This week's edition of MiBizWest had an article on the reaction of local bankers to Sarbanes-Oxley regulations.
First a little history. The U.S. Congress passed the Sarbanes-Oxley Act (known as "SOX" for short) three years ago in the wake of the Enron, Adelphia, and other corporate scandals. The purpose of SOX was to encourage reporting of illicit activity within publicly traded corporations and a substantive response to those reports from corporate managers and directors. The idea was to ensure that managers run public corporations for the benefit of shareholders, not their own bank accounts.
SOX is an ambitious statute. It tries to counter all of the tricks miscreant corporate managers, directors, lawyers, and accountants use to feign ignorance of the improper conduct of their colleagues to evade taking action against them. Therefore, compliance with its reporting and certification mandates can be a complex and even onerous task, especially for smaller public corporations.
This is the complaint of Gerald Johnson, the chairman of a small local bank, Mercantile Bank Corporation. No doubt federal regulations have their unintended effects, but Johnson is dead wrong when he states Sarbanes-Oxley is "a needless expense" because "not all of us who run public companies are out to cheat our shareholders". No, not all corporate bosses are cheats. However, publicly traded companies have engaged across the board in opaque financial reporting that allowed the cheats to loot they companies they led. So, the U.S. Congress stepped in after the implosion of several public corporations with the SOX sledgehammer.
Michelle VanDyke, president of Fifth Third Bank West Michigan, expresses sympathy for the burdens SOX imposes upon small bankers like Johnson. That's rich. Fifth Third has abused its big-bank clout to ignore its SOX obligations to shareholders in a way Johnson and Mercantile could never get away with. Specifically, Fifth Third has refused to disclose to shareholders the huge contingent environmental liabilities attached to The Boardwalk Project, the false statements its officers and attorneys have made to conceal those liabilities, and its retaliation against the people who reported Fifth Third's misdeeds to federal law enforcement. All serious SOX violations.
In light of Fifth Third's unethical conduct, no surprise that its return to shareholders has tanked and shareholder lawsuits have piled up against it. But this isn't even the worst of it. Stayed tuned for a tale of greed, bank fraud, and the destruction of a local institution.