The Washington Times is on target in pointing out the Sarbanes-Oxley Act’s strangulation of small public companies in even more layers of red tape (“Relief for small companies,” Editorial, Wednesday).
It’s important to recognize that many of today’s corporate giants, such as Microsoft and Home Depot, were tiny firms less than 30 years ago. Business experts question whether these companies could have raised the capital they needed to grow if the barriers of Sarbanes-Oxley had been in place back then. Policy-makers need to ask what this policy is doing to the potential Home Depots and Microsofts of tomorrow.
In his laudable desire to aid these small firms, incoming Securities and Exchange Commission Chairman Christopher Cox would do well to follow the example of President Reagan and his SEC chairman, John Shad.
In the early ’80s, they pushed through Rule 504, which allowed companies raising $1 million or less in the public capital markets to be exempt from most SEC regulation. Small companies rushed to take advantage of this free-market policy. One of the big beneficiaries of the rule was, ironically, ice cream maker Ben & Jerry’s, whose founders despised Mr. Reagan. Unfortunately, in the late ’90s, President Clinton’s SEC largely gutted Rule 504. Mr. Cox should bring back a similar policy and increase the $1 million threshold to adjust for inflation and other factors.
Ultimately, Sarbanes-Oxley needs to be repealed or radically overhauled for both small and large businesses. It forces the documenting of minutiae only tangentially related to financial statements and potentially criminalizes honest mistakes. All of this has created a risk aversion in business that is keeping our economy from operating at full tilt.