By China Martens
IDG News Service
November 09, 2006
Alan Greenspan, the former chairman of the U.S. Federal Reserve, was in
fine fettle Thursday, aiming sharp barbs at the Sarbanes-Oxley (SOX)
rules governing U.S. public companies.
He was the keynote speaker at AMR Research Inc.'s Executive Leadership
Conference in Boston. Greenspan stepped down from his role at the
Federal Reserve in January after heading the agency for 18 years. In a
wide-ranging look at the U.S. and global economies, Greenspan gave his
take on SOX legislation, which was implemented in the wake of major
corporate accounting scandals.
A lot of financial reporting is less of a historical record and more of
a forecast, according to Greenspan. "What the chief accountant creates
is a work of art," he added to audience laughter. So, requiring chief
executive officers and chief financial officers to sign off on company
accounts is a good thing, he said, since they have the best sense of
where the value of a business lies.
However, he described SOX Section 404 as a "nightmare" and extremely
costly. That section requires a company's auditor to attest to the
effectiveness of internal controls implemented to protect financial
reporting systems and processes.
"What can you expect when you get virtual unanimity in both houses [of
government]?" Greenspan asked. "Any bill that gets that can't be good."
He believes that the vast majority of the members of the Senate and the
House of Representatives failed to actually read the bill, which passed
largely uncontested in 2002.
Greenspan is hopeful that changes to Section 404 are likely, praising
the efforts of Democrats Chuck Schumer and Barney Frank seeking a
re-evaluation of the legislation. Schumer, New York's senior U.S.
senator, was particularly concerned about New York City's status as a
financial center. "He was seeing IPOs [initial public offerings] going
to London," Greenspan said.
Tackling the age-old question of how IT impacts productivity, Greenspan
noted that computer technology has radically changed some parts of the
economy. In particular, companies have used IT to better track and
manage inventory, he said. But he doubts that computerization can raise
productivity at a faster level than previous technological
breakthroughs. The limiting factor isn't technology, but human
intelligence. "The obvious answer is we're not smart enough," he said.
For IT to become more ubiquitous, Greenspan said more may need to be
done to change the existing physical infrastructure globally. He drew an
analogy with the move from steam to electric engines. Although electric
engines appeared at the start of the 20th century, they didn't start
really affecting the economy until 15 to 20 years later when companies
tore down tall buildings designed to house steam engines and replaced
them with flat manufacturing plants. The new plants enabled companies to
capitalize on the benefits of the new technology.
When asked about the pros and cons of the continuing consolidation of
the software industry, Greenspan pointed to the "creation of natural
monopolies" such as Microsoft Corp. One of the reasons companies like
Microsoft hold such sway is that customers are unwilling to learn new
technologies after having learned to use products like the Excel
spreadsheet, he said.
As a former Fortran programmer, Greenspan said he was frustrated that he
couldn't immediately fix things the way he wanted to when using
Microsoft software. However, he eventually "gave in," and got familiar
with the technology.
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