to the cap markets.
But I'm sure that, just as Enron, WorldCom et al begat Sarbanes-Oxley, so will the fallout (failed companies, workforce cuts, people losing their homes, etc.) from the subprime mess spur the creation of new or updated regulation. And once again there will be calls for better documentation, improved reporting and more transparency. It seems like there could have been many lessons learned, and it would have been enlightening to get Oxley's perspective on how so many warning signs could have been missed or ignored.

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