It is a shame that a former speaker of the House and potential presidential candidate has written so recklessly, as Newt Gingrich did recently. Repeal Sarbanes-Oxley? I think not.

In a time like this, people are always looking to blame something for the financial meltdown and turmoil. Sure, we are in a serious financial situation right now, but Sarbanes-Oxley is not to blame.

In the six years since Sarbanes-Oxley was enacted, failures like Enron and WorldCom, which resulted mainly from finance and accounting shenanigans, have been nonexistent.

The most recent failures of companies like Bear Stearns and Lehman Bros. resulted from poor business decisions and absentee risk management, all driven by good old-fashioned greed.

Sarbanes-Oxley was not designed to address such issues.

In an op-ed piece co-authored with David Kralik, a director at the Silicon Valley office of American Solutions, Gingrich claims that Sarbanes-Oxley is harming venture-backed companies in Silicon Valley and elsewhere, bringing initial public offerings to a standstill.

In reality, Sarbanes-Oxley has nothing to do with this problem.

The numbers show that IPOs reached their highest levels since the dot-com bust in 2004, after Sarbanes-Oxley had been in effect for two years.

Instead of pointing the finger at Sarbanes-Oxley, we should instead chalk up the current dearth of IPO activity to our economic woes and the credit crunch.

Compelling Reasons To Comply

The fact is that private companies do not have to comply with Sarbanes-Oxley unless compelled by their investors who see the benefits to be gained from stronger internal controls.

Indeed, companies do not have to comply with Sarbanes-Oxley until they have gone public and filed their second 10-K, over a year after they get the cash from their IPO. This means the statement by Gingrich that Sarbanes-Oxley has stretched companies’ run up to going public to 12 years is clearly not supportable.

The $4.36 million yearly SOX compliance cost that Gingrich cited in his piece is vintage, dating back to 2004, well before the Securities and Exchange Commission published guidance to companies and auditors that has helped them streamline their Sarbanes-Oxley process and thereby lower their costs significantly. Further, this cost pertains to large public companies of about $5 billion in revenue on average, not small startups, so again it has nothing to do with the current halt in IPOs. Gingrich has mixed his metaphors.