Driving Companies from the U.S. Market with too Much Regulation and Litigation

Almost every regulation presumably produces some benefit. The real issue is whether the benefits are significant and - even more important - whether they exceed the costs. Unfortunately, most regulations fail this common-sense test. A German magazine provides some good evidence, reporting that major companies from Germany are choosing to "de-list" from the New York Stock Exchange because of pointless regulation and costly litigation. This may not seem like much, but it is symbolic of a market that is increasingly unfriendly to business and entrepreneurship. Something to think about the next time you hear a politician wonder why more jobs aren't being created.

With expensive accounting rules, an increased threat of litigation and hundreds of millions of dollars in fines for some firms, the once prestigious New York Stock Exchange and other American markets have become unattractive to Germany's biggest companies. Daimler and Deutsche Telekom have fled this year and the few remaining are likely to follow. ...regulations introduced by the United States government in the wake of the accounting scandals in the early 2000s brought extra oversight and added costs for foreign companies listed on the NYSE. Of the 11 firms on Germany's DAX index of blue chip companies that were at one time listed on the NYSE, only four still remain: Deutsche Bank, Fresenius, SAP and Siemens. ...The attractiveness of the American capital market to German firms began to erode with Sarbanes-Oxley. ...From the start, companies voiced their displeasure with the high costs required to comply with the reforms. In one provision, companies were obligated to hire an independent auditor to monitor and report on the company's financial reporting. ...German firms cross-listed in the United States spent between €10 and €15 million annually on SEC compliance, a survey conducted by Stadtmann and his colleagues found. Most companies would not disclose the exact amount of money they spent on SEC compliance, but a Deutsche Telekom spokesperson told SPIEGEL ONLINE costs were in the "low double-digits" of millions of euros and another at Daimler said they did not exceed €10 million. When Telekom and Daimler announced their departures from the NYSE in April and May respectively, the main reason the companies said publicly was to reduce the complexity of financial reporting and administrative costs. On average, companies must add another five to 10 people to their payroll for SEC compliance alone, and a company may need a dozen workers for required executive compensation disclosures, says Miers. ...The double-digit costs of SEC compliance, however, are paltry compared the hundreds of millions of dollars in liability -- either through lawsuits or investigations and prosecutions -- to which a US listing can expose foreign firms. ..."What the SEC fully doesn't grasp to today is that dealing with the US regulation system is a nightmare," he says. "It's another reason to run to the exit door." Sarbanes-Oxley reforms also require a company executive to approve on all financial reports. "The most important thing (about Sarbanes-Oxley) is that the CEO and CFO sign for the financial statements," says Stadtmann. "All it takes is one person in the company to make a mistake and (an executive) can go to jail." ...Stadtmann believes Siemens will pull out at the first opportunity.