Why SOX Will Lead to the Demise of U.S. Markets

Posted on April 5, 2006. Filed under: Web/Tech |

Everyone should read this article from the CEO of Nasdaq. He is properly concerned that the overly bureaucratic Sarbanes-Oxley (SOX) processes could lead to the end of global domination by the U.S. capital markets. Ironically, the two gentlemen that created SOX did it with the intention of “preserving” U.S. capital market leadership. Their fear was that people viewed our markets as too risky, and so they created SOX to ensure that investors would “trust” our markets.

It turns out that SOX is doing the opposite – it is ensuring the demise of the leadership of U.S. capital markets. New up and coming companies outside the U.S. are now shunning the U.S. markets in mass. Let us not forget that the Nasdaq has and as always had “weaker” listing requirements that the NYSE. And eventually, the then new and up and coming companies like Microsoft, Cisco, and Intel eventually came to dominate the Fortune 500 – and they all started as emerging companies that preferred the Nasdaq.  Now companies are going to “prefer” other markets with requirements that are less stringent than the SOX laden U.S. markets.

This is a HUGE issue. I applaud the Nasdaq BOD for going after the LSE, and I have to wonder whether Mr.  Sarbanes and Mr. Oxley have any idea that they will go down in history as the specific architects of the demise of U.S. capital market leadership.

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7 Responses to “Why SOX Will Lead to the Demise of U.S. Markets”

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[…] companies that desired to tap into America’s public capital markets, and one that could have long-lasting negative impact on the long-term success of startups and innovation in America.  It’s pretty simple, […]

Hi Bill,

I agree with the criticisms of SOX and can even get behind your theory that it may be the beginning of the end of global domination by the U.S. capital markets. The next thing I contemplate is whether or not it’s that big of a deal for anyone other than the NASDAQ and NYSE corporations themselves.

It can be viewed in terms of simple supply and demand. If the US continues to be the richest source of capital (it likely is not) then companies will continue to list here despite the cumbersome and expensive requirements.

If not, they’ll look to foreign markets where it may be cheaper and easier to list (and defraud investors). So what? Their home offices will still likely be in whichever country they started out in (no impact to US economy) and US investors will still be able to invest and profit from the growth of these foreign-listed entities. 20 yrs ago this likely would not have been the case, but these days even my lowly eTrade account can buy shares in different global markets.

Adam (DriverSide)

Bill,

I saw you in September 2005 and you gave an interesting presentation. Any thoughts on new technologies or MMORPGs?

Thus spoke, Bill Gurley

After writing a monthly column for Fortune magazine since 1998, venture capitalist Bill Gurley gave up the gig a few years back. He then started a blog that goes by the same name as his column, Above the Crowd….

Bill:

So there is a problem with SOX’s I can agree with you on that. Do you have a solution to the problem or just a problem with the problem?

Obviously you have strong feelings about it, you havent blogged forever and then you come out with this.

Ryan

Sarbanes Oxley’s collateral damage: US public markets ?

I mentioned yesterday the continued decrease of the volume IPOs of VC-backed companies. Discussing it with a VC friend, we sort of joked about the efficiency of the Sarbanes Oxley regulation that is essentially scaring away from the public marketsa gen…


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    …focusing on the evolution and economics of high technology business and strategy. By day, I am a venture capitalist at Benchmark Capital.

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