CEO Confidence Index May 2007

Executive Confidence & Stock Market Heading in Different Directions after 5 Years of Sarbanes-Oxley, CEOs Say: Thumbs Down

May 29 2007 by Chief Executive


The CEO Confidence Index, which measures confidence in specific areas of the economy, has been falling since February when the Index reached 171.0 points, its highest level in the past 12 months.  During the same period, the Dow-Jones Industrial Average has risen from 12,674 to 13,136, suggesting CEO confidence and the markets are moving in separate directions.

All component indices of the CEO Index fell this month except for the Employment Confidence Index.  The biggest decline was seen in the Business Conditions Index, which fell 2.6 points to 169.4.  Furthermore, the percentage of respondents who said that they expect a gradual decline in the economy over the next quarter reached 12.4 percent, the highest level since November of 2006.

The same sentiment was also reflected in the Employment Index-the only Index that experienced an increase, rising 2.6 points to 169.0.  However, although more than half of CEOs-51.1 percent-said they would rate current employment conditions as “good,” when asked about their confidence about the future, only 28.2 percent of respondents said that employment would rise over the next quarter.

The findings indicate that many CEOs feel the market may cool in the near future and, according to Jerry Flum, CEO of CreditRiskMonitor, “absurd debt and credit deals for [corporations] are reflective of the end of a major business cycle.”

Sarbanes-Oxley Five Years Later:  Thumbs Down

Marking the five-year anniversary of the Sarbanes-Oxley Act, Chief Executive Group conducted additional polling this month to determine CEO sentiments regarding the controversial legislation and the impact it has had on business since its adoption.  The findings proved to be quite commanding with 72 percent of CEOs indicating that the Act has hurt rather than helped American business as a whole.  

“Sarbanes-Oxley legislation is yet another example of Government over reaction to a point in time that focused on the exception and not the rule,” said Charles Murray, president of the Murray Financial Group commenting on the issue.  “Ninety-nine percent of corporate officers and management in general operate in a fair and ethical way.  However, that was lost in the fog and now business is forced to spend huge amounts of additional money in this area,” continued Murray.

When asked about the legislation’s impact on their ability to take risks in the marketplace, 31.5 percent of respondents said it decreased their willingness to take risks and 19.7 percent said the negative impact was “significant.”

In contrast, only 2.3 percent of executives said that feel Sarbanes-Oxley has had a modest positive impact, while another 2.3 percent said that it had a significant positive impact.

Finally, the majority of CEOs were in agreement that of all the sections of Sarbanes-Oxley Act, Section 404, which governs the reporting of internal controls, and the requirements for reporting on financial controls, was the section in most need of revision (see below for full results).

“After five years, it’s clear that more American businesses have been hurt by this legislation than not,” said Edward M. Kopko, CEO of Chief Executive Group.  “The implications are dire: Fewer companies are listing on the American public markets, more are going private and more time and money is being spent on compliance while less time and energy is spent on making new business decisions and connections.”

 About CEO Confidence Index

The CEO Confidence Index normally is released on the third Tuesday of each month.  For additional information regarding the confidence of public- and private-company CEOs, details about regional CEO attitudes on employment, investment and business conditions, as well as confidence differences between service and non-service industry CEOs, visit our full report at http://www.chiefexecutive.net/ceoindex.

About Chief Executive magazine

Chief Executive is a controlled circulation magazine that has been published since 1977. It reaches 42,000 chief executive officers and their peers, reaches a total readership of 170,000.  Chief Executive Group facilitates “Chief Executive of the Year,” a prestigious honor bestowed upon an outstanding corporate leader, nominated and selected by a group of his or her peers.  A. G. Lafley, George David, Fred Smith, Bill Gates, John Chambers, Michael Dell and Sandy Weill are just some of the leaders who have been honored during the award’s 20-year history.  Chief Executive also organizes roundtable meetings and conferences to foster opportunities for top corporate officers to discuss key subjects and share their experiences within a community of peers. 

The Quotable CEO On Sarbanes-Oxley:

“I’m spending even more time with lawyers and accountants and less with employees, customers, suppliers.  I’m all for transparency and accuracy in reporting but SBOX is simply accelerating the move by companies and individuals to private equity firms.  But, as Will Rogers once remarked, ‘Thank God we don’t get all the government we pay for.’”

-Anonymous

“I’m on the Board of a public company that is going to go private, almost exclusively because of the expense associated with the cost of SOX requirements.”

-Anonymous

“Small companies should be able to forgo this compliance but should acknowledge that they are not SOX compliant. Investors still retain the choice to invest or not invest and small [corporate managers] will receive a market response to their decision.”

-Jerry Flum, CEO, CreditRiskMonitor

“We are a private company that would go public but for Sarbanes Oxley.  This law subjects management to a form of strict liability without fault and presents other unreasonable risks that we are unwilling to assume.  We simply will continue to be a private company or in the alternative, we may consider a listing on the London Stock Exchange.”

-Anonymous

CEO Index, May 2007

Respondents: 234

 

 May 07

 Change from Prev Month

 Ceo Index

 156.5

 (0.7)

 Current Confidence Index

 201.0

 (0.9)

 Future Confidence Index

 126.5

 (0.5)

 Business Condition Index

 169.4

 (2.6)

 Invest Confidence Index

 135.8

 (1.5)

 Employment Confidence Index

 169.0

 2.6

Has Sarbanes-Oxley helped or hurt American business?

 Hurt Business

 71.8%

 Helped Business

 28.2%

Which 2 regulations of Sarbanes-Oxley would you most like to see revised?

 1

 404 Requirements (internal control reporting)

 2

 Reporting on financial controls

 3

 Criminal penalties for financial reporting

 4

 Independent auditor requirements

 5

 Prohibition of executive loans

 6

 Whistle-blower protections

 7

 Increased prohibitions on insider trading

How have Sarbanes-Oxley and the heightened environment of managerial regulation affected your business?

 Diminished willingness to take risks and distracted management significantly1

19.7% 

 Diminished willingness to take risks and distracted management modestly

31.7%

 Had no affect on willingness to take risks or management

44.0%

 Increased willingness to take risks and focused management modestly

2.3%

 Increased willingness to take risks and focused management significantly

2.3%