An American growth bill
The JOBS Act would cut red tape for growing companies
March 21, 2012
A rare example of bipartisanship on Capitol Hill may yet beat the odds and make it into law.
The JOBS Act — short for Jumpstart Our Business Startups— sailed through the House on March 8 in a 390-23 vote with the support of President Barack Obama. It looked like Senate Majority leader Harry Reid would move on it swiftly. That changed in recent days, though. The JOBS Act has run into head winds, and no one expects such a lopsided result when the Senate votes on the measure, which is expected this week.
Would the Senate really bury a jobs-creation bill that had such broad support in the House? We sure hope not.
The legislation would make it easier for startup companies to raise money from small investors. As it stands, only the rich can participate in private offerings. Under JOBS, anyone could invest up to 10 percent of his or her annual net income in the funding of a business. That's called "crowdfunding," and just imagine what a democratizing change it could make in corporate finance, especially for budding companies.
The JOBS Act also would loosen the restrictions for companies to advertise when they want to raise funds. Private companies doing fundraising pitches must follow strict rules aimed at protecting the investing public. If they simply tell the world they're raising money and, say, stream demonstrations of their new technology on the web, they can expect a call from the Securities and Exchange Commission.
Cracking open this closed world understandably frightens those responsible for controlling it. JOBS would present a challenge to the gray ranks of senior regulators unfamiliar with that newfangled thing known as the Internet. But the process of funding young companies needs to be more accessible and digital-friendly so it can function with optimum efficiency.
Regulators and consumer advocates evidently have decided the House-approved version of the JOBS Act does too good a job cutting red tape. They warn that by removing investor protections, the JOBS Act would set the stage for more of the lying and cheating that prevailed during the dot-com boom a decade ago. But supporters of the bill argue convincingly that the regulations that are targeted do little to actually protect investors.
One of the JOBS Act's most influential opponents is SEC Chair Mary Schapiro, who predicted that passage of the measure could usher in a new era of fraudulent investment schemes. It could backfire to the point that investors lose confidence in the marketplace, which in turn would make it "more difficult and expensive" to raise capital, she said. Democratic Sen. Dick Durbin described the JOBS Act as a "half-boiled concoction of ill-conceived ideas."
Funny, but that description springs to mind whenever we think of the Sarbanes-Oxley Act of 2002.
SOX, as it's known, passed Congress in a rush after the Enron and WorldCom scandals, and it has proved to be a mixed bag. It led to better corporate internal controls and stronger rules for disclosure that on balance helped level the playing field for all investors. But it also substantially raised compliance costs. It threw up legal barriers that discourage companies from going public, shutting off one of the most effective ways for businesses to grow and put people to work.
By crimping the development of promising companies, SOX has cost jobs.
The JOBS Act would reverse some of the unintended consequences of SOX. The measure goes beyond SOX to address the most transformative change in business over the intervening decade: the rise of information technology.
The bill would roll back some of the SOX rules that were simply overkill. No longer would private companies with 500 shareholders be forced to register with the SEC. The new standard would be 1,000. For the first five years after going public, companies with less than $1 billion in revenue would be exempt from some of the more onerous reporting and transparency requirements under SOX. Critics say $1 billion is too high, but make no mistake, more companies will embark on initial public offerings if this change is law.
Our nation's economy is growing only sluggishly. Job growth has been encouraging, but the nation's unemployment still stands at a demoralizing 8.3 percent. Our business climate is in a fog. Many entrepreneurs and business owners believe their government is working against them.
Pass the JOBS Act. Undo some of the mistakes of the past to let companies start and grow and put people to work.