Sarbanes-Oxley: killing American business
Topics: Regulation
12 Apr 2007
From: Ervan Darnell
Just today our VP of sales was complaining that Sarbanes-Oxley would
cost $1-$2M/year in accounting costs (for a public company). Wow. This
was not a political discussion but an internal business strategy
discussion, so there is no reason to think that number is shaded either
way by politics.
How can new companies ever survive a hurdle like that? If a company is
making a 10% profit it needs to be earning $20M/year to have any profit
left over after going public. Why would you bother? This kills any
small business going public. That in turn kills investment in small
business. That in turn lowers overall economic growth by stifling
innovation from the small business side.
This was done presumably in the interest of protecting the investors.
The law of unintended consequences is producing the opposite outcome.
It's saved from being a complete disaster because companies try to get
acquired instead of going public. That still works, but isn't as
efficient (no big company may be positioned to properly exploit the new
product, few buyers may devalue the small business, there is less net
competition at the end of the day).
Even ignoring how this discourages new business, consider the pure drag
cost. There are 3200 companies listed on the NASDAQ. The NYSE is
similar. That's $6G+ wasted every year on accounting. The number is
surely much higher sincer $1M is the minimum for a small company.
In the case of my company, the CEO has said we'll never go public on the
NASDAQ, but instead on the London exchange, if anywhere. We're simply
fleeing the U.S. as much as possible.
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