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Corporate Governance

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What Comes of Free Enterprise Fund v. PCAOB?

By Anthony F. Maul

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Yesterday?s Supreme Court decision concerning the constitutionality of the Public Company Accounting Oversight Board (?PCAOB?) is perhaps most important for what it didn?t hold. Many have noted that the decision?striking down a provision of the Sarbanes-Oxley Act (?SOX?) that provided PCAOB members could only be removed for cause?will have little practical effect in the business world (the Wall Street Journal quotes Office Max?s CFO going so far as to say ?[w]hat happens as a consequence of the rulings today is frankly not important?). In a nutshell, the majority held that, because PCAOB members can only be removed by the SEC for cause, and SEC members can themselves only be removed by the President for cause, the ?dual for-cause limitations? withdraw from the President the power to determine whether good cause for such removals exists. This, the Court held, ?contradicts Article II?s vesting of the executive power in the President.? Thus, as the New York Times puts it, the PCAOB ?survived a constitutional challenge on Monday, emerging only with its members having a little less job security.? The decision is significant, however, in that it did not question the overall constitutionality of SOX and, in particular, held that it could sever the unconstitutional PCAOB tenure positions without having to throw out the entire Act. This means not only that SOX has survived a significant constitutional challenge, but also that in the event other vulnerable provisions of the Act are held unconstitutional, SOX can potentially shed those offending provisions as well without dissolving completely.

Full post as published by PomTalk on June 29, 2010 (boomark / email).