Monday, August 21, 2006

Sarbanes Oxley

Hank Greenberg has an op-ed in the Wall Street Journal today that should be required reading for every politician in Washington.

"Three words describe the prevailing sentiment in today's business environment -- private is beautiful. Increasingly, major U.S. corporations are removing themselves from the public equities markets and going private.

Why? To a large degree, because the cost of government regulations has become unbearable. HCA, the largest hospital operator, recently announced a record $21 billion deal to take itself private. Among reasons cited by the company's founder, Thomas Frist, for departing the NYSE: the untenable cost of complying with Sarbanes-Oxley. The recent trend of major companies going (or planning to go) private -- Hertz, Toys "R" Us, Kinder Morgan, Albertson's, Univision -- is not coincidental. And that's only half the tale. While corporations are retreating from our public capital marketplace, exchanges in the rest of the world are thriving at our expense. Of the 25 largest IPOs worldwide in 2005, only one took place in the U.S. Most went to London or Hong Kong. Even Australia weighed in with three."

The costs of compliance with the various and sundry regulations, such as Sarbanes Oxley, enacted after Enron/Worldcom, etc. is so great that companies are increasingly choosing to abandon the public market. While this may be good for shareholders in the short term (reduce the supply of stock and theoretically the price should rise), it is not good for the economy in the long term. The current regulatory environment discourages risk taking and limits the availability of capital to enterpeneurs. These entrepeneurs are increasingly going abroad, where the regulatory environment is more forgiving, to raise capital. With our economy increasingly focused on services, we cannot afford to discourage companies from partaking of those services.

Read the rest....

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