Cindi Ross Scoppe

Scoppe: Sarbanes-Oxley meets S.C. government

The federal Sarbanes-Oxley law, enacted in 2002 in response to the Enron and World-Com financial scandals, replaced a self-regulatory system that obviously wasn't working with a new, tougher Public Company Accounting Oversight Board, whose five members are appointed by the Securities and Exchange Commission.

That move was unwelcomed for self-interested reasons by the companies being regulated and for philosophical reasons by groups such as the anti-regulatory Free Enterprise Fund. And so the Washington group jumped at the chance to back a lawsuit by one of its members challenging the law. That challenge worked its way through the courts and last week found itself in front of the U.S. Supreme Court.

I don't claim to be an expert on Sarbanes-Oxley - quite the opposite - and in fact I don't even have an opinion on it, other than a general impression that, like a lot of federal laws that have sound intentions, it has a lot of shortcomings.

But this case attracted my attention for reasons that have nothing to do with how the accounting industry is regulated and everything to do with how we do government in South Carolina.

The main challenge to the law is that the oversight board is unconstitutional because 1) it answers to no one and 2) it's a hybrid institution with the authority to both make and enforce laws governing the accounting industry. Together, the lawsuit contends, those factors spell a clear violation of the Constitution's requirement that the executive, legislative and judicial branches be separate and that the president be able to enforce (i.e., execute) the laws through officials he hires and can fire.

That line of attack, which The New York Times notes has divided legal scholars since the New Deal, relies on the "unitary executive" theory - the idea that the Congress can't constitutionally insulate agencies such as the Securities and Exchange Commission and the Federal Communications Commission from presidential oversight by limiting the president's ability to fire commissioners.

I don't think this case has any legal implications for South Carolina government - the unitary executive theory has been routinely rejected by the courts for nearly a century, there appears to be a strong factual argument that this case does not truly involve the unfettered regulatory agency that critics suggest, and our state constitution makes no attempts to support a strong executive. But the separation of powers clause in the U.S. Constitution is quite similar to the clause in our state's constitution, and our state constitution pays lip-service to giving the chief executive the power to enforce (i.e., execute) the laws as well. So the arguments against co-mingling the duties of writing and enforcing the laws and, more significantly, against handing authority to independent enforcers are worth considering as we continue to wrestle with a state government that is a national model for its rejection of both ideas.

In the case before the high court last week, Chief Justice John Roberts observed that since the president can remove Securities and Exchange Commissioners only for cause, and since the commissioners can remove the members of the accounting oversight board only for cause, the set-up amounts to "for cause, squared."

Mr. Roberts was one of the proponents of this theory when it was revived during the Reagan and first Bush administrations. So was Justice Samuel Alito, who explained the problem this way: "Suppose the president reads about (the salaries) and he says, 'This is outrageous. I want to change it.' How can he do that? Remove the SEC commissioners unless they take action against the board?"

Plaintiffs' attorney Michael Calvin, though less important, was more dramatic, calling the ability by an independent entity to both make and enforce laws "the ultimate definition of tyranny," telling NPR's Nina Totenberg, "That's what King George did."

Granted, this is an attorney trying to win a case, which means political theory is just as likely to be bent to his purpose as presented straight-up. Still, think about that argument: Insulating a federal agency from presidential control and letting one entity play a role in both writing and enforcing the law is King Georgesque.

That's a pretty jarring idea in South Carolina, where a weak executive and a strong Legislature - and their later iteration in a maze of quasi-independent boards, commissions and agencies - were a direct response to the tyranny of King George. But the fact is that tyranny can be practiced in many ways.

We tend to think of it as flowing from one person with unchecked power. But it can just as well come from a small group of people with unchecked power. Which elected officials have the power to act when, say, the Department of Health and Environmental Control doesn't do enough to protect the public from poisons in our fish or our well water? Unfortunately, none of them. The agency's director reports to a seven-member board whose members are appointed by the governor but can't be removed (except in the case of the chairman) without "cause" - which generally means breaking the law.

A similar situation exists in a handful of other protected agencies, including the Transportation Department, and even at the Department of Public Safety and SLED, where the governor can appoint the director, but can't fire him except for cause. Nor is the problem solely about gubernatorial power. We've seen over the past year, at the Employment Security Commission, what can happen when the Legislature elects a governing board but has no power to fire those board members until their terms expire.

Defenders of the status quo argue that giving the governor the sorts of power that is taken for granted in other states and in the federal government will create a dictator. In fact, one of the reasons for change is to eliminate a bunch of mini-dictators, who unlike a governor have even less reason to worry about public perception because they generally don't have any political ambitions beyond the posts they currently hold.

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