The 60 Second Update

with Newt Gingrich

3. Why do you think we should repeal Sarbanes-Oxley?

I spent three days last week in Silicon Valley, and I was told over and over again by venture capitalists that the indirect, unexpected effect of Sarbanes Oxley has been to absolutely choke off new offerings for companies that are start ups. 

Sarbanes-Oxley costs companies an average of $3.8 million annually to do the accounting necessary to become a public company. One leading venture capitalist told me that this one piece of legislation extended the time a new venture takes to become an independent, free-standing company from five years to twelve years on average. 

What does that mean?  First, if you said to somebody: Why don't you go out and start a brand new company, and five years from now you might be on the stock market, you get one level of excitement.  If you said to somebody:  Why don't you stop doing what you're doing, go start a company, and maybe in 12 years you'll be able to go and have an independent stock offering; you just dramatically reduced the number of people who are going to be entrepreneurs in America. 

Second, companies aren't coming to market.  I had one venture capital firm tell me they had 24 companies that, before Sarbanes Oxley, would be offering stock and going on the stock market.  Zero are today. 

I don't believe anybody in the Congress believed Sarbanes‑Oxley was going to turn out to be the major anti‑entrepreneur, anti‑small business, anti‑offering stock and becoming a public company that it has. Now that we've experienced its impact, it needs to go.

 Question 4. Why do you think we should repeal Sarbanes-Oxley?