11.07.2007
Sarbanes-Oxley in Space
Ask space entrepreneurs and industry executives to name their least favorite law. Easy question, and no surprise in light of the nonstop, well-deserved maligning of the export control regulations, and for a multiplicity of reasons -- ITAR would win hands down as the regime folks in this sector (and they're not alone) most strenuously disdain.But in the post-Enron space age, federal lawmakers have delivered some newfangled and from a business perspective, hard-to-love legislation -- not for space technology companies only.
Take the Sarbanes-Oxley Act of 2002 (Pub. L. No. 107-204, 116 Stat. 745), aka the Public Company Accounting Reform and Investor Protection Act of 2002 or, if you prefer, Sarbox or SOX.
Some space industry experts see a serious downside to the regulations designed to guard against corporate fraud. Space Daily last week quotes Chris Stott of ManSat who "cautions that the greatest risk to American new space technology firms, 'is not technology, not event government regulations,' often associated with delays and failures in early stage space technology firms, but Sarbanes-Oxley."
According to the article, Stott calls the law "the 'perfect financial storm' and argues that the expensive, and crippling laws are having the unintended effect of driving thousands of early stage companies to list in the United Kingdom on the Alternative Investment Market. He emphatically urges the audience to contact their Legislators to remedy this madness."
Clearly Sarbanes-Oxley and other new regulations have ushered in sweeping changes in the corporate compliance landscape, and as is generally the case, small companies are hardest hit by onerous regulation. Big companies in aerospace, telecom, high tech and other industries of course know what keeps their chief compliance officers up at night, and can usually afford the costs associated with government regulation. (Although they don't much like it either. However, interestingly, as Business Week suggested, businesses may see a silver lining in section 404 compliance actually helping to cut costs. Hmm.)
Not everyone would put reform minded SOX in the same league as big bad ITAR. But in September at IAC 2007 in India, Chris Stott moderated the session, "Enabling the Frontier: Regulatory Challenges to the Utilisation of Space," in which the two regimes got an almost equal attention. Space lawyer and Excalibur Aerospace CEO Art Dula (who likes to call ITAR the "Foreign Technology Development Act,") said of SOX:
"There is a very real opportunity cost inherent in dealing with Sarbanes-Oxley. You simply have to ask yourselves on a risk-reward basis if what you get in terms of better public regulation of your companies is worth the cost to those companies and to the society. It's very much a problem that Congress is going to have to solve."
Here is a videocast of that IAC session, with Chris and Art joined by Christian Salaburger of MDA Space Missions, Clayton Mowry of Arianespace, John Purvis, general counsel of SES Luxembourg, and Prof. Frans Von Der Dunk of the International Institute of Air and Space Law at Leiden University.
And if you're looking for SOX materials -- rulemaking, reports, studies, proposals, FAQ's, more (hey, we're going to need 'em), SEC has a warehouse full. And if you need a corporate space lawyer (and who doesn't?) as always, SLP has referrals.
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IMAGE: Slide courtesy of the U.S. Government Accountability Office
