Rep. Schweikert: Time to Fix Sarbanes-Oxley and Dodd-Frank
Since the passage of both Sarbanes-Oxley and Dodd-Frank, business leaders in the C-Suite have expressed their concerns on how these regulations have strangled small businesses and have discouraged many companies from going public.
Founders of Home Depot Ken Langone and Bernie Marcus have been saying for years that if they tried to take Home Depot public under Sarbanes-Oxley, they would not have been able to do it.
Tuesday in the House, Republican leaders will be talking about their "JOBS Proposal," which is comprised of two bills aimed at reforming both Sarbanes-Oxley and Dodd-Frank. The bills are by Representative David Schweikert (R-Ariz.). They target the costs of going public.
Schweikert broke down his bills on the phone before today’s press conference.
LL: Ken Langone and Bernie Marcus have both said they could have never taken Home Depot public because of the costs of Sarbanes-Oxley. How do you lower these costs?
Rep. Schweikert: I hear this repeatedly from my small business constituents in Scottsdale. They tell me they don’t have the access to capital in order to go public.
I am a believer that because of this, the way small businesses accesses capital will be different. We’ll see it in forms of partnerships. The days of getting an SBA loan and going public will not be the norm. We need to create more channels in getting capital. In one of my bills we raise the amount of shareholders a business can have from 500 to 1,000. That will help raise capital for small businesses. It will also exclude and offer an unlimited number of employees a company can hire. That’s an alternative way of raising capital. This enables a company the ability to reach a scale where they can rationalize going public.
LL: Another hurdle facing business owners is Dodd-Frank, where businessmen and women are faced with mountains of paperwork and many of the parts are still being created. What should be done here?
Rep. Schweikert: Majority of this bill is in rule promulgation — and no one can see what their future looks like. How can you hedge commodities if you don’t know? We in Congress have an obligation to run ahead of some of the regulators and look at what kind of visibility we can give to the business community. Instead, we have built a massive regulatory maze that will not accomplish the original goals of this bill. What’s been fascinating about this bill is every week, I have someone coming into my office saying, "Oh my gosh I didn’t know that was in there! Did you know?" Reminds me back when Health Care Reform was passed. Now people are looking through the details.
LL: That’s what I have heard from many Congressional members — pass now, read later.
Rep. Schweikert: This is a classic case of Congress passing evasive legislation and handing it off to the regulators having them to try and figure out the intention of Congress. We walked away from our constitutional duty — writing tight regulation and give guidance to the regulators of what we wanted to have done. Instead, Congress gave a huge swath of responsibility to the regulators. I’m sure Congress did not understand the scale of this bill. But what really mucked up Dodd-Frank were the Senate amendments.
LL: Do you believe Sarbanes-Oxley and Dodd-Frank were well intentioned pieces of legislation but just fell short in execution?
Rep. Schweikert: Particularly on Sarbanes-Oxley, where they just misunderstood the cost of what they were doing to, particularly, companies looking to go public, and capital raising. This bill was supposed to create sunshine and there were better ways of achieving that. We know the problems. Now is a great opportunity to put both of these bills together and understand what we need to do to fix these problems.
LL: Are you confident there will be bipartisanship behind your two job creation bills? Can it really get through the Senate?
Rep. Schweikert : At least my portion of the legislation is literally what the President stood in the House and asked for.
We’ve been grinding out these bills meeting and meeting, and hearing after hearing, since last year. I would be terribly disappointed if the Senate did not pass this because many components of this planehave Senate co-sponsors. If the Senate does not pass this, they are in the business of engaging in partisan politics instead of job creation.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."