March 5, 2007
"The [Public] Corporation Will Disappear"
Holman W. Jenkins, Jr., of the Wall Street Journal quote Nobel laureate Myron Scholes in the Weekend edition that "the [public] corporation will disappear." His point: the move from public markets in favor of private equity markets is caused by risk management contracts (derivatives) competing with equity. He also notes the impact of regulation has affecting the trend. His point only makes sense if one does not "look through" investors. A public corporation has over 500 shareholders (300 on the way out). We are calling corporations private is they have less than 300 shareholders even if each of those shareholders is itself a pool of multiple investors. If we "looked through" the funds and counted individual investors, the 300 shareholder limit would be shaky for many newly converted "private companies." In other words, his argument does not rest on risk management as much as it rests on a legal rule that does not permit "look through" judgments. [ Recall the ill fated hedge funds rules which do use "look throughs"] It suggests to me that an old, old standard, the 300 shareholder rule should be reconsidered and SEC regulation (for IPOs and for periodic reporting requirements, including Section 404 of SOX ) should scaled with the total capitalization of the firm. This is the primary request of the Small Business Advisory Committee that reported to the SEC last year. The SEC rejected the request out of hand; it should look at the scaling regulation question again.
TrackBack URL for this entry:
Listed below are links to weblogs that reference "The [Public] Corporation Will Disappear":