Entrepreneurs savored a small but significant victory last night in a surprise House vote that extended for one year an exemption for small public companies from burdensome requirements of the Sarbanes-Oxley act. The measure’s success and support from a significant number of Democrats once again illustrates that Sarbanes-Oxley relief is has become a populist issue. Much of the public now correctly associates Sarbox with the burdens it places on honest entrepreneurial firms such as the Max & Erma’s regional hamburger chain, rather than its intended effort rein in companies like Enron.
Rep. Tom Feeney (R-FL), and Scott Garrett (R-NJ), introduced an amendement to a bill funding agencies such as the Securities and Exchange Commission to exempt for one more year companies that had less than $75 million in assets from the onerous requirements that companies be audited on not just their numbers, but “internal controls.” As CEI has explained, accounting firms have determined “internal controls” to be everything from who has the office keys to how many letters are in an employee password, things that have little relevance for shareholder earnings.
Despite promises that new revised standards from the SEC and the Sarbox-created Public Company Accounting Oversight Board (which CEI is currently challenging as unconstitutional), the new standard would do little or nothing to reduce the burden on companies, CEI and other groups such as the American Electronics Association have found. Yet SEC Chairman Chris Cox (who unfortunately has strayed way to the Left since going to the SEC from Congress), not only blessed these new standards but has given some indictions the SEC would no longer exempt small public companies.
But there was enough bipartisan concern about Sarbox’s effect on small entrepreneurs that quite a few Democrats joined with the GOP to vote for Feeney and Garrett’s Amendment. The final vote count was 267-154. All Republicans on the floor voted for the measure, with about sixty Democrats joining in. Notable Democrats who voted for the measure include Nydia Velazquez of New York, chairwoman of the House Small Business Committee and Melissa Bean of Illinois, chairwoman of the regulatory affairs subcommittee of that committee. They have both expressed concern about the law’s effect on small companies.
Unfortunately, that still leaves more than two-thirds of Democrats voting against the granting of even this small relief from Sarbox. Voting against Garrett and Feeney’s amendement. They include House Majority Leader Steny Hoyer (D-MD), and House Financial Services Committee Chairman Barney Frank (D-MA). This is not good for a party that had promised in its Innovation Agenda last year to “ensure Sarbanes-Oxley requirements are not overly budensome” for small public companies.
Rep. Garrett has other good proposals on Sarbanes-Oxley, including a bill to bring the PCAOB under constitutional constraints by putting appointment power for it in hands of the president. He talked about this and other ideas at CEI’s recent Conference on Entrepreneurship, the Stock Market and the American Dream. You can see his speech here.