Former Speaker Of House Of Representatives Wants Sarbanes-Oxley Act Repealed

By Bilal Hameed, StartupMeme

Sarbanes-Oxley Act, that was passed in 2002 after devastating accounting irregularities of Enron and WorldCom, is now starting to see open criticism from the likes of Newt Gingrich (former speaker of the House of Representatives and general chairman) and David W. Kralik (director of Internet strategy and manager of the Silicon Valley office of American Solutions). According to an Op-ed written in San Francisco Chronicle by the duo:

• It was insufficient at preventing insolvencies and accounting shortfalls in companies such as Bear Sterns, Lehman Bros., American International Group (AIG) and Merrill Lynch. The average company will now take 12 years before it can successfully issue an initial public offering (IPO) because they do not have enough capital to cover the estimated $4.36 million hidden tax in yearly compliance costs, according to an estimate by the Financial Executives International. (The initial estimate from the Securities and Exchange Commission was approximately $91,000 per company on average).
• It initiated a movement among smaller public companies to return to private status or merge. In 2006, the law firm Foley & Lardner LLP conducted a survey of 114 public companies on the effects of Sarbanes-Oxley. Twenty-one percent of companies were considering going private, 10 percent were considering selling the company, and 8 percent were considering merging with another company.
• It is resulting in a trend where companies choose to go public on foreign, not American, stock exchanges. In 2005, a report by the London Stock Exchange cited that about 38 percent of the international companies surveyed said they had considered issuing securities in the United States. Of those, 90 percent said the onerous demands of the new Sarbanes-Oxley corporate governance law had made London listing more attractive.
• The effect of Sarbanes-Oxley in Silicon Valley has been especially dramatic. In the second quarter of 2008, there were no public offerings of Silicon Valley venture capital-backed companies, a phenomenon not seen since 1978. In the third quarter, there was only one. Sarbanes-Oxley has had a direct effect on venture capital. Indeed, if Sarbanes-Oxley is not repealed, then we could see Silicon Valley's status as a hotbed of innovation erode and see more and more of the future invented outside of the United States.

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