A Big Apple Strategy
Hedge funds and private-equity funds have seen the opportunities created by this mood of repression. Directors are often so nervous about being second-guessed and worried about personal liability that they're more prone to sell to hedge funds seeking a takeover company rather than fight them. What's the reward for them to take the risk? The same goes for management. If their companies go private, they can resolve all these tensions, including the public brouhaha over their compensation.
Given all this, it's easy to see why there is such an accelerating exodus of public companies from the whole American system of regulations; many leave the country, many others just go private. We need a thoughtful readjustment. The aims of a revised Sarbanes-Oxley would be to lower the cost of compliance, especially for small companies and certain foreign companies that come into our financial markets; to relieve some of the burden of the bureaucracy imposed by the law's disclosure rules; and to identify ways to encourage corporate boards to focus less on fretful compliance and more on creative competitiveness.
Regulation is necessary for sound corporate governance, but when the regulatory burdens pass a tipping point they drive businesses to find more welcoming environments. Genoa, Venice, Florence, and Amsterdam were once the financial capitals of the world. There's no reason why New York should follow in their footsteps.
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