Jim Clark, one of the founders of Netscape, has resigned his position as chairman of the board at Shutterfly, saying that Sarbanes-Oxley has removed his incentive to be in that position:
In his resignation letter, he cited "the constraints imposed by Sarbanes-Oxley on (his) having any significant role on the board" as one of the primary reasons for departure.
This is becoming increasingly common in the venture capital-driven technology world. Ultimately, companies will act according to their interests, and for small startups, going public is no longer their best choice.
Restrictions on public companies' activity can be so stringent for an entrepreneurial culture like Silicon Valley's that some tech insiders think that the average company is better off not going public in the first place.
"Clearly being public today is a greater burden on younger companies and their executives, so it's probably better for everyone that these companies stay private," said blogging entrepreneur Jason Calacanis, former head of Weblogs Inc. and current "Entrepreneur in Action" at investment firm Sequoia Capital.
The implications of this are manifold. Not least, it makes it much harder to capitalize small companies. Imagine if Google (or Netscape or Microsoft or Intel or Apple) had never gone public. Would we be where we are today?
Further, when companies decide to go (or stay) private, many fewer people participate in their financial success. Right now, tens of thousands of regular, middle-class people own a piece of Google, due to their participation in public markets (via 401k's, mutual funds, etc).
For companies that stay private, a much smaller fraction is able to be part of it, and those people are limited to well-heeled private investors.
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On a more personal note, I report to the Chief Technology Officer at my firm of ~800 people, which in turn is owned by a large publicly-traded company. When he first hired me 8 years ago, we did technology, and we changed our company in big ways.
Since the advent of Sarbanes-Oxley, I do technology and he does paperwork. He's paid six figures to ensure compliance with laws that have little to do with the business we are in. His considerable creative skills are wasted.
Not only does this remove any ambitions I might have had to become a CTO, it also means that our company has become less competitive due to the effective loss of a talented executive.
Multiply this out to other industries, and you understand the problem: in 2006, the NY Stock Exchange fell to third in the world:
As a result of the law's costly regulatory burdens and stiff civil and criminal penalties for unintentional corporate behavior, American capital markets have seen a competitive decline marked by a steady flow of foreign initial public offerings. The year 2006 marked a milestone in the decline of American capital market supremacy — the New York Stock Exchange, the world's leader before Sarbanes-Oxley, dropped to third in the global market for initial public offerings, behind London and Hong Kong. The financial secretary of Hong Kong, Henry Tang, recently thanked Messrs. Sarbanes and Oxley for sending so much business his way.
Always an advocate of clarity, here is my man Milton:
Sarbanes-Oxley says to every entrepreneur, "For God's sake, don't innovate. Don't take chances because down will come the hatchet. We're going to your head off." We want a risk-taking society, not a society afraid of taking risk.
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