By Becky Quick, contributor
FORTUNE – "No law is perfect." True words. But not exactly what I expected to hear from Mike Oxley, the former Republican congressman who penned the Sarbanes-Oxley legislation with former senator Paul Sarbanes, a Democrat. A decade after enactment of the eponymous regulation, created in response to the Enron and WorldCom scandals, Oxley came on Squawk Box to reflect on its effectiveness. His surprising regret? "I would have initially had more of a scaled-down provision that would have treated smaller companies different from the larger, Fortune 500 companies."
It's a stunning about-face. One of the biggest criticisms of Sarbox is that it initially costs small businesses far more than expected to implement. Newspapers chronicled stories of companies that opted to go private rather than comply with the regulations. One study found that in the first few years after it was enacted, Sarbox jacked up compliance costs for small companies by 130%. But getting an elected official to admit his law had unintended consequences? That's not something that happens every day. Oxley, who retired from Congress in 2007 and now works at D.C. law firm Baker Hostetler, is not your average Beltway insider, however. I called Oxley after his appearance to follow up on his remarks and wound up getting an earful about the challenges of governing -- and monitoring business -- in modern Washington. Here are some of the outtakes:
Pity the regulator. "When we passed our bill, the public was furious: You had this white-hot pressure to get something done," Oxley says. But the real problems, he explains, arise with the next phase, when the rules have to be defined. "The crisis caused the legislation, and then to some extent you dump it on the poor regulators -- then everybody blames the regulators for not being on top of everything," he says. "The same people trying to blame the regulators are the ones who are trying to defund the regulators."
Barney Frank goes wild. Still, Oxley thinks lawmakers can go overboard. Take Dodd-Frank, the latest effort to rein in the financial sector after the 2008 crisis. "Our bill was something like 400 pages. Theirs is 2,300 pages. Theirs blew ours out of the water," Oxley says. "Barney always had his wish list when it came to corporate governance. He tried to get it in Sarbox and wasn't successful."
Frank wasn't the only politician who tried to lard up Sarbox with pet measures. "Any senator who thought about running for President had to run an amendment," Oxley says. Like then-senator Joe Biden, who wanted even nonexecutive board chairs to sign off on internal audits, a measure that passed 98-0 in the Senate. That caused the business community to contact Oxley for the first time with concerns. "Scott McNealy, John Snow, Andy Grove -- all said it doesn't make a lot of sense," says Oxley, who agreed that a nonexecutive chair wouldn't be as involved in day-to-day details. The problem was overcome, he says, because of a trust and willingness to work across party lines that is glaringly absent from politics today. "I went to Sarbanes and talked to him, and he agreed to take it out."
No law is perfect, but Sarbox works. Oxley defends the overall impact of his law, arguing it was needed to restore individual investors' confidence in the markets. When he went home to his district after the Enron scandal, "I would be besieged by Democrats and Republicans alike about people who had lost their 401(k) or IRA money -- everybody. This went to the guts of our whole capitalist system," Oxley says.
As he sees it, Sarbox brought investors back to the market. "With all the scandals, you lost almost $8 trillion in market capitalization," Oxley says. "I always tell the business community, 'Go back and take a look at your market cap on July 30, 2002 [when Sarbox was enacted], and then look at where it is now.'"
And that brings us back to today, when a series of foul-ups, from the Knight Capital algorithm implosion to the Libor rigging scandal to the bungled Facebook IPO (FB), has destroyed investor confidence once again. It's a lesson to elected officials and regulators that some quick, decisive action -- along with a healthy dose of candor -- is long overdue.
This story is from the September 3, 2012 issue of Fortune.
In an interview, the Republican presidential candidate says he'll reduce corporate taxes and overturn regulations. Will that be enough to turn the economy around?
By David Whitford, editor-at-large
FORTUNE -- Mitt Romney came to Manhattan for a day in mid-December to ask for money from his Wall Street friends. In a tactical shift preceded by Newt Gingrich's unexpected surge in the polls, he also sat for a series of interviews with news MOREDec 28, 2011 5:00 AM ET
A few days before General Motors (GM) went public, an investor called me to say that the company was in violation of Sarbanes-Oxley. Specifically, he said that a member of the automaker's audit committee was not adequately independent.
Juicy story – a state-owned company violating federal law. But my source was wrong. GM was not violating either Sarbanes-Oxley or NYSE listing requirements. It was just violating their spirit, in a way MOREDan Primack - Nov 19, 2010 3:53 PM ET
Is financial reform putting too much emphasis on shareholders who aren't there for the long haul?
By Heidi N. Moore, contributor
One potential irony of financial reform: Would instituting new rules to limit short-term decision-making in the boardroom lead us to favor those who make short-term decisions in the markets?
The financial reform bill, it turns out, comes down squarely on the side of shareholders as the ultimate power. Since the 1930s, corporate MOREJul 9, 2010 12:38 PM ET
By Heidi N. Moore, contributor
Uncertainty: The Washington Post says that the death of Sen. Robert Byrd, 92, will further complicate the already byzantine road to financial reform. Related: The American Prospect says nothing, not even Byrd's death, will stop the course of financial reform. Related: At Harvard Business Review, Justin Fox reviews the ideas of financial reform versus its ideals.
Aflac: The insurer ducked disaster by dumping all of its holdings in the MOREJun 28, 2010 4:41 PM ET
|American Airlines, US Airways to form largest air carrier Monday|
|Japan's economy looks weaker after GDP revision|
|Boost for trade as global deal struck|
|AMC gives rewards program members insider access to IPO|
|2 million Facebook, Gmail and Twitter passwords stolen in massive hack|