It has been a bad couple of weeks for opponents of SOX. 

Last week, the Dow Jones Average surged over 13,000, setting a record three days in a row.  This is a long way from the dot com low Dow fell  to 7286.27 on October 9, 2002.  The reasons for the record highs?  SOX no doubt played a role by allaying investor concerns about dodgy financial statements.  The level of credit, however, is impossible to determine.  Still, for those opposed to the Act, this is a tough fact to swallow.

Similarly, on Tuesday, the US Senate rejected, by a vote of 62-35, an attempt to add an amendment to some nondescript legislation (The sponsor, Senator DeMint, tried to add it to America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education, and Science Act, S. 761) to make Section 404 optional for companies with a market value of less than $700 million.  The text of the amendment is here.  The breakdown of the vote?  One democrat favored the amendment (Landrieu, D-LA)  while 13 republicans voted against it (McCain did not vote).  

For critics of SOX, this is bad news.  In adopting SOX, Congress largely rejected the view that corporate law was a race to the top and that corporations were best envisioned as a nexus of contracts, two views that prevail among corporate law faculty.  My article discusses the rejection of these views as one explanation for the often shrill attacks made on SOX.  Opponents have largely been reduced to criticism of Section 404 and the costs associated with implementation (often by overstating the costs and understating the benefits of the provision).  The vote on Tuesday shows that there is little interest in Congress to change even this one provision.

Finally, in a topic that we will address shortly, the House of Representatives late last week overwhelmingly passed the Shareholder Vote on Executive Compensation Act, H.R. 1257. The Act would amend Section 14 of the Exchange Act to require a “separate shareholder vote to approve the compensation of executives,” although the vote would “not be binding on the corporation”.  While not directly related to SOX, it represents yet another effort by Congress to insert the Securities and Exchange Commission more deeply into the substance of corporate governance.  For an essay on the SEC's role in the governance process, go here.  There would be no reason to do this if Congress saw the evolution of state law as a race to the top.  The vote, therefore, represents another instance of rejection of the nexus of contracts approach to corporations, the reigning view within the corporate law academic community, and an acceptance of the evolution of corporate law as a race to the bottom.  This is not the first time Congress had done this.  Congress took the same positions when it adopted SOX.  Go here for more on that subject.   

As our series of posts on the responsibility of Delaware for SOX shows, the best way to prevent further federal intervention into the corporate governance process is to encourage states to strengthen fiduciary obligations.  Critics of SOX do the opposite.