Even though the decline started before Sarbanes-Oxley, the law’s critics say it has played a leading role in stifling IPOs.
“Those of us who opposed Sarbanes-Oxley at the time it passed, said it was going to be a disaster. And it has turned out to be,” said Peter Wallison, a senior fellow at the American Enterprise Institute in Washington. “It is a terrible problem for our economy when we are not having companies go public.”
Clayton, a partner at the Sullivan & Cromwell law firm in New York, is among those who have said regulatory burdens have put pressure on startups, though he also has cited other factors for why companies remain private. He got on Trump’s radar by writing a policy paper for the transition that argued smaller companies should be exempted from some rules when they go public.
Clayton declined to comment through a spokesman.
Stay Private
In recent meetings with lawmakers and others in Washington, Clayton has shared an anecdote that he says shows the need to cut some of the SEC’s regulations. Twenty years ago, when midsized companies sought his opinion on whether to go public, he advised 80 percent of them to go for it. Now he recommends that just 20 percent of the time.
In 2012, Congress eased some burdens when it passed the Jumpstart Our Business Startups Act. The law, which as its name suggests was designed to spur jobs, allows smaller companies relief from SEC disclosure requirements when they go public. Still, it hasn’t spurred a flood of new IPOs as some lawmakers expected.
Clayton, in his Washington meetings, has spoken approvingly of the Jobs Act and has said it should be expanded, the people familiar with the matter said.
Some securities lawyers argue that blaming regulation oversimplifies the situation. Firms have an ever-expanding menu of ways to raise money outside the stock market. And capital is easier to keep around when companies are private and investors aren’t poised to flee every time quarterly earnings miss expectations.
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