Sunday, November 25, 2012

"Year-end considerations" for public companies

From Harvard's Corporate Governance blog, a summary of "year-end considerations" for public companies. For those of you who are not lawyers or accountants, this is code for "new requirements imposed by the SEC or accounting authorities." The interesting part is the extent to which these "year-end considerations" are not so much focused on matters that concern actual investors or other consumers of financial statements, but on eliciting information that will be useful to activists. The nettlesome requirement that public companies disclose the sources of "conflict minerals" used in the manufacture of their products is not relevant to the purpose of financial statements, but is of interest to activists who want to torture public companies in to supporting their cause. The requirement for extensive disclosure around indirect dealings with Iran falls in to the same category, even if different people find it annoying.

The deployment of the securities laws to force disclosure that supports this or that public policy ambition only discourages companies from using the public markets to fund their growth. The more complex and expensive we make it to be public, the more business will prefer to remain private or go private. That makes it ever more difficult for ordinary people to participate in the most dynamic part of the American economy. Worse, by discouraging companies from going public we are depriving venture capitalists of an exit, and that deters new venture funding, or raises the return hurdles required to get it.

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