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Speech by SEC Chairman:
Welcoming Remarks to the SEC's Annual Forum on Small Business Capital Formation


Chairman Christopher Cox

U.S. Securities and Exchange Commission

Washington, D.C.
September 24, 2007

Thank you, John [White, Director of the SEC Division of Corporation Finance], for that kind introduction. And welcome, all of you, to the SEC's annual Forum on Small Business Capital Formation. I want to welcome all of you who are here with us in the auditorium at the SEC's Headquarters in Washington, and I especially want to welcome all of you who are watching on the web at SEC.gov.

This is an outstanding opportunity for entrepreneurs, and the many professionals who work with small business, to help the SEC fulfill our statutory mission of promoting capital formation. In addition to significant participation from the public, we've benefited from representation by the Government Accountability Office, the Federal Reserve, and state securities regulators — and in particular from the Small Business Administration.

Thanks to the good work that's being done in behalf of small business at the SBA, we have a good idea of just how important today's topics are to our nation's economy. For starters, small business is where all the job creation is. Small firms represent 99.7% of all employer firms in the United States. And they employ half of the entire labor force in the private sector. Of all of the net new jobs created in our country, small business generated between 60% and 80% during every single year over the last decade.

But that's not all. It may seem that globalization is being driven by large multinational companies, but in fact small business is leading the way when it comes to America's export economy. According to the SBA's most recent figures, small business makes up 97% of all identified exporters — and produces over 28% of the nation's export value.

Small business is also responsible for the lion's share of America's technology leadership. Innovative smaller firms produce 13 times more patents per employee than large firms. And when it comes to inventions, it isn't just quantity but quality that characterizes small business. Smaller firms' patents are twice as likely as large firm's patents to be among the top 1% most cited. So we shouldn't be surprised that small business employs over 40% of all the high-tech workers in the United States, and seems always to get more bang for the buck.

But despite all of this exciting news about the contribution that small businesses are making to the world's greatest economy and to America's global business leadership, there is another, less encouraging, side to the story. And that's that government — which as a matter of policy is dedicated to supporting small business and all of the job creation and innovation for which it's responsible — is often getting in the way when it comes to regulation.

That's because the cost of regulation falls heaviest on smaller companies. And not surprisingly, the very smallest companies — which are often the most innovative — are always the very hardest hit. Here's a telling statistic that provides good reason for us to be meeting here today: the very smallest firms — those with less than 20 employees — spend 45% more per employee than larger firms to comply with federal regulations.

And it isn't just capital raising that imposes regulatory burdens. It's all of the rules and paperwork and legal costs that every federal department and agency imposes. So even though we at the SEC aren't responsible for most of those costs, we've got to be cognizant that every incremental regulation we impose is added to the vast maze of federal rules and regulations that every entrepreneur has to navigate. Since our statutory charter is not to minimize the damage our rules might cause, but rather affirmatively to promote and encourage capital formation, we have our work cut out for us. We'll have to be so good here at the SEC that we not only make a positive difference for small business, but we also make up for all the red tape that those other agencies inflict.

I know that everyone here today is enthusiastic about that mission. All of us are committed to scrubbing the SEC's rules to avail ourselves of every opportunity to help nurture small offerings, and give life to the dreams of enterprising Americans.

As we do that, every one of us at the Commission will do well to heed the advice of the famous 19th century French economist Frederic Bastiat — the advice that every small business person intuitively understands: "If you wish to prosper, let your customer prosper." For us, that means that if we wish our nation's capital markets and our economy to prosper, and to benefit from lower costs of capital, we've got to let small business prosper.

The last quarter century has been a golden era for small business. With our help, that success will spread even further — extending medical breakthroughs, technological innovations, and a higher standard of living to ever greater numbers of the world's people.

So let's get to work right away on lowering the cost of capital formation.

This morning's agenda will feature two roundtable discussions. The first will focus on recent SEC rule proposals relating to private companies — including recent initiatives to make Reg D and Form D more user-friendly to small business, and to help private companies with stock option plans avoid unintentionally becoming public companies.

The second roundtable will consider the Commission's suite of recent proposals concerning smaller public companies. This will include a discussion of our recent initiatives on Rule 144, Form S-3, and merging Reg S-B into Reg S-K.

John White and the impresarios of Corporation Finance have assembled a stellar cast for today's production. The forum luncheon will feature remarks by SEC Commissioner Paul Atkins, than whom there is no greater champion of small business. Our panelists for the roundtable on securities offerings by private companies will be Steven Bochner, who is a partner at Wilson Sonsini Goodrich & Rosati in Palo Alto; Lance Lange, who is a Director of Robert W. Baird & Company, in Milwaukee; Gerald LaPorte, the Chief of the Office of Small Business Policy here at the SEC, who will also serve as one of our co-moderators; Marc Morgenstern, Managing Partner of Blue Mesa Partners in San Francisco, who will also be a co-moderator; Gregory E. Hadley, who is a Partner at Shoemaker, Loop & Kendrick in Tampa; Phil Clough, Managing General Partner of ABS Capital Partners in Baltimore; Cromwell Coulson, who is Chairman and CEO of Pink Sheets, LLC, in New York; Gerard O'Connor, a Partner at Foley Hoag in Boston; Anna Pinedo, a partner at Morrison & Foerster in New York; and of course John White, the SEC's Director of the Division of Corporation Finance, who will be our third co-moderator.

The afternoon program will feature breakout sessions, including one devoted to the role of broker-dealers and finders in private placements. These breakout groups are going to be particularly important, because they're going to help formulate specific recommendations for the SEC to consider as we work to meet our obligation to encourage capital formation.

This is an exciting program, an outstanding group of experts, and a vitally important mission. So to all of you who are dedicated to this mission, thank you for being here — and thank you for what you do every day to help create jobs, nurture innovation, and improve life for every human being our planet. All of us at the SEC are proud to be your partners.


Modified: 10/03/2007