Michael Oxley, of Sarbanes-Oxley Fame, Dies at 71

For any compliance and audit professionals who wonder, “How did all this ever come to pass?” or even more to the point, “Can I really make money doing this?”—spare a thought for one of the people who put you on this career path, and who passed from the scene last week.

Michael Oxley—yes, that Oxley, of Sarbanes-Oxley Act fame—died of lung cancer on Jan. 1, at age 71.

Anyone under the age of 35 who works in compliance might not quite grasp how influential Oxley was, or in how much of a mess Corporate America found itself circa 2002. Enron had collapsed months before in accounting fraud, with WorldCom and Adelphia Communications following suit in 2002. Recession was everywhere, the World Trade Center was still smoldering, and people were aghast at how quickly their retirement savings and financial security could evaporate with the announcement of some company’s financial restatement.

2002 was also when the voting public first began to suspect in large numbers that the administration of President George W. Bush might not be up to the task of running the country. Washington was scrambling to show America that it could clean up the corporate world somehow, and into that maelstrom tumbled Michael Oxley, Republican representative from Ohio and chairman of the House Financial Services Committee. He and his Senate counterpart, Democrat Paul Sarbanes from Maryland, herded all the usual conflicting constituencies into a working majority, and the Sarbanes-Oxley Act was passed on Aug. 1, 2002. Bush signed the bill into law immediately.

Fourteen years later, has SOX worked? That depends on how you remember your history. If the point of the law was the reduce the number of financial statements filed by publicly traded companies—then yes, it has. We saw a surge in restatements in the mid-2000s, as SOX went fully into effect and everyone had to come clean with their poor accounting and internal control over financial reporting, and then the total number of restatements fell as all those poor accounting systems were fixed.

On the other hand, if you argue that SOX failed to prevent the financial crisis and therefore was a failure—well, that’s another view. It disregards the reality that much of the financial crisis was driven by poor risk management in mortgage lending, and the culprits there were sketchy mortgage brokers and Wall Street bankers well outside the scope of SOX, but you’re entitled to your opinion.

SOX certainly did have its rough starts and exasperating moments for compliance officers, although that was caused more by misguided implementation at the Securities and Exchange Commission, rather than flaws in the law itself. (Many will still remember an early SEC study that predicted the cost of SOX compliance at $94,000 per company. Many will also remember their CFOs laughing at that estimate and swearing at the millions it actually did cost.) And SOX did transform the business of equity research and sell-side analysts at investment banks.

For better or worse, however, the Sarbanes-Oxley Act is here to stay. It was one of the first efforts in modern business to make Corporate America take boring-but-important details like internal control over financial reporting seriously. SOX compliance defines the careers of accountants, auditors, and financial executives everywhere now, and Michael Oxley was one of the people who brought that world to bear.

And a footnote: Oxley was also chairman of the Ethics Resource Center (now rebranded as the Ethics & Compliance Initiative) from 2009 until his death. The loss to the ECI, which is based in Washington and can always use politically savvy patrons, must be painful.