The Jumpstart Our Business Startups Act Takes the Bite Out of Sarbanes-Oxley: Adding Corporate Governance to the Discussion

• Author: Stacie K. Townsend
• Pages: 893-918

893

The Jumpstart Our Business Startups Act

Takes the Bite Out of Sarbanes–Oxley:

Adding Corporate Governance to the

Discussion

Stacie K. Townsend

ABSTRACT: The Jumpstart Our Business Startups Act (“JOBS Act”),

which became law in April 2012, made significant deregulations to the

United States’ securities law. One such deregulation essentially eliminated

the outsider audit mandated by the Sarbanes–Oxley Act of 2002 (“SOX”).

There are strong justifications for and arguments against the JOBS Act.

However, one significant interest is missing from both sides of the

discussion—corporate governance. Corporate governance is important

because it furthers Congress’s goals of job creation and economic growth.

Because the outsider-audit requirement improves corporate governance

practices, this Note proposes a different approach to the controversial

outsider-audit requirement. Instead of exempting most companies from SOX

section 404(b)’s outsider-audit provision, Congress should retain section

404(b), provide a limited exception for businesses that are both small and

young (i.e., businesses with a market capitalization of less than $75 million

and are less than ten years old), and encourage businesses to voluntarily

strengthen their corporate governance frameworks. Retaining section 404(b)

and implementing a limited exception for small, young businesses will allow

the United States to reap the benefits of job creation and economic growth

that strong corporate governance furthers and the JOBS Act seeks to obtain.

I. INTRODUCTION ...................................................................................... 895

II. GENERAL OVERVIEW OF THE SARBANES–OXLEY ACT OF 2002 AND

THE JUMPSTART OUR BUSINESS STARTUPS ACT ..................................... 896

A. REVISITING THE SARBANES–OXLEY ACT OF 2002 .............................. 897

 J.D. Candidate, The University of Iowa College of Law, 2014; M.B.A. & B.B.A., The

University of Texas at El Paso, 2011 & 2009. I would like to thank the editors of Volume 98 and

99 of the Iowa Law Review for their help on this Note.

894 IOWA LAW REVIEW [Vol. 99:893

B. INTRODUCING TITLE I OF THE JUMPSTART OUR BUSINESS STARTUPS

ACT ......................................................................................... 898

III. THE JOBS ACT DEBATE: THE CONSIDERATIONS IN SUPPORT OF AND

IN OPPOSITION TO SECTION 103 ........................................................... 902

A. SUPPORTERS OF SECTION 103 OF THE JOBS ACT ................................ 902

B. OPPONENTS OF SECTION 103 OF THE JOBS ACT ................................ 905

IV. WHY CORPORATE GOVERNANCE IS AN IMPORTANT CONSIDERATION

WHEN DEBATING THE JOBS ACT SECTION 103 .................................... 909

A. ENRON: AN ILLUSTRATION OF POOR CORPORATE GOVERNANCE ......... 910

B. CORPORATE GOVERNANCE IS AN IMPORTANT CONSIDERATION ........... 912

C. THE JOBS ACT SECTION 103 DOES NOT IMPROVE CORPORATE

GOVERNANCE ................................................................................... 915

V. THE BETTER BALANCE AFTER ADDING CORPORATE GOVERNANCE

TO THE DISCUSSION ............................................................................... 915

VI. CONCLUSION ......................................................................................... 918