Recent news that the Supreme Court struck down part of the Sarbanes-Oxley financial regulations might strike fear into investors. Fortunately, the Court appears to have upheld the spirit of accounting transparency for the good of investors.

Disaster for whom, exactly?
Sarbanes-Oxley became law in 2002, requiring accounting transparency and oversight in the wake of the corporate accounting debacles at Enron and Worldcom. The Supreme Court's ruling basically called the setup of the associated Public Company Accounting Oversight Board unconstitutional, because it wasn't adequately controlled by the president, and thus flew in the face of separation of powers.

Investors should cheer the Court's narrow ruling, since the case before it actually challenged the entirety of the law. The Free Enterprise Fund had spearheaded that effort, dubbing Sarbanes-Oxley an expensive "disaster for American businesses."

That strikes me as a funny argument, since several corporations' irresponsible ways of doing business have definitely been disasters for American investors.

Risks remain
True, accounting trickery, shenanigans, and occasionally even outright Ponzi schemes have continued, even with Sarbanes-Oxley in place.

Think back a couple of months to the controversy over bankrupt Lehman Brothers' use of Repo 105 accounting transactions, which Morgan Housel described as "accounting wizardry" that disguises the true condition of a balance sheet.

Another fellow Fool, Alex Dumortier, emphasized similarly dangerous and risky behavior back in April. The Federal Reserve Bank of New York revealed then that a group of 18 major banks, including JPMorgan Chase (NYSE: JPM), Bank of America's (NYSE: BAC) Merrill Lynch, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), and Citigroup (NYSE: C), had been disguising their risk over the past five quarters. The banks reduced their repo funding levels at the end of each quarter by an average of 42%, making their balance sheets look temporarily healthier just when they needed to report their results.

Such behavior suggests that financial companies are reluctant to reveal their risk levels, for fear of spooking investors and damaging their credit ratings. Their secrecy doesn't exactly help our markets' desperate need for transparency.

Meanwhile, the Congressional Oversight Panel's chairman, Elizabeth Warren, recently challenged U.S. Treasury Secretary Timothy Geithner's contention that the banking system is healthy. Warren has called for a new round of stress tests to measure banks' stability. After all, the many bad loans polluting their balance sheets haven't simply gone away.

Transparency and disclosure laws certainly aren't perfect, but doing away with common-sense regulations that at least seek to address such weaknesses seems like a lousy solution right now. There are still far too many signs that the business world hasn't learned essential lessons.

Confidence requires trustworthy behavior
Overall, I'm very skeptical of regulation. I recognize that it often does more harm than good; it hinders productive business activity, and it can artificially stack the deck for certain interests instead of encouraging robust competition. However, efforts to encourage transparency, disclosure, and shareholder rights sound reasonable to me. Without trustworthy information in the marketplace, how can anyone plan their investments reliably?

Sarbanes-Oxley's inability to eradicate fiscal shenanigans may sound like a failure of regulation, but bear in mind one important fact. Recent events such as the financial crisis have given Americans little reason to believe that corporations would behave any better if relieved of the cost of complying with such protective regulations. Alas, corporate managers can't quite seem to grasp that if they just acted more responsibly, fewer people would clamor for their strict oversight. Instead, Michael Lewis has described Wall Street's mind-set as, "Please stop us before we kill again."

Hopefully, American corporate culture will experience a change of heart someday soon, and realize that doing business honestly and transparently is the best path to long-term profits and success. We shouldn't even have to mandate that, really. Until then, we investors should probably be relieved that Sarbanes-Oxley remains basically unchanged. At the very least, it reminds citizens and corporations alike that dishonesty and deceit in the marketplace are unacceptable.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.