Scholar-in-Residence talks JOBS with Congress
As the number of public companies and initial public offerings has plunged in recent years, a USC Marshall School of Business scholar-in-residence told a Congressional committee on June 26 that the U.S. Securities and Exchange Commission (SEC) should act immediately to implement recently approved legislation designed to reverse the trend and encourage entrepreneurship.
“I believe the JOBS Act was passed because there’s a widespread, fully bipartisan understanding that something has gone quite wrong in the world of American public companies, particularly [among] the newer up and coming companies,” Brian Cartwright told the Committee on Oversight & Government Reform at a Capitol Hill hearing.
Cartwright was general counsel for the SEC from 2006-09, advising the commission on enforcement actions and rulemakings. He also was senior adviser to the global law firm Latham & Watkins LLP. He voiced concern that the SEC is moving too slowly to implement the act because of fears in some quarters that the legislation will cut investor protections. The JOBS Act (Jumpstart Our Business Start-ups) was signed into law by President Barack Obama on April 5.
The legislation attempts to boost entrepreneurship by reducing barriers to raising capital. It also raises the number of shareholders from 500 to 2,000 before a company is required to register its common stock with the SEC and become a publicly reporting company.
“The JOBS Act is a welcome, broadly bipartisan attempt, to move us in the right direction,” Cartwright testified. “Of course, even those modest steps have been resisted by the defenders of the status quo. The SEC needs to be encouraged to move with all deliberate speed to implement the JOBS Act promptly and faithfully.”
In his testimony, Cartwright said the number of exchange-listed companies has plummeted from a high-water mark of roughly 8,000 to 5,000 in the current market, a serious challenge to job creation.
“We know that most of the jobs actually come after a company goes public,” he said. “That’s what used to happen, upwards of 80 percent of the time. But today that number has flipped. Over 80 percent, approaching 90 percent, of successful venture-backed companies are acquired rather than taken public.
“And that makes all the difference in the world,” Cartwright continued. “We know that acquisitions, rather than growing jobs, often subtract jobs because the acquirer seeks to achieve efficiencies, as the press release will euphemistically refer to it.”
Cartwright’s full testimony can be found at 1.usa.gov/NynRAM