Why Private Equity loves to wear SOXs
OTTAWA, CANADA - The recent rash of takeovers by private equity is the hottest debated business topic of the day, but should it really come to anyone’s surprise? BCE Inc. (BCE.TO), a $32B (US$27.8B) telecommunications company, is the most recent target.
Government plays a dual role in balancing the needs of its citizens while stimulating an environment that enables businesses to thrive and grow the economy. It’s no easy task and certainly not for the faint of heart. But as someone who monitors this balancing act on a daily basis, it’s easy to see how the law of unintended consequences can take over nationally and even extraterritorially.
Take Sarbanes-Oxley (SOX). We all know the background and why the government needed a measured response to restore faith amongst the population and markets. It brought much needed attention to the need for corporate governance, but in the long-term can any company withstand the efforts to maintain the day-to-day scrutiny and onerous requriements SOX created? Its drafters did a yoeman’s job and most likely didn’t intend to create its current unintended consequences.
We see the daily scrutiny our elected officials face. It’s tough job for politicians to withstand the scrutiny and most certainly why a number of potentially excellent candidates choose to sit on the sidelines. Maybe political scrutiny has instilled an aggressiveness that focuses on short-term political gain as opposed long-term economic growth? Don’t get me wrong, an absence of scrutiny would have other ill effects. But future instances of political and corporate malfeasance will always occur. And at times, there will be a need for future governments to take measured responses. However, when the crisis is over we need to make a point of revisiting our actions and see if the same rules are still relevant.
That’s why SOX has partly been a boon for private equity. It’s more than just the art of the deal, potential profits, and the avoidance of U.S. stock listings due to SOX requirements. For the most part, U.S. markets have been good at rewarding innovation and keeping companies focused. But I imagine there comes a point in time where a CEO, Board Members, and shareholders see the reward of supporting long-term strategies and investments as more attractive than time/money spent on fulfilling unproductive market reporting requirements.
http://finance.yahoo.com/q?s=bce.to
Posted by Morgan Elliott at 05:28PM PST
Hottest Street Wear Oct 30, 2008
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