HP's Hurd Has Nothing to Fear from SEC or SOX

Every weekend you'll find me at yard sales, browsing among relics of past eras that people don't take seriously anymore. You know, junk you find in the attic, gathering dust, stuff like candlestick telephones, kerosene lanterns, Royal typewriters, and Sarbanes-Oxley.

I've been thinking a lot about SOX lately because of the latest scandal at the scandal factory, HP(HPQ). They may make pretty good printers, but there seems to be something in the air of the executive suite that makes people lose control there. There was a spying scandal a few years ago, and now there's a mess involving ousted CEO Mark Hurd.

Sarbanes-Oxley was enacted in 2002 for, among other things, the express purpose of preventing the Mark Hurds of this world from doing allegedly unethical stuff. If SOX was doing its job, Hurd would have been deterred by more than public embarrassment, or the likelihood of losing his job. He'd have been worried about falling afoul of the growling watchdogs at the Securities and Exchange Commission.

You see, Section 406 of Sarbanes-Oxley deals with such situations, even though it does so in a kind of back-handed way. Public companies must disclose if they have codes of ethics that apply to its "senior financial officers" -- a term that encompasses the CEO in addition to the green-eyeshade types. They also are required to disclose "any change in or waiver of the code of ethics." As far as I know, Section 406 has never been enforced. That's a shame, because a total lack of enforcement has rendered this Enron-era law just about meaningless -- at a time when corporate ethics seem to be widely viewed as akin to Maimonides' 613 commandments, to be fervently espoused but observed only in the breach.

Now I'm a realistic guy, and I don't expect the SEC to actually do something useful, when it has major tasks to perform like persecuting Mark Cuban. Still, just suppose this agency decided to make itself useful and enforce Section 406. I could see it being brought to bear in not just this latest HP ethical challenge, but a host of recent situations in which boil down to "the suits can't find the word 'ethics' in the dictionary."

For example....