“Most new jobs are created in start-ups and small businesses. So let’s pass an agenda that helps them succeed. Tear down regulations that prevent aspiring entrepreneurs from getting the financing to grow.”
— President Barack Obama, State of the Union address, January 24, 2012
The President’s policies have failed and are making the economy worse. Because the President cannot stand on his record, he has regrettably turned to the politics of envy and division. House Republicans have a Plan for America’s Job Creators—it’s time for the President and Senate Democrats to stop blocking our bipartisan jobs bills.
Recently the financial press has been all atwitter (forgive the pun) over the impending initial public offering of social media giant Facebook, with good reason. The stock offering is expected to raise as much as $10 billion in equity, increasing the wealth of the company’s existing 3,200 employees as well as private investors, expanding ownership in the company’s future growth—through trading on public exchanges—as the company seeks new ways to serve its 845 million users. All of this is good for the economy; it’s the way the private sector is supposed to work.
But John Berlau of the Competitive Enterprise Institute highlights an interesting footnote to all of this euphoria, which may explain why this high profile stock offering of a dynamic company is all too rare these days. He notes that in Facebook’s required filings (known as the S-1) with the Securities Exchange Commission, one section of the prospectus states:
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.
The implication is that only companies that have reached Facebook’s size, and already amassed billions in resources, will pursue the daunting regulatory path of accessing the public markets. Echoing Steve Case’s concern (discussed last week by Regulation Nation) for the need to encourage small, fast-growing companies to pursue an IPO, Mr. Berlau points out the downside of the regulatory muck the economy is now stuck in:
Another key difference between the pre-and post-Sarbox era, is that when small firms went public, they did so to raise the capital they needed to grow. Today, when companies the size of Facebook, Groupon, and LinkedIn launch IPOs, they do so mainly so their limited number of wealthy investors can realize the value of the growth that has already occurred. As Zuckerberg wrote in his letter in the S-1, the primary purpose of the IPO is to make the stock “worth a lot and make it liquid” for existing investors and employees. Nothing wrong with that, but because Sarbox and Dodd-Frank prevent smaller firms from having the same access to the public markets, job creation suffers.
This is why the American people can’t wait for President Obama and Senate Democrats to consider the solutions of the House GOP Plan for Job Creators, with 27 House-passed bills—some of which specifically address access to capital for small businesses—now stuck in the Senate. Berlau concludes, “It’s time to ‘friend’ solutions that allow small entrepreneurs and investors to take full advantage of the Facebook age.”