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 SARBANESOXLEY 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

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