Kirk's Stealth Introduction of a Bill to Kill Investor Confidence

Its, oh, so quiet
Its, oh, so still
You're all alone
And so peaceful until...

A constituent sees you introduced a bill, part of a plan to kill Sarbanes-Oxley.

Yup, Mark Kirk thought no one was paying attention when he introduced his Let's Improve...er...Relax... er...Eventually Kill Sarbanes-Oxley bill.

The SEC chairman disagrees and asked Congress not to amend Sarbanes-Oxley. He thinks a quality product gives American markets the edge. Ah, quality...something that some American corporations don't seem all that interested in lately.

Here is some of what Cox said:

That said, it is wrong to conflate the implementation problems of 404 with the entirety of the Sarbanes-Oxley Act. While it's a handy whipping boy, overall the law has had important positive effects. It may fairly be credited with correcting the most serious problems that beset our markets just a few years ago. It has played a significant and valuable role in restoring integrity to our markets. Remember where we were, and what happened. We needed decisive action. Sarbanes-Oxley delivered.

We have come a long way since 2002. Investor confidence has recovered. There is greater corporate accountability. Financial reporting is more reliable and transparent. Auditor oversight is significantly improved. And despite the fact that the global capital markets, consisting of over 50 exchanges worldwide with a total market capitalization of more than $46 trillion, are more competitive today than ever before, the United States continues to be the market leader with the largest global share.

Having effectively addressed the crisis in our markets, we can now look ahead at how best to continue to insure that our system of regulations maintains the highest standards of integrity while honing our competitive edge for the benefit of investors.

Your report this week points out that the U.S. market share for worldwide listings has been declining steadily since 1997, at the rate of about 2% a year. That steady trend significantly pre-dates Sarbanes-Oxley, and even includes the tech boom of the late 1990's. So it's hard to blame Sarbanes-Oxley for the decline. Obviously, other factors were at work — including increasingly competitive opportunities for global listings.

Your report this week also notes that non-technology IPOs in the United States — which had experienced a steady decline beginning in 1996 — have actually experienced an increased since 2003, after Sarbanes-Oxley became effective.

And our exchanges have experienced significant overall growth as well. For the 10 year period from 1995 to 2005, starting from a base year when equity values were riding high and ending in the current post-tech bubble, post-Sarbanes-Oxley era, the value of shares listed on the NYSE grew almost 135%, while the value of the Nasdaq grew almost 210%. The value of the shares listed on the London Stock Exchange, by way of comparison, increased by 127% in the same period.

In addition to our U.S. markets experiencing significant growth, America's exchanges continue to claim the dominant share of global market capitalization. The NYSE and Nasdaq by themselves represent 38% of the total global market capitalization. Of the 50 global exchanges, the NYSE remains the single largest exchange, representing 30% of the world's total market capitalization. This compares to 28% for the entire Asia-Pacific region and 27% for Europe.

A good deal of the current focus on capital markets competitiveness is premised on the notion that foreign jurisdictions have looser regulations. And it's certainly true that Sarbanes-Oxley is being used in marketing campaigns abroad as a reason for foreign companies to list elsewhere. But the truth is that many countries, including the United Kingdom, offer stockholders a very broad set of rights. And many of those same countries are adopting provisions of the Sarbanes-Oxley Act as part of their own regulatory regimes.

Imitation is the sincerest form of flattery. The fact is, America's markets continue to set the standard for the rest of the world.

So as we consider the effect of Sarbanes-Oxley on U.S. competitiveness, it is important to keep in mind how much of it has been emulated overseas. And with good reason. Competitiveness is driven by far more than ease of doing business — it's driven by the integrity of the market and investor confidence. That's America's sterling competitive edge.

In the short time since the passage of Sarbanes-Oxley, governments in the major markets around the world have followed America's lead in establishing independent auditor oversight bodies like PCAOB. For example, the European Union recently adopted a directive requiring all EU members to create an auditor oversight body. There is now widespread agreement that to improve audit quality, auditor oversight bodies should be independent of the industry they oversee.