Week of March 1:The Sarbanes-Oxley Act and Activism

Activist investors are known for targeting companies that have weak management. If a company's CEO plays a dual role as the Chairman of the Board and CEO there could be increased risk for shareholders. Activist investors look at this negatively and could attempt a takeover. You can read more here. The Sarbanes-Oxley Act (SOX) was a very important piece of legislation. It establishes trust in the capital markets and protects investors. It also strives to keep boards independent. This legislation lowers the chances of another scandal similar to Enron. However, this piece of legislation has a downside. It is extremely costly to companies to comply with SOX, especially small companies. In past classes I did some research on the costs of complying with SOX. For large companies, SOX is a minuscule cost, but for smaller companies the costs make up a significant part of sales revenue, sometimes over 2%. The costs of SOX also discourage many companies from going public. My opinion on Sarbanes-Oxley is that it has great benefits, like protecting investors, but it also has many downsides. Overall, the benefits of SOX do outweigh the fact that companies find it hard to comply financially and the decrease in the number of IPO's. SOX is also beneficial to keeping a company healthy and therefore, decreasing the risk of an activist takeover.