Corporate Governance

Hampshire Group, Limited v. Kuttner: A Tee Hee Analysis (The Benefits of SOX)

By J Robert Brown Jr.

We enjoy seeing SOX at work and Hampshire Group provides a fitting example.  The vociferous criticism of SOX has often alleged that it provides few actual benefits.  Most of the attacks have focused on Section 404(b) and the requirement that accounting firms attest to the review of the internal controls conducted by management.  Congress heard these criticisms and rendered the requirement inapplicable to small businesses. 

In this case, one of the significant issues concerned late reimbursements by the CEO.  The CEO had, for a number of years, failed to submit reimbursement requests.  The non-submission went on for "a dozen years" and involved hundreds of thousands of dollars of claims.  The CEO eventually submitted the expense requests because of Sarbanes-Oxley.  With the adoption of the Act, the company had to file an "annual internal control report for the fiscal year ending after November 15, 2004."  See Exchange Act Release No. 47986 (2003).   In other words, the looming deadline of SOX required the company to get its internal finances in line. 

SOX involved added expense but it also resulted in better constructed financial statements.  This is an example. 

The opinion in Hampshire Group Limited v. Kuttner is posted on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on August 11, 2010 (boomark / email).