'Sox' not the answer to corporate crime

By Stephen Evans BBC North America Business Correspondent

Time was when talk of "Sox" meant baseball and the Boston Red Sox.

The sight of business people in hand cuffs is a deterrent

Now, it is as likely to mean a piece of financial legislation.

The Sarbanes-Oxley Act - "Sox" as it's called in financial circles - was passed a year ago next week as the culmination of the great rumpus over corporate scandal.

"Sox" may be less entertaining than baseball but it's probably more important.

Or is it?

Restoring trust

One year after the legislation was passed with much trumpeting, the jury is still out on how much difference it will make - either for good or ill.

The opponents of Sox argued it would lead to a dearth of good people willing to take on responsible roles in companies, either as chief executives who would have to vouch for the actions of people below them, or on audit committees where Sox demanded the appointment of more independent directors, with keener eyes and more sceptical attitudes.

Those who favoured the new law, on the other hand, argued that trust would be restored. Its provisions, meant to prevent accountancy firms from vouching for the crooked books of their clients (a la Andersen and Enron), would transform the business climate.

It hasn't worked out either way. There is no hard evidence that good people are harder to find, despite the assertions of some recruitment consultants.

Nor is there evidence of a transformation in public trust.

After all, new scandals kept coming way after Sarbanes-Oxley was passed.

Common defence

The sight of executives being paraded in hand-cuffs undid whatever good was being done quietly by the fine print of new legislation on arcane matters of accountancy.

The best way to prevent abuse is by instilling a culture of doing the right thing

And the new law would have done nothing to prevent the investment banks' penchant for giving the public duff advice about companies they wanted to keep sweet.

It's true that "Sox" did close some gaps worth closing.

One of its provisions was to make leaders responsible for the actions of the led.

As scandals like Enron emerged, a common line of defence by those at the top of companies seemed to be: "It was nothing to do with me. I was just the chief executive, and all the skulduggery happened far from my eyes in the finance department".

So Sarbanes-Oxley put a duty on those at the top to take responsibility for deeds done below - chief executives had to vouch for their company accounts rather than hide behind the word of their accountants.

New generation of crooks?

But one of the results of that seems to be much more scrutiny of employees.

There's a new term for it: "human resource forensics", whereby web-sites visited and e-mails sent are watched (providing one tip: if you do something in work, don't assume it is private).

One of the lessons of financial history is that each wave of scandals is different from the last.

Each generation of crook exploits the current available loop-hole, but new times bring new opportunities for the unscrupulous.

Sarbanes-Oxley was an important step in closing some old loop-holes.

But it does nothing about new types of scandal to come in circumstances we can barely imagine.

Certainly law is needed, but the best way to prevent abuse is by instilling a culture of doing the right thing.

If people think rules are there to be bent as far as they'll go, then trust will not be restored.