On the whole, regulators are spending more time and energy watching public companies, and those companies are spending more time watching their employees. As a result of the recent scandals, the regulatory burden on public companies has increased. Government regulations will continue to take up a growing proportion of the manager's time and effort without necessarily adding much real value.

Let's examine the facts underlying this trend and its implications.

Egged on by a public angry about crooked businessmen and declining stock prices, politicians and regulators are rushing through a gaggle of new rules aimed at legislating honesty on Wall Street. The lockdown has left many Wall Street executives angry and demoralized, fearful that the restrictions will make it even harder to do business and turn a profit.

The Sarbanes-Oxley Act, which Congress passed last July, will force public companies to wade through 60 pages of new laws and hundreds of pages of regulatory interpretations. Many will have to underwrite more expensive audits and revamp financial controls, even if they believe the costs far outweigh any benefit. Their foreign operations must comply with the same standards, even if doing so conflicts with local laws. Another provision requires companies to give even the lowliest janitor on the other side of the globe a way to blow the whistle on financial wrongdoing, any time of day or night.

"It's the criminalization of risk-taking, which is the same as criminalizing capitalism," says Robert Elliott, former partner of KPMG and head of the American Institute of Certified Public Accountants. "Executives now face millions of dollars in fines and 25 years in prison for things as common as estimation errors and write-downs."

The costs of this crackdown could be staggering: as much as $15 billion this year, and $13 billion a year thereafter, by one estimate from Johnsson Group financial consultants. In arriving at its cost estimate of up to $15 billion, Johnsson Group focused on companies with $1 billion or more in sales, which totals nearly 1,500 firms.

For some smaller public firms, the added burden is too much to handle. Madison Bancshares Group, a $200 million Pennsylvania bank, figured the act could increase its annual compliance 40 percent to $400,000, one-third of its pretax earnings last year — a big reason it delisted. "The country jumped into...