They decided, by a vote of two to one, to uphold the
constitutionality of the law. But a devastating dissent by Judge Brett
Kavanaugh all but begs for Supreme Court review. Our bet is that
federal high court can, in its wisdom, be counted on to reverse. We
give it a year before the Nine tell American businesses that they are
free to produce a little more and audit a little less.
The question posed by the case, Free Enterprise Fund and Beckstead
and Watts, LLP v. Public Company Accounting Oversight Board et al., had
nothing to do with whether the auditing requirements and increased
criminal liability and penalties of Sarbanes-Oxley have hurt our public
companies, and, by extension, every American with a stock portfolio or
a pension plan. The issue is whether Sarbanes-Oxley's creation of an
agency to police auditors of public companies violated the doctrine of
separated powers.
The chief constitutional problem with the law is that the five board
members at this new agency — the Public Company Accounting Oversight
Board of the suit's caption — aren't appointed by the president. Nor
can the president fire them. Instead the commissioners of the Securities and Exchange Commission,
who are presidential appointees, get to do the hiring and firing for
the new Oversight Board. And the firing can only be for cause.
The result is a regulatory agency whose top officials — unlike those
in the SEC, Justice Department, and Treasury Department — are well
insulated from the elected leader of the executive branch. It's as
though Congress wanted to add to the judicial, legislative, and
executive branches, a new independent branch of government: the
auditors.
Judge Kavanaugh wrote in his dissent: "The President's power to
remove is critical to the President's power to control the Executive
Branch and perform his Article II responsibilities. Yet under this
statute, the President is two levels of for-cause removal away from
Board members, a previously unheard-of restriction on and attenuation
of the President's authority over executive officers."
Judge Kavanaugh was an associate counsel to Mr. Bush in 2002, when
the president signed the bill into law. We don't know whether he
advised the president against signing the legislation back then. If he
did, he's just advanced his case. If he didn't, he's more than made up
for it in a dissent calculated to ring the chimes of the Roberts-Scalia
Court.