Over at the House Committee on Financial Services, some opposition to Sarbanes-Oxley has come up in a hearing called “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.”
The gist of it is this — some people think regulations like Sarbanes-Oxley have made it too difficult to for businesses to go public and remain public. And yes, it is difficult for a business to go public, but shouldn’t it be difficult? Whether you’re jumping over hurdles or through hoops, passing through a challenging obstacle course seems like a worthwhile price to pay for gaining access to the public’s investing dollars.
But, hey, not everyone agrees, including the new SEC Chairman Jay Clayton and New York Stock Exchange President Tom Farley. Mr. Farley was one of the witnesses at today’s hearing, which MarketWatch’s Francine McKenna live-tweeted, noting that Farley is in favor of repealing the SOx 404 requirement for attestation by auditors. This Wall Street Journal piece notes this part of his testimony:
It “put such a great cost on corporate America, and the benefits are not entirely clear,” Mr. Farley said at a hearing of a panel of the House Financial Services Committee. “The data doesn’t show clearly that we have reduced fraud or greatly inspired confidence. But what is clear is we have far fewer public companies.”
Farley went on to say that he recommends “narrow[ing] the definition of internal controls” and “requir[ing] that the PCAOB not pass new rules and regulations that could in any way burden public companies.”
Perhaps, conveniently, Farley’s company — a major exchange for public companies — would benefit greatly from an easier path for companies to go public. And audit firms probably would too! The 404 gravy train is more or less over, but there will always be money to be made guiding companies through the IPO process, quarterly reviews, and annual financial statement audits. Besides, now that public companies do much of the work on assessing internal control effectiveness, auditors might be able to take advantage and water down other rules, while deregulation is politically fashionable.
If you have 3 hours to spare on a Tuesday afternoon in July, feel free to watch the hearing in full: