The prospectus for Facebook’s initial public offering this week is a testament to how the 2002 Sarbanes-Oxley law hampers economic growth, says John Berlau (“Facebook Filing Blasts Obama-Bush Overregulation of Sarbanes-Oxley and Dodd-Frank,” OpenMarket.org, February2, 2012). The prospectus warns investors that the “requirements of being a public company may strain our resources and divert management’s attention”:
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Act, … and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources.
These days, points out Berlau, you need to be a big company in order to handle the reporting burdens of going public:
AOL founder Steve Case, a member of President Obama’s Council on Jobs and Competitiveness, recently noted in a Washington Post op-ed, “Initial public offerings of less than $50 million were 80 percent of IPOs in the 1990s but just 20 percent in the 2000s.”
But, says Berlau, when a bigger company goes public it’s more likely doing so in order to realize value for existing investors and to make that value liquid, rather than to raise funds for future growth. That’s how Facebook founder Marc Zuckerberg characterized his company’s IPO. The result of these regulations, in other words, is that the next Facebook or Google or Home Depot is being snuffed out before it has a chance.