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Speech by SEC Chairman:
Speech to the SEC Government-Business Forum on Small Business Capital Formation


Chairman Christopher Cox

U.S. Securities and Exchange Commission

Washington, D.C.
September 29, 2006

Good morning, and welcome to the SEC's Government and Business Forum on Small Business Capital Formation. This is the 25th annual convening of this Forum, but the first time we've met in the new SEC headquarters on Capitol Hill, right next to the historic Union Station in Washington D.C.

I hope all of you here in person feel welcome in our new home, and to all of you participating via Webcast, we very much appreciate and welcome your virtual presence. This annual Forum is at the heart of the SEC's mission, because our mandate to do this each year comes explicitly from Congress, in statute. Not only does the SEC have the statutory mission to promote capital formation, but very specifically, we are directed to conduct this Forum by the Small Business Capital Formation Act, signed into law 26 years ago.

Today's 25th anniversary event is a significant milestone. For a quarter century, we've been working together to help promote capital formation for small business, and to underscore its importance to our economy. Just how important is small business to America's anything-but-small economy? Well, for starters, there are no fewer than 23.6 million small businesses that represent more than 99.7% of all employers in the United States.

In terms of jobs, small business makes up more than half of the nation's private-sector workforce. Even more astonishing is that small business creates nearly 80% of all new jobs. And as for America's $12 trillion GDP? Not surprisingly, small business creates over half of it.

For the entirety of my professional career, I've taken a very personal interest in small business. As a Member of Congress for 17 years, I saw overwhelming evidence that small business is the lifeblood of our nation's economy. As a securities lawyer in private practice, I had first-hand experience working with venture-backed and early stage public companies.

And as an entrepreneur back in the 1980s, I started a small business with my father, called Context Corporation, that translated the Soviet Union's leading newspaper, Pravda, into English and sold it in 26 countries around the world. I'd like to think that a small business, by giving free people the opportunity to read Communist propaganda designed for the Russians themselves, did its part in hastening the collapse of the Soviet Empire.

All of this experience with small businesses has contributed to my unshakeable conviction that small business is the critical engine of growth in the United States. Small business really does drive innovation. So I can assure you that I and the other SEC Commissioners look forward to the discussions at today's Forum, and to reviewing any recommendations that result.

You'll have two very timely roundtable discussions this morning. The first will focus on smaller public companies' use of interactive data, in SEC filings and elsewhere - and on how this can get small companies better coverage by research analysts, and lower their cost of capital. The second roundtable will spotlight several "hot topics" in small business capital formation.

Since becoming Chairman I have been actively advocating the use of interactive data to file financial information with the SEC. Interactive data is the plain-English way to say XBRL, which stands for Extensible Business Reporting Language. It's a freely available, open source computer language for financial reporting.

Using interactive data can make it easier for companies to analyze their own information, share it with others, and file it with the SEC. It will work across all software formats and technologies. It will permit investors and analysts to download a company's financial information into spreadsheets, personal financial software, or sophisticated corporate analysis software. It will allow data to move more freely and usefully over the Internet.

I am very glad to see this Forum focusing on the benefits that using interactive data can bring to small business, and on how we can help these benefits start to flow. One of the things that's most exciting about the introduction of interactive data for smaller companies is that it can improve their analyst coverage.

By permitting analysts to cover more companies more efficiently, interactive data will help companies with little or no coverage today to improve their overall visibility to investors. Better research analyst coverage, in turn, should help smaller companies raise capital at a lower cost.

Another way that interactive data can help smaller companies is by improving their internal controls, while at the same time reducing their compliance costs. That, in turn, can help attract qualified directors who will be more content with the risk profile of the firm.

All of these areas are tremendous challenges to many smaller companies. In our second roundtable this morning, we'll look at issues such as when and how small companies should go public. Answers to these questions have become more complicated in recent years, with the addition of new regulatory requirements for public companies, most notably the Sarbanes-Oxley Act.

We're very interested in discussing areas where regulations can be reduced or modified without compromising investor protection.

Finally, I want all who are listening to this to know that the Commission is working to implement the important recommendations from the SEC Advisory Committee on Smaller Public Companies last April. In particular, we have adopted the Committee's recommendation on Sarbanes-Oxley Section 404, that unless and until a framework for assessing internal control over financial reporting for smaller companies is developed that recognizes their characteristics and needs, smaller companies will get relief from Section 404.

We're busy, and the PCAOB is busy, working on an extensive rewrite of Auditing Standard 2 that led to such high costs in the initial application of 404 to larger companies. And we've postponed smaller company compliance until that work is done. We're keenly aware that the problems we have experienced with Section 404 arise from the implementation of the second half of this provision: the part that requires an auditor evaluation of management's assessment.

The Advisory Committee's Final Report focused on this as well, and so we're working to fix the process so it can work for smaller companies. The continued health of small business depends upon it.

Since the beginning of our country, small businesses have been the backbone of the American economy. It's a continuing marvel that even today, in the 21st century - in the midst of globalization and globe-straddling technology, small business creates more jobs than anyone else. Daring and inventive startups, often just operating out of a garage, often get their first capital from the investment of a single entrepreneur, or a single family - and that investment often represents everything those people have in the world.

Small businesses pump billions into the economy. They are, in many ways, what makes America great. It's the SEC's job to see to it that small business has better access to cheaper capital on the most competitive terms possible, and we aim to do just that. We're on your side - and we're proud to be your partners. Thanks for all that you do, and best wishes for a great Forum.


Modified: 09/29/2006