Congress' hopes to reform corporate America have been pinned on the Sarbanes-Oxley Act of 2002. But-while the act contains some useful provisions-it is an expensive, time-intensive, one-size-fits-all solution that still can be twisted and abused by executives intent on obfuscating their financial results. This is according to several panel speakers at the recent KPMG global energy conference in Houston. Panelists included a lawyer, corporate executive and corporate board member, who spoke candidly about their views of the Sarbanes-Oxley Act in particular and corporate governance in general. "Sarbanes-Oxley is the most ridiculous thing I've ever seen," said John Gibson, president and chief executive officer of Halliburton Energy Services. The act is little more than a certificate-signing activity that takes executives' attention away from creating value in their companies, he said. And it may not be that effective in preventing fraud and abuse, because people with no integrity are going to falsely sign certifications no matter what, he added. Meanwhile, the costs to implement Sarbanes-Oxley are larger than anyone realized. "Shareholders would be appalled" if they knew the true costs of compliance, he said. Companies are spending huge sums because of fear. "I guarantee it's costing far, far more than anyone realized." Gibson's comments on Sarbanes-Oxley drew applause from the audience, to which he replied, "At least I'm honest!" "I'll certify that!" quipped panel moderator Tim Flynn, vice chairman, assurance and advisory services, KPMG. J. Terry Strange, who is on the boards of New Jersey Resources Corp., Compass Bancshares Inc. and BearingPoint Inc., and is a former vice chairman of KPMG, said that for the past decade, the auditing profession has not evolved enough from its emphasis on recording financial measurements to an emphasis on ensuring internal controls. But, Sarbanes-Oxley is making a difference in that regard, dictating who may serve on audit committees and how those members deal with outside auditors, he said. One unintended consequence of Sarbanes-Oxley may be that fewer companies will go public because of the costs of compliance, especially for smaller firms, which are treated the same as huge conglomerates under the new rules. "[Fewer initial public offerings] will happen unless we can get away from the one-size-fits-all mentality," Strange said. A recent study by the law firm Foley & Lardner estimates that for midcap companies, the costs directly associated with being public could double as a result of Sarbanes-Oxley, new Securities and Exchange Commission regulations and changes to exchange listing requirements. Many of these increases are "leading edge" and are only just beginning to be reported in SEC filings, according to the firm. "The overall increases will fall disproportionately on small-cap and midcap public companies who may face crippling financial burdens to remain public in the new environment," the firm reports. At the conference, Holly Gregory, a partner in the corporate governance group at law firm Gotshal & Manges, said that among the various suggestions and regulations concerning governance issues, the one thing that may have the greatest payback to shareholders are executive sessions among independent directors on a company's board. Boards have increasingly been populated with independent directors, who may take their cues from management. During executive sessions, which are recommended by some of the listing exchanges, independent directors would meet regularly without management present. This lets a board create a culture and governance style outside of senior management, Gregory said. When asked about the two-tiered board structure often used in Europe-in which there is a management board and an advisory board-Gregory said this is not a better solution against scandal than a one-board system. For the past eight or nine months, similar problems in European companies have been seen, she said. Indeed, the European Union recently unveiled plans to strengthen auditing and corporate governance after a scandal at Dutch retailer Ahold in February exposed regulatory gaps in the 15-nation EU, according to Reuters. Even though the current emphasis is on policy and procedure, it's vital that corporate boards do not shy away from their role as "sounding boards" off which management can bounce new thoughts and ideas, the KPMG conference panel said. "In the effort to improve board oversight, you can't lose your safe place," Gregory said. -Jodi Wetuski