Remember 2002? Couldn’t swing a dead cat without hitting a corporate governance lawyer. Enron was mired in bankruptcy proceedings as gargantuan as the accounting scandals that brought down the company. Arthur Andersen was in its death throes. The U.S. Congress speedily enacted The Sarbanes-Oxley Act to “calm the raging crisis of confidence in American capitalism” (to borrow a phrase from The Economist) in the wake of Enron, World Com et al.

Oh. And M&A activity? If not downright dead, it certainly hit a slump. But the universe is all about balance. And through 2002, 2003 and even into 2004, many corporate lawyers who, through the merger salad days of 1998-2001 billed themselves as dealmakers first and foremost, were retooling their profiles to tout their expertise in corporate governance.

“A few years ago, corporate governance was something every M&A lawyer did,” concedes Barry Reiter, a corporate partner with Bennett Jones in Toronto. “Today, there are perhaps fewer people focusing on corporate governance, but of those who do, more focus a significant part of their practice on it.”

Mr. Reiter himself is no stranger to retooling: One of his practice areas of choice has been “new economy companies” (read: information technology) and his focus on corporate governance sharpened acutely after the tech bubble burst.

Today, corporate governance accounts for about a third of his practice. But its focus is dramatically different than it was five years ago when Enron and SOX thrust corporate governance into the limelight.

“The mega things, mandates, independent people on committees, descriptions of the roles of the chairman and so on, everybody has done all that stuff,” says Mr. Reiter. “Now the focus is on the implementation of those things, what does it mean when you do those things, and also on some more subtle interpretations and execution issues.”

Stephen Rigby, a partner with McMillan Binch Mendelsohn in Toronto, characterizes the state of the practice as “refining the edges” within a “reluctantly accepted” framework, which would be SOX.

The Canadian versions — notably Ontario’s Bill 198 — are somewhat softer, but for interlisted companies that softness is all but irrelevant. U.S. rules rule. This is a boon to the legal profession: refining edges is what lawyers do well. At least better than accountants

Mr. Rigby says he “wouldn’t call it a tug of war.” Rather, he says, accountants and law firms were both eager to provide corporate governance advice to clients struggling to make sense of the post-SOX and Enron regulatory landscape.

And, for the most part, the accounting firms had first-mover advantage. “A strong industry has grown up around the adequacy of disclosure controls and financial report, which is somewhat ironic given root of some of these scandals,” says Mr. Rigby.

Ironic is right. Arthur Andersen’s shenanigans and resulting demise may have shaken the faith of both the public and boards of directors in the integrity of their acented demand for accountants. One could say, having sown the seeds of the corporate scandals that begat SOX, the accountants reaped a bountiful harvest.

How bountiful? According to the oft-quoted paper by Ivy Xiying Zhang of the William E. Simon Graduate School of Business Administration at the University of Rochester, the net private cost of complying with SOX amounts to US$1.4- trillion. A staggering figure that includes such factors as “the loss in total market value.”

More modest figures are pretty staggering still. According to a 2006 survey by Financial Executives International, the average cost of complying with SOX’s section 404 was US$3.8-million in 2005. That includes an average of 22,786 internal people hours.

Granted, compared with the salary of Enron CEO Jeffrey Skilling, and Kenneth Lay before him, that may seem like peanuts. (According to the Enron Task Force indictment, “Between 1998 and 2001, Skilling received approximately $300-million from the sale of Enron stock options and restricted stock, netting over $89- million in profit, and was paid more than $14-million in salary and bonuses.”)

“For smaller and even medium- sized companies, that is a big number,” says Peter Jewett, a corporate partner with Torys in Toronto.

But back to the accountant lawyer turf war: It’s over.

“We don’t find we are bumping into the accountants in terms of mandates,” says Mr. Rigby. “They focus on areas they are more suited to than lawyers” — all that financial disclosure stuff — “and we focus on areas we are more suited to.” Which today means the subtle around the edges stuff.

And the subtle stuff is about to get subtler and fuzzier.

“There continues to be a tremendous debate in the U.S. whether SOX is damaging the competitiveness of corporate American and its capital markets,” says Thomas Allen, counsel to Ogilvy Renault and the granddaddy of Canadian corporate governance.

Canadian and U.S. lawyers routinely report their smaller clients are choosing to stay private longer, and some of their larger clients are leaving the public markets, too.

“A significant part of the decision making is to get out from the uncertainty and the cost of compliance,” says Mr. Jewett. “That just doesn’t feel like a good trend. To have people opting out of the public markets has to have a negative effect on the health of those markets.”

“The jury’s still out as to how political forces will respond to this,” says Mr. Allen. Or if.

In the meantime, the U.S. Securities and Exchange Commission is showing signs of loosening up, suggesting in its recently published guidelines that, as Mr. Jewett puts it, “turning over every stone whether material or not” is neither necessary disclosure nor good corporate governance. Which means judgment calls are back in.

Good news for corporate governance lawyers. Especially once the M&A fever burns itself out.

(Copyright National Post 2007)