Shawn Halladay at LeasingNotes alerts us to this news today:
The Competitive and Open Markets that Protect and Enhance the Treatment of Entrepreneurs Act is intended to ease the cost burden of 404 compliance. The Act would exempt from Section 404 any public companies with under $700 million in market capitalization and whose revenues do not exceed $125 million.
The act, abbreviated as the Compete act, addresses a huge threat to national competitiveness. SOX is forcing U.S. companies seeking to go public to consider going public in other, less forboding markets, including the AIM market in London or in India.
Once companies go public in other markets several things happen:
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U.S. regulators have radically reduced influence over the company's offering
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The investment banks that serve these companies and make the fees are in other markets, so these opportunities are lost to the U.S.
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Once the shareholders of a U.S.-based company are located in another market, how long will it be before the company moves?
I support safe markets wholeheartedly, but the U.S. reduces investor safety by encouraging companies in a flat world to issue shares in other markets, defeating the entire purpose of the original legislation. Let's fix this thing!
Congressman Tom Feeney (R-FL) has said:
Section 404 of SOX is only 168 words long but is regarded as the most burdensome part of this legislation. This section requires both an internal audit of financial accounting controls and an external audit. However, the implementation of these audits has been costly and time consuming for all businesses and unaffordable for many small and medium sized businesses that are trying to compete in the global marketplace. The SEC initially estimated the costs to comply with Section 404 to be $91,000 per company-some studies estimate that compliance costs have been 30 times that.
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Wonderful post about a critical topic. SOX clearly has issues. The intent was there, but the application flawed. When quality companies don’t feel that it makes sense to go public in the most efficient financial market in the world, we have a serious problem. Do you think the limits (market cap and revenue) proposed are appropriate? Do you have any insight on why, given the importance and frequency of the debate on SOX, it has not been addressed more quickly? Just curious of your opinion.
Posted by: Matt | September 8, 2006 10:15 AM | Permalink to Comment