Friday, December 2, 2011

Sarbanes Oxley Act Temporary Easing Bill

If you don't know what the Sarbanes Oxley Act did--you are not alone.  It was passed in the aftermath of the Enron fraud.  If you are not old enough to remember Enron: this was a massive fraud that took place while Clinton was President; involved people with close ties to Sen. John Kerry, the 2004 Democratic presidential candidate; and was prosecuted, successfully, by the Bush Administration--and yet remains a symbol of Republicans to a lot of people on the left.

The goal was to make it harder for such frauds to take place--but in practice, as with most such laws, small companies were generally harder hit by the regulatory complexity and costs than large companies.  While it did not by itself cause the screeching decline in startups after 2000 (it was not passed until 2002), it was certainly a contributing factor to the relatively small number of such business attempts.

There was a big decline in startups anyway because so many of the dot-com companies were built around tulip bulb crowd madness and other signs that too much money was chasing too few legitimate ideas.  My favorite example of this was an email I received from a South of Market Street (in San Francisco) dot-com that was trying to recruit me with such valuable benefits as a "clothing-optional workspace."

Still, Sarbanes Oxley is a contributing factor.  This article from the December 2, 2011 Idaho Statesman mentions that one of Idaho's U.S. Senators is a sponsor of a bill to provide a temporary easing of these rules for small companies:
The legislation would "temporarily [scale] back certain regulatory requirements imposed by the Sarbanes Oxley Act and the Dodd Frank Act," Crapo said.

He added that "the average cost for a company to go public is $2.5 million, and the annual cost to stay public is $1.5 million."
 Believe me, I would love to see startups happening again on a big scale.  Who knows?  Perhaps it could revive the economy, and create a few software engineering jobs for people with wrinkles.

2 comments:

hga said...

To clarify a bit, SarBox appears to have been the final nail on the coffin of the business model of the "traditional" (well, back to the late '50s when an enabling law was passed) Venture Capital (VC) investment leading to an IPO exit.

There's lots of tech startup activity right now (check out Hacker News) but almost all of it is based on doing something on the net, when you can get started on a shoestring (and if you chose a cloud provider like Amazon Web Services (AWS) you can grow your backend like crazy if you're revenue positive). Perhaps get some 4-5 figure investments from angels, get yourself "ramen profitable" (enough profit to keep yourself fed on instant ramen) and then go from there.

But as I plaintively ask, "Where's the next thing like the FPGA going to come from?" Absent the odd super-angel like Musk of the Paypal Mafia and his SpaceX, things that require upfront investments of 10s to 100s of millions of dollars don't seem to be happening. The future is no longer being invented (here).

45er said...

SOX sucks. I will tell you from experience in having to put SOX procedures together that it costs companies a lot of money and the way it is structured is so ridiculous that it doesn't actually accomplish anything in protecting anyone.