U.S. capital markets can be made more competitive globally by reducing regulation and exposure to litigation for companies, a panel of businessmen and academics linked to the Bush administration said in a report released Wednesday night.
Five years after the Enron and WorldCom frauds triggered a series of tougher rules for corporate America, the private-sector Committee on Capital Markets Regulation has produced a 135-page report that says the regulation pendulum in the United States needs to swing back the other way.
"The evidence suggests that balance does need to be restored," said the report.
A 22-member panel chaired by Glenn Hubbard, former head of President Bush's Council of Economic Advisers, as well as John Thornton, former president of Goldman Sachs, cites initial public share offer (IPO) statistics and class-action settlement costs, and concludes that companies listed in the United States bear a heavier burden than those trading in markets overseas.
The report repeats many arguments that have been raised by exchange and company executives, who blame U.S. regulation for driving capital markets activity overseas.
It is unclear whether the report will convince critics who accuse the group, which describes itself as independent, of being a front for business interests.
"Close, empirical analysis doesn't support these reforms," Duke University Law School professor James Cox said. "It's just a classic situation of wrapping your ideas in basic fears and
then you can sell it to the people."
The report noted that U.S. markets attracted 8 percent of global IPOs this year, compared with nearly half in the 1990s, while nine of the 10 largest IPOs this year were listed overseas. Companies also are fleeing public market rules by going private through a wave of buyouts, the report said.
Some of this trend was driven by improvement in overseas markets and trading technology, the group acknowledged, but much of the blame belongs to a more hostile regulatory and legal
"While U.S. capital markets historically have been the deepest, most liquid financial and lowest-cost markets anywhere, the world is vastly different today," said Hubbard in a statement issued late on Wednesday.
"There are several viable markets for raising capital, and many companies now are using cost-benefit analysis -- including the potential cost of litigation and the complexity of regulation -- to focus on the competitive differences among the markets."
The committee also cited poor coordination among the many regulators watching over U.S. markets, legal and regulatory costs and overzealous enforcement.
Class-action settlement costs reached $9.6 billion last year, including WorldCom, compared with $150 million in 1995. Director insurance rates are six times higher in the United States than in Europe, the report said.
"There are opportunities ... to make adjustments to our regulatory and litigation framework so that public markets are less burdensome," the report said.
Among 32 recommendations in the report, which is addressed to President Bush, the committee called for looser capital controls for overseas companies and changes to make the Sarbanes-Oxley corporate governance and internal control law less costly.
The committee also said the U.S. Securities and Exchange Commission ought to consider the costs of complying with new rules before approving them and called for Congress to explore legislation to protect audit firms from catastrophic legal losses.
Some of these proposals have already been raised in recent years, and some of the recommended changes are already underway.
U.S. Treasury Secretary Henry Paulson, the former Goldman chairman, has previously expressed support for the committee and met with some of its members two months ago.
But it is unclear what impact the report will have since Democrats, seen as less receptive to rolling back market regulation, are set to take control of Congress next year.