It was interesting, if not particularly enlightening, to see Treasury Secretary Henry Paulson Jr. weigh in on the issue of how regulated companies in this country should be and how the system should strive for “balance.”

“Hammerin’ Hank,” as he was called on the cover of a recent issue of Fortune, hasn’t had a terribly high profile since he was approved as John Snow’s replacement. But this speech, which he gave in New York on Nov. 20, was a major address on the competitiveness of U.S. capital markets with those in the rest of the world.

Now, is there anyone who can argue with the concept of ‘balance,’ especially in matters of finance? Certainly not a Secretary of the Treasury.

Here’s what Paulson said about balance in his speech: “When it comes to regulation, balance is key. And striking the right balance requires us to consider the economic implications of our actions. Excessive regulation slows innovation, imposes needless costs on investors, and stifles competitiveness and job creation. At the same time, we should not engage in a regulatory race to the bottom, seeking to eliminate necessary safeguards for investors in a quest to reduce costs. The right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth, and competitiveness.”

Fine words. But in the wake of Enron, WorldCom, etc., you have to ask yourself what balance really means and, even more importantly, where along the length of the seesaw the concept actually has its optimal placement.

A couple of things appear to be giving rise to Paulson’s thoughts on balance. One is that capital markets here seem to be losing their share (compared to historical trends) of initial public offerings to markets abroad because of “heightened regulatory and listing requirements for all public companies in the U.S.”

This “heightening,” needless to say, was due to the corporate accounting scandals that took place in the last few years, many of whose perpetrators are now in jail. The result in terms of law from these scandals was first and foremost the Sarbanes-Oxley Act, which raised the accountability of corporations and their top executives.

Companies have been complaining since SOX was enacted that its provisions are too onerous, expensive and time-consuming. In other words, SOX is overkill, particularly Section 404, which, Paulson says, “requires management to assess the effectiveness of a company’s internal controls and requires an auditor’s attestation of that assessment.”

He goes on to say: “Companies should invest in strong internal controls, and shareholders welcome this development because it is in their best interest. However, section 404 should be implemented in a more efficient and cost effective manner. It seems clear that a significant portion of the time, energy, and expense associated with implementing section 404 might have been better focused on direct business matters that create jobs and reward shareholders.”

I humbly beg to disagree with Secretary Paulson. The system is already out of balance when it comes to individual vs. institutional investors, where the latter have an inordinate amount of clout and access to information that may not be available to others.

If it takes keeping executives on the hook for their company’s statements to bring accountability and transparency to the system, well then, so be it. And if that’s inconvenient, well then, too bad. SOX should stay as it is.

Steve Piontek

Editor-in-Chief