REFORM? DON'T CELEBRATE YET.

They're having a ceremony in Washington Wednesday to mark a year since the Sarbanes-Oxley Corporate Reform Act became the law of the land. The event, at Securities and Exchange Commission headquarters, will have speeches, but no cake or singing of "Happy Birthday." (What do you expect from people who wear suits in steamy Washington in July?) But even cakeless birthdays have their uses. What better time to reflect on the past year? Remember when capitalism was supposedly in crisis, and pundits predicted Wall Street would never be the same? What has the year wrought?

There are promising signs that things are getting better for investors, recent scandals like HealthSouth and Freddie Mac notwithstanding. The SEC is adding lots of staff and the new accounting regulatory board seems headed in the right direction. Analysts are even issuing "sell" recommendations on the stocks they cover: some 10.5 percent of recommendations are sells, up from less than 1 percent a year ago, according to Thomson First Call. Who knows? Soon, when you ask an accountant to add two plus two, the answer will be "four," not "What do you want it to be?"

But the world isn't changing solely because of Sarbanes-Oxley. Rather, S-OX, as it's known, exists in its current form because the world has changed. A mere 13 months ago, Sen. Paul Sarbanes, Democrat of Maryland, was struggling to get a strong bill through the Senate. The House version, sponsored by Ohio Republican Michael Oxley, was significantly weaker. But as Sarbanes told me last week, the dynamic shifted when the WorldCom scandal broke. "By the time we got to conference [to resolve the House and Senate versions], the House guys were outbidding us," Sarbanes said. "They abandoned the idea that all we needed to do was remove 'a few bad apples' rather than make substantive changes."

I'd love to tell you what impact S-OX has now and what impact it will have long-term. But no one knows. Some rules implementing the legislation are still being written. It's way too early to tell what impact the added SEC staff and the new accounting board will have. And new requirements by the likes of the New York Stock Exchange and the National Association of Securities Dealers are only starting to make themselves felt. For example, Chuck Hill, research director of Thomson First Call, attributes the rise in sell recommendations to rules the NASD adopted on its own to forestall legislation.

Nell Minow of the Corporate Library, one of the nation's most vocal reformers, sees hope in insurance companies, of all things. The first paying customers for her firm's corporate-governance ratings, she says, were insurers that issue liability policies that cover directors and officers. Minow says pressure from insurers is more likely to promote good governance than S-OX itself, which she calls "a lot of closing the barn door after the horse is gone."

There are plenty of other unintended consequences, too. Some small public companies will use S-OX as an excuse to go private, because it's raised expenses and made it harder to attract directors. Directors' fees will go up because board members have greater liability than they did and are supposed to spend more time on the job. And S-OX has created a whole new cottage industry. Run "Sarbanes-Oxley" through Google, and you get screen after screen of vendors selling S-OX services.

The real test of S-OX's staying power will come years from now, when we're in a long bull market and today's skepticism is only a memory. (I consider the current run-up a bounce, not a bull.) It's the way of the world. When things are going well in the stock market, rules and prudence get tossed out the window. Rising stock prices are cited as proof the system's working and everything's fine. When the inevitable crash arrives, the search for villains begins and reform takes root. Then the cycle repeats. Let's see if people enforce the spirit of S-OX during the next big upturn, when today's pain is only history.

And we've got to keep an eye on Washington, which enabled bubble abuses by stinting regulators on funding and leaning on them to leave private enterprise alone. Congress was hot to trot on reform a year ago. But before backing off last week, the House was moving to rein in the likes of New York Attorney General Eliot Spitzer, whose lawsuits and investigations did so much to bring corporate malefactors to heel. The legislation's rationale: efficiency. The real reason: pressure from Wall Street.

So let's watch the S-OX celebration next week, but stay skeptical. Maybe it's a good thing the SEC isn't buying a big cake. That leaves more money for chasing bad guys.

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