A Few Bad Apples

And everyone suffers.

John Stossel has a great piece today criticizing the legitimacy of the Sarbanes-Oxley Act, which forces companies to spend money on wasteful, growth-inhibiting accounting regulations that they could otherwise reinvest in their company or elsewhere.

The law's defenders claim its good consequences outweigh its costs. But if that's so, why not let investors figure it out? If certain accounting practices make companies better investments, investors will put their money in companies that use those methods. If having your accountant grill you for not having a written policy on hiring and firing will make your business sounder, you don't need the federal government to force you to do it.

[...]

We don't need the government to force businesses to spend half their profits on accountants, because free markets police themselves. Those that serve customers well are rewarded with more customers; those that do well for investors attract them. Bad guys who cheat get a reputation for cheating. They lose customers, lose investors and go out of business. [...] Enron and the other recent business disasters are evidence of the market working. Government regulators didn't discover the deceit. Enron's lies were revealed when private security analysts raised questions and private investors started dumping the stock.

Sarbanes-Oxley reminds me of the days when I taught fourth grade (and I apologize if this is a clumsy analogy). I confess that there were a handful of times when some of the kids got so out of control that I threw my hands up in the air and made everyone just put their head on their desk. Game over. Time to shut up. Everyone suffers.

For the most part, my strict disciplinary policies were enough to compel even the snottiest little punks to toe the line. But in a school largely composed of kids from single-parent families, even the best teachers were destined to struggle with student behavior from time to time. Still, that never seemed like a good enough excuse to justify punishing kids who behaved at the expense of those who didn't. So I figured out ways to punish only those who deserved to be punished.

Most of the time I kicked the bad apples out of class and made them sit in the hallway until they decided to behave. Other times I would surprise the kids who consistently behaved with some type of reward. Right in front of everyone. And especially in front of the kids who rarely behaved. (For the record, I absolutely hate it when teachers center their behavior policies around reward systems from the get-go, like passing out candy in return for X amount of good behavior.)

My expectation of respect and reputation for well-disciplined students found me constantly "rewarded" with some of the most challenging students each year, which tended to make any accomplishments that much harder to achieve. However, the few times I unfairly ended up taking my frustrations out on all students simultaneously were nevertheless exceptions to my own rules, not policy.

Sarbanes-Oxley disgracefully punishes honest companies for the unlawful actions of a few. Whether you're a schoolteacher or politician, you should be able to see why that's a terrible way to do business.