Although you may have missed the fireworks and the parade, we celebrated the one year anniversary of the JOBS Act on April 5th. Of course you wouldn’t have been alone if you missed the big celebration because, unfortunately, despite the initial hype surrounding the JOBS Act, not much has happened. The media has chastised the JOBS Act for not fulfilling its early promise. Most of the innovative provisions of the JOBS Act remain unimplemented by the SEC such as the relaxation of the ban on general solicitation on private offerings, crowd funding, and the improvement to Regulation A. But even Title I (generally referred to as the “IPO on Ramp”), which was effective over a year ago, hasn’t had much effect. In fact, IPOs, according to Jay Ritter at the University of Florida, have actually decreased for the so-called emerging growth companies.
How can this be? While there can be numerous factors for why IPOs continue to remain elusive (costs of regulation and a poor economy are the top factors), other factors such as a rising stock market and pent up demand for IPOs should be compelling companies to go public. Or is it possible that the cost of regulation that has been piled on since the fall of Enron trump everything else?
When Congress passed Title I of the JOBS Act, Congress recognized that public companies have been facing increased burdens for being public. Although the causal relationship was suspect at best, Congress determined that over regulation was responsible for the severe drop off in IPOs from the 1990s through the 2000s. While I might suggest that the dotcom bubble bursting may have played a part in the decrease in IPOs, I would agree that the unrelenting regulation that has come out of Congress over the past decade (Sarbanes-Oxley, Dodd-Frank) as well as rulemaking from the SEC itself (executive compensation disclosures) must have had some effect.
As a reminder, Title I of the JOBS Act, among other things, reduces executive compensation disclosures. Specifically, emerging growth companies (companies with less than $1 billion in revenues) are exempt from holding “Say-on-Pay” and “Say-on-Golden Parachutes” votes, disclosing the two controversial executive compensation pay ratios required under Dodd-Frank, and providing a Compensation Discussion and Analysis (CD&A). Other executive compensation disclosure is also shortened by reducing the number of named executive officers, reducing disclosure from three to two years, and eliminating certain compensation tables. In other words, Title I of the JOBS Act was designed to address over regulation of executive compensation for public companies.
While this was a great start by Congress, companies haven’t taken advantage of Title I because Continue Reading Executive compensation disclosure is too great a burden for issuers