Wall Street may be losing its competitive edge to foreign markets because of increased government regulation, according to some business groups and legal experts.
“There is a tremendous expansion of our global capital markets,” Arlene Mirsky, a partner at law firm Sills Cummis told CNBC. “To the extent that investors perceive a regulatory advantage in investing in London and a disadvantage in the United States, they are going to put their money elsewhere.”
U.S. Treasury Secretary Henry Paulson will host a conference in Washington Tuesday looking at how regulation is affecting U.S. capital markets' competitiveness. The the day-long forum will include some of the biggest names in business, including Warren Buffett, former Federal Reserve Chairman Alan Greenspan, NYSE CEO John Thain and General Electric chairman Jeffrey Immelt (GE owns CNBC).
The U.S. Chamber of Commerce has been particularly active in campaigning against what it views as excessive financial regulation that has hurt U.S. markets' competitiveness. It is issuing a report this week urging "quick and decisive adjustments...to ensure that U.S. investor and business interests are best served in the global marketplace."
Some of the Proposals
Among the changes proposed by the Chamber: allowing the Securities and Exchange Commission to grant exemptions to companies from the Sarbanes-Oxley law, enacted in 2002 in response to the wave of corporate scandals. The chamber also is calling for an end to quarterly earnings guidance by companies.
“It’s a fool’s game,” David Chavern, COO and general council for the U.S. Chamber of Commerce, said in an interview on CNBC. “It keeps U.S. business executives off focus on what’s really important like strategy and market and those key issues, and not whether you hit your one-cent or two-cent mark over a three-month period.”
The Sarbanes-Oxley law in particular has come under attack by business groups, which claim it is overly restrictive and too expensive to implement.
“We have lost a number of IPOs, and there’s been an amazing migration of IPOs to Europe and to Asia," said Mirsky of Sill Cummis. "Additionally, we see here in the United States many companies have decided to go private rather than to face the regulatory burdens that Sarbanes-Oxley has imposed.”
But not everyone thinks Sarbanes-Oxley is such a bad thing. Regulations are meant to protect investors and hold companies to the highest standards, says Mary Ann Jorgenson, a partner at law firm Squire, Sanders & Dempsey.
“Yes, Sarb-Ox has made it too expensive for companies that are just public and in the lower-edge of the middle market and we’re working hard to normalize it if you will,” she said on CNBC. “I don’t think that is the main reason the markets are having competitive issues, however.”
Here are some of the key recommendations by the Chamber of Commerce:
-- Congress should enact legislation to expressly give the Securities and Exchange Commission the authority to issue rules and exemptions for various categories of public companies under the Sarbanes-Oxley law, enacted in 2002 in response to the wave of corporate scandals. In addition, the SEC should be restructured and its examiners should be required to keep confidential their communications with financial institutions.
-- Public companies should stop issuing earnings guidance or, as an alternative, move away from giving quarterly earnings guidance with an earnings-per-share number toward annual guidance with a range of projected per-share numbers.
-- Policymakers should seriously consider proposals to reduce the liability of accounting firms in litigation over public company audits, and the idea of allowing the largest firms to raise capital from outside investors in addition to their own partners.
-- Retirement savings plans should be multiplied by connecting all businesses with 21 or more employees which lack a plan to a financial institution that will provide one.