Who Likes Sarbanes Oxley?

We've heard a lot about what companies think of the Sarbanes-Oxley corporate governance reform law, which turned five years old yesterday.

While some have grudgingly acknowledged that its emphasis on improving internal controls has helped them avoid potential train wrecks, many more complain about the cost of compliance.

But what about the people the law was meant to protect: Investors? Largely lacking lobbyists and public relations firms, they have not been heard from as much.

A new survey by the Graziadio School of Business and Management at Pepperdine University fills in that blank. It found that most investors love the law -- and a significant percentage want it to be even tougher.

Fully 57 percent of those surveyed said they believe the requirements imposed by the law -- notably holding C.E.O.'s and other senior managers personally accountable for the accuracy of their companies' financial disclosures -- are about right.

Another 31 percent said Sarbanes Oxley did not go far enough. Only 8 percent said the law went too far.

"Sarbanes-Oxley's intent aligns well with investors' expectations that corporate management adhere to higher standards of conduct and transparency, and that there should be serious consequences for wrongdoing," said Linda A. Livingstone, dean of the business school.

When investors said they wanted the law to be tougher, what did they have in mind? Almost 90 percent of investors said that jail time should be mandatory for corporate officers and board members who are convicted of practices harmful not only to shareholders, but to employees and the public as well.

"More than two-thirds of the investors in our survey hold that companies are responsible not only to those who own stock but also other stakeholders, such as employees, customers and the public, and believe C.E.O.'s and their boards should act on their behalf, as well," Livingstone said.

In addition, about 80 percent of the investors surveyed said they supported prosecutors' efforts to aggressively recover company losses from convicted executives or board members' personal assets.

The survey was based on interviews with 482 investors between May 31 and June 4. It was conducted by Opinion Research Corporation. Investors were defined as people with $100,000 or more in either mutual funds, individual stocks or a combination of the two.

The survey also found that a solid majority -- 77 percent -- of investors said they think C.E.O.'s are overpaid. Only 18 percent believe executive pay is about right, while 2 percent contend executives receive too little.

Almost 63 percent of investors surveyed believe there should be a cap on C.E.O. compensation, as opposed to 34 percent who disagree.

A summary of the survey findings is available on the Graziadio School's web site.

by Mark Stein