Biovail Corp. is just the latest high-profile firm to make headlines for alleged accounting fraud, and according to a web poll conducted by COMPAS Inc., CEOs want tougher sentences for corporate crooks.
The poll follows Biovail’s March agreement to pay US$10 million in fines to the U.S. Securities and Exchange Commission for various accounting misdeeds. (Former CEO Eugene Melnyk, along with three other past and present executives, are also charged personally by the SEC, but Melnyk denies wrongdoing.) The 127 CEOs polled were overwhelmingly in favour of tougher sentences for criminals, stronger liability on external auditors, and greater protection for whistleblowers.
Yet there was a sizable contingent of business leaders who felt U.S. prosecutors are overzealous in taking down white-collar criminals. “The cost of governance compliance is a huge burden on honest companies,” wrote one respondent. The CEOs also appear to be losing confidence in the effectiveness of Sarbanes-Oxley reforms, which are intended to improve financial reporting standards. Three-quarters of the respondents feel tighter regulations will do very little to protect companies against fraud since dishonest execs will always find ways to cheat the system. Only 53% of respondents shared this sentiment when COMPAS asked the same question in June 2006.
“All SOX has done for us is raise our cost of internal controls and audits with little real value to the business,” wrote one respondent. “No one has figured out an effective way to legislate morality or ethics yet.”
A large number of CEOs also felt the media and legal hype surrounding corporate scandals actually does more harm than good. “The SOX rules are an overreaction to past scandalsand… just penalize good, ethical companies,” wrote one. Asked to grade the SEC and the Ontario Securities Commission on a 100-point scale, the CEOs ranked the SEC 11 points higher. Referring to Canada, one respondent wrote, “It is not a matter of imposing stronger sentences. For the most part, it is really a matter of imposing any sentences. The saying is, If you have to commit white-collar crime, do it in Canada.”