Stifling Entrepreneurship
Bill Warner Tuesday, December 23, 2008
Wow, if you are interested in several paragraphs of straight talk about what is happening to entrepreneurship in the United States, read Michael Malone’s December 22nd Wall Street Journal article entitled “Washington is Killing Silicon Valley.”
A New Decade of Stifling Regulation
Malone paints the ugly picture of what our government has done since the beginning of the century and succinctly adds it all up for the reader.
- Sarbanes-Oxley has stifled the possibilities of IPOs for emerging companies with its heavy handed and expensive reporting requirements. The IPO was the major reward for investors and companies until the Congress crushed public companies with regulation, all in the name of preventing future Enrons, forcing the companies to find other forms of exits that were less lucrative. This has been a major contributor the downfall of the venture capital industry as well. Has anyone seen a company saved or a shareholder protected by Sarbanes-Oxley? Probably not, but we sure have seen IPOs go to near zero and billions of wasted dollars in conformance spent since this legislation came to be.
- You can also thank Sarbanes-Oxley’s accounting requirements for the downfall of major financial institutions that were otherwise profitable and cash flow positive. Go find out what mark-to-market means and you will get a headache and fall ill. Our own Wachovia fell victim to this as their balance sheet was shown to be too weak to be a viable lender. Hopefully the SEC will put this practice back in the cooler.
- FASB changed the accounting principles for how stock options are handled, by requiring them to be expensed, essentially removing stock options as a significant incentive for management and employees to participate in the upside potential of a company.
The Unknown Obama Effect
The unanswered question is what more is going to happen in the Obama administration. Throughout the primaries and during the election, Obama campaigned on raising taxes on businesses, increasing the capital gains tax, and taxing the rich. He portrayed successful companies and their management as the bad guys who need to be brought down. All easily said by someone who has never run a business and has no feel for what the contribution of entrepreneurship is to our economy.
These potential actions, along with borrowing more money from foreign countries, taken together have the potential of ending entrepreneurship and capitalism as we have known it, and as a result assure a path to socialism that will drive our economy into depression. We can all look forward to having government jobs building roads and bridges under the guise of stimulating the economy.
We Can Hope It Won’t Be So
The entrepreneur provides the very life blood of our economy. This is where new businesses and wealth creation start. On current course and speed, entrepreneurs will be silenced by having all incentives to achieve success taken away before they even start. We can only hope that Obama will take a much more moderate approach to the economy and listen to people who know what the implications of his actions will be.
Filed Under: Angel Investment, Financing a Company, Starting a Business
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
