Congress Cries 'Jobs' in Pushing IPO Kingpins' Wish List
NEW YORK (TheStreet) -- When Kathleen Shelton Smith, principal at independent IPO research and investment company Renaissance Capital, was invited to testify on Capitol Hill this week about legislation to spur the public offerings of small companies, she was surprised by the level of interest from politicians.
"They were almost too receptive, almost too interested," Smith said. "I hope they wouldn't have called me to testify if they weren't genuinely interested in writing a good piece of legislation, but there is big momentum to move this through," Smith said.
There's a good reason why, too. The U.S. government is attempting to rush a piece of "jobs" legislation into law that would weaken transparency of trading markets, roll back investor disclosure norms, and provide a convenient means for companies wanting to do an end-run around Sarbanes Oxley. "In the name of job creation they are reforming the entire IPO market," Smith said.
|Congress moves full speed ahead with a bill it says will spur the IPO market, but critics see legislation written by financial firms.|
The JOBS Act (Jumpstart Our Business Startups), which the House of Representatives approved on Thursday, won't necessarily spur the IPO market with small company offerings or create nearly the number of jobs that its backers claim. The House patted itself on the back for showing its bipartisan drive to solve the unemployment problem and reduce regulatory burdens, but according to its critics, the government is doing the bidding of the venture capital and banking industries and masking it as a bipartisan job creation bill. The support for the legislation goes all the way to the top, with President Obama voicing support for a streamlining of the IPO market in his recent State of the Union address.Among the more egregious "job creation" provisions in the JOBS Act is one that would allow companies to withhold executive compensation data -- including golden parachute clauses that provide hefty termination packages for executives -- a type of disclosure that has been a staple shareholder protection since the Exchange Act of 1934. Jay Ritter, a finance professor at the University of Florida who specializes in research on the IPO market, and also testified before the Senate this week, said there are always tradeoffs in writing legislation, but there was only one logical reason he can think of to support this provision in particular: "If executives were concerned about local kidnappers knowing how much money they have, and kidnapping them for ransom was a major problem in the U.S. and a reason for companies to not go public, I could see the logic in this. But that's not why companies aren't going public here. As a state university employee, my salary is a matter of public record. I would prefer privacy, but the disclosure of my compensation is not something that I obsess over." Much of the logic that is being positioned as a job creating act is similar to this executive compensation dodge that seems written by the venture capital lobby. The JOBS Act would also create a definition of emerging companies that allows any company going public with under $1 billion in revenue in the prior fiscal year to be afforded these exclusions. Lynn Turner, a former Securities and Exchange Commission chief accountant who also testified before the Senate, noted that 98% of all IPOs since 1970 were companies with $1 billion or less in annual revenue. On an inflation-adjusted basis, Ritter puts the same number at 94% going back to 1980.
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