President Barack Obama backed the recommendations of his jobs council to amend the Sarbanes-Oxley regulations to make it easier for small companies to go public.
The jobs council, headed by GE CEO Jeff Immelt and including Sheryl Sandberg and Steve Case, found that the Sarbanes-Oxley was a key factor in reducing the number of IPOs smaller than $50 million from 80 per cent of all IPOs in the 1990s to 20 per cent in the 2000s.
Obama also said the “Spitzer Decree,” which bans investment banks from using banking revenues to pay for research and expert analysis of publicly-traded companies, deserves reconsideration as well. The council said the rule shares the blame for the decline in IPOs among small companies.
Well-intentioned regulations aimed at protecting the public from the misrepresentations of a small number of large companies have unintentionally placed significant burdens on the large number of smaller companies. As a result, fewer high-growth entrepreneurial companies are going public, and more are opting to provide liquidity and an exit for investors by selling out to larger companies. This hurts job creation, as the data clearly shows that job growth accelerates when companies go public, but often decelerates when companies are acquired. Thus, to stimulate the IPO market and spur more job creation, nearly all members of the Council recommend that Congress take the following actions:
- Amend Sarbanes-Oxley (SOX) to allow shareholders of public companies with market valuations below $1 billion to opt out of at least Section 404 compliance, if not to all of the requirements, of Sarbanes-Oxley; or, alternatively, exempt new companies from SOX compliance for five years after they go public.
- “Right size” the provisions in the Spitzer Decree and the Fair Disclosure Act to lessen the burdens on high growth entrepreneurial companies.
The Council, in conjunction with other groups working in this area, believes these reforms can help ensure that high growth entrepreneurship will again flourish in the public markets.
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