- The Washington Times - Sunday, June 5, 2005

The nomination of Rep. Chris Cox, California Republican, as chairman of the Securities Exchange Commission is a brilliant stroke and an inspired decision by President Bush.

While the Californian will certainly not roll back the antifraud Sarbanes-Oxley provisions designed to tighten corporate accountability and financial management, he is likely to reinterpret some SEC rules in a much more investor- and business-friendly manner than did his predecessor William Donaldson. At times, Mr. Donaldson appeared to be contributing to an overly hostile regulatory climate. Watch Mr. Cox reverse this environment in his first 100 days.

That said, Mr. Cox will insist on honest accounting and complete accountability from chief executive and chief financial officers. There will be no opening for number-fudging. But just as surely, Mr. Cox will reduce costly paper-work burdens.

Mr. Cox, a former Reagan White House counsel who chairs the House Committee on Homeland Security, is one of the best and brightest members of Congress. His credentials for the SEC chairmanship are impeccable. He is a former securities lawyer who did a lot of mergers and acquistions (M&A;) work for California tech companies. He is a forward-looking, Internet-minded visionary, and one of the leading advocates of the Internet tax moratorium. Certainly, he will favor electronic trading for the nation’s stock markets; NYSE reform can’t come quick enough for Chris Cox.

Trial lawyers beware. Mr. Cox has no patience for the Bill Lerach-type class-action lawsuits that arrive in court every time a company’s stock price dips. Securities litigation reform, especially curbing shareholder lawsuits, will surely be on Mr. Cox’s priority list. In fact, Mr. Cox was an author of the 1998 Securities Litigation Reform Act — which made it more difficult for investors to sue for misconduct — a bill that became law over President Clinton’s veto.

He is also no friend of the immediate expensing of options. Instead he believes free markets are efficient and constantly pricing in options expenses. Black-Scholes-type option-pricing models are Sarbanes-Oxley overkill. Mr. Cox has little sympathy for them, says Washington analyst James Lucier.

Indeed, Mr. Cox will be very sympathetic to the argument that the post-Enron Sarbanes-Oxley era is chock-full of regulatory overkill, the kind that has lowered the animal spirits of entrepreneurship and risk-taking. It is doubtful, for example, Mr. Cox will tolerate out-of-pocket fines for corporate directors with no knowledge of company misdeeds. He is likelier to focus on miscreant behavior of individual corporate wrongdoers than bring down entire companies (as happened to Arthur Anderson). He is also likely to make it easier for foreign-domiciled businesses to register in the United States.

Outgoing SEC Chairman Bill Donaldson generally voted with the commission’s two Democrats and their frequent attempts to hogtie and re-regulate American business. He often followed the overzealous regulatory instincts of the SEC staff bureaucracy while opposing Republicans Paul Atkins and Cynthia Glassman. The free-market Mr. Atkins may provide a window into the thinking of the free-market Mr. Cox. Three-to-two votes henceforth are likely to favor the Republicans on the five-member commission, much to the benefit of economic growth and job creation.

This isn’t about politics as much as what works for growth-minded capitalist societies. Mr. Cox, importantly, learned his economics from supply-side guru Arthur Laffer. The two are close personal friends. Not surprisingly, the pro-growth Mr. Cox is a flat-tax reformer who favors ending taxes on capital-gains, dividends and estates. As he is a House budget reformer, it would not be surprising to see Mr. Cox exercise considerable new discipline with SEC staffing and expenses.

Chris Cox’s keen intellect and free-market viewpoint will provide a breath of fresh air at the Securities Exchange Commission. The rule of law, corporate accountability and financial transparency are all key factors in the smooth and efficient financial markets and corporate America. But businesses large and small complain the overly harsh implementation of the Sarbanes-Oxley legislation is a heavy burden.

Rodgin Cohen, chairman of the estimable New York law firm Sullivan & Cromwell, complained recently “Sarbox” has become a “metaphor for a regulatory system that is overly intrusive and legally imperialistic.” He is not alone: U.S. Chamber of Commerce President Tom Donahue has echoed this thought.

As SEC chairman, Chris Cox can be expected to better balance regulatory burdens and economic growth opportunities. He is not one to throw the baby out with the bathwater.

Lawrence Kudlow is host of CNBC’s “Kudlow & Company” and is a nationally syndicated columnist.

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