Sarbanes-Oxley and Corporate Governance Paper

Sarbanes-Oxley and Corporate Governance Paper

Student’s Name

Institution’s Name

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Free Enterprise Fund v. Public Company Accounting Oversight Board

The Case Facts

The case involves Free Enterprise Fund Company as the petitioners against the Public Company Accounting Oversight Board (PCAOB) the respondent. PCAOB was developed as a section of the accounting reforms series in the 2002 Sarbanes-Oxley Act. The board contains five members that are appointed by the Security and Exchange Commission (SEC) to discipline and revive their members under the oversight of the commission. Each accounting company which audits public firms under the security law is required to register with this board, comply with oversight and rules and pay its yearly fees. The board is acknowledged by the petitioners as the government part based on the constitution and United States offices. However, although SEC has the board oversight, it is restricted from removing the members of the board at will. Board members can only be eliminated for good clause based on particular procedures. Based on the same act, the commissioners also cannot be eliminate by the president who appoint them unless due to malfeasance in office, neglect of duty, and inefficiency (Sec.gov, 2002).

In this case the petitioner; an accounting company which was reviewed by the board, released a critical report for the board auditing procedure and started an official investigation. The company sued the board seeking a judgment declaration that PCAOB is unconstitutional and a ruling stopping the PCAOB from exercising its power. According to the petitioners the Sarbanes-Oxley Act breached the power separation by deliberating board members executive power without subjecting these members to presidential control. The board members according to the petitioners were insulated by two tenure protection layers from presidential control. The petitioners also challenged the appointment of the board to be in violation of the Appointment Clause that demands officers to be selected by the president with consent and advise of the Senate, or by the president alone, the head of department or the courts of law, in case of an inferior officers (Law.cornell.edu, 2010).

Rule of Law, Statute or Constitution Provisions Used by the Court to Resolve the Dispute

The court first analyzed the law in question the Sarbanes-Oxley Act of 2002 using different courts declaration on previous cases regarding this subjects. Some of the cases referred in the deliberation of this case include Thunder Basin Coal Co. v. Reich, validity, MedImmune, Inc. v. Genentech, Inc., Myers v. United States, Humphrey’s Executor, supra, United States v. Perkins, Morrison v. Olson, Bowsher v. Synar, Brockett v. Spokane Arcades, Inc., Alaska Airlines, Inc. v. Brock, and Freytag v. Commissioner among others. These rules of law were employed to illustrate the constitutionality of the PCAOB and also to illustrate whether its members appointment and removal clause was constitutional or not. The case was also resolved through the evaluation of the article II of the constitution which deliberates on the executive power vesting in the president (Law.cornell.edu, 2010).

Ruling Discussion

The issue of the case was whether the PCAOB members appointment was constitutional or not, and weather their two layer protection from presidential removal was constitutional or not. The Supreme Court ruled that the two layer level of PCAOB protection from presidential removal was unconstitutional. The provision according to the court interfered unconstitutionally with the authority of the president to oversee the federal law execution. The court stressed that a crucial aspect of executive power constitutional’s vesting in the president is the power to appoint, control and oversee those who implement the laws. Although the court has in its previous judgments limited the president’s power restriction to eliminate executive officers, the opinion of the majority noted that the previous cases of the court had involve only single level of tenure protection extrication the president form officers carrying executive roles, rather than two. The court in comparison established that the removal provision of the dual-for the clause in the Act made the president inadequately accountable for the actions of the board. Consequently, it was concluded that the removal provision in the act were against the president executive power vesting defined by the Article II of the constitution. The court therefore decided that petitioners were permitted to declaratory relief enough to guarantee that the auditing standards and reporting requirements to which they are subject are enforced by a constitutional agency only which is accountable to the country’s executive as per the constitution. However, the court rejected the petitioner argument that the PCAOB members’ appointment by the SEC infringed the Appointment Clause. The court defined the PCAOB members as inferior officers that can be constitutionally appointed by head of departments. The court recognized SEC as a department and in this case, the Head of the Department includes all SEC members, having all been appointed by the president. Thus, they all had power to appoint the board members and thus, their existence was constitutional. In this regard, the court declared that the extensive injunction over continues PCAOB operation was inappropriate (Pcaobus.org, 2010).

References

Law.cornell.edu. (2010). Supreme Court of the United States Free Enterprise Fund et al. v . Public Company Accounting Oversight Board et al. Retrieved from < https://www.law.cornell.edu/supct/html/08-861.ZS.html >

Pcaobus.org. (2010). Decision in Free Enterprise Fund v. PCAOB. Retrieved from < https://pcaobus.org/News/Releases/Pages/06282010_SupremeCourtDecision.aspx >

Sec.gov. (2002). Public law 107-204 107th Congress. Retrieved from < https://www.sec.gov/about/laws/soa2002.pdf >