Remarks at the 2011 SEC Government-Business Forum on Small Business Capital Formation
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
November 17, 2011
Thank you, Meredith, for that kind introduction. And thank you for all the work you and the Corp Fin team have done to make this forum a success, and for helping ensure that the distinct needs of small businesses are front and center at the SEC.
Thanks, also, to all of you who are joining us today as participants in a series of discussions designed to help the SEC better understand one of the most pressing issues facing small businesses: raising the capital these businesses need to expand and grow. I know that your uniformly impressive level of expertise, in combination with the varied backgrounds you bring to this forum, will ensure an interesting and illuminating day.
I would like to welcome all those who are attending here in Washington, viewing by webcast or listening through our teleconference.
And I’d also like to thank Gerry Laporte, Tony Barone and the other staff of the Office of Small Business Policy for their work in organizing this meeting, and for being the voice of small business within the SEC.
Small businesses are important to the SEC — you can get a sense of just how important by the fact that all five commissioners will be speaking today, something that rarely happens outside of Commission meetings.
And, of course, you can find particular concern with the needs and health of small businesses in all quarters today, as the nation works to energize the economic recovery and looks to the small businesses to spark growth in job creation.
As you know, studies suggest that small businesses have created 60-to-80 percent of net new American jobs over the last ten years.
But there is a footnote to that statistic: the most vigorous small business job creation comes from small businesses determined to get much larger. Job growth comes from emerging enterprises trying to grow out of their warehouse space and into a corporate campus or to jump from single downtown location into retail sites nationwide. It comes from companies that need access to capital to make that jump.
Today’s focus is on creating an environment in which those small businesses have that access, one in which they can compete successfully for a share of our country’s investment capital.
Cost-effective access to capital for companies of all sizes plays a critical role in our national economy, and we believe that companies seeking access to capital should not be overburdened by unnecessary or superfluous regulations.
As we examine ways that the regulatory structure might better facilitate small business capital formation, though, it’s important to keep in mind another critical facet of the SEC’s mission: investor protection. We must balance the instinct to ease the rules governing capital access with our obligation to protect investors and markets.
This can be a challenge. Even necessary regulation can impose burdens that are disproportionately large for small businesses with limited resources.
As the daughter of a small businessperson, I am familiar with the unique challenges small businesses face. I know that instead of planning year-to-year or quarter-to-quarter, that sometimes it’s day-to-day. And I recognize that challenges that a larger business would barely even notice can be significant drains on resources and time to an enterprise that needs to focus everything on making its place in a competitive market.
That is why, when Meredith and I have testified before Congress in recent months on different legislative proposals, we have emphasized the importance of achieving the proper balance.
It’s also important to note that investor protection shouldn’t just be a priority for investors and their advocates. Confidence in the fairness and honesty of our markets is critical to capital formation. Investors who understand that financial market participants are honest, that disclosures are accurate, and that markets offer a fair chance to earn a reasonable return are more likely to make needed capital available, and demand less in return for doing so.
And so, in this forum and through other efforts, the SEC is seeking strategies for meeting regulatory goals while reducing the weight borne by small businesses.
Over the years, the SEC has taken a number of steps to reduce burdens smaller enterprises face in raising capital: relaxing restrictions on public communications and simplifying disclosure and reporting requirements, for example. But, given the speed with which the financial environment evolves, it is important that we respond when new issues are raised, and that the SEC be willing to re-examine existing regulation in light of changing circumstances.
That is why I have instructed our staff to take a fresh look at some of our offering rules, and to develop ideas for the Commission to consider that would — in a manner consistent with investor protection — reduce undue regulatory constraints on small business capital formation. Among the issues that we are considering are:
- The restrictions on communications in initial public offerings;
- Whether the general solicitation ban should be revisited in light of current technologies, and capital-raising trends;
- The number of shareholders that trigger public reporting, including questions surrounding the use of special purpose vehicles that hold securities for groups of investors; and
- The regulatory questions posed by new capital raising strategies, including crowdfunding.
In conducting this review, we are gathering data and seeking input from many sources, including small businesses, investor groups and the public at large.
In addition, two weeks ago, we convened the first meeting of the SEC’s new Advisory Committee on Small and Emerging Companies. This initial meeting has produced a number of insights on these and other relevant issues, from committee members representing businesses, investors, academia and regulators.
As you can see, small business capital formation is an important priority for us.
The re-examination of existing regulations is also of a piece with a goal I set when I returned to the SEC as Chairman: to make sure that the agency was up to date, that the regulations we enforce reflect the current realities of the financial markets.
The role of those of you participating in today’s discussions is important to this process. This process and the resulting regulatory decisions must be informed by the “real-world” experience of people who are building a business, raising capital and implementing regulation. Your work providing counsel and becoming a conduit through which others can contribute is vital to the success of our efforts.
Your experience will become a vehicle for better understanding, on our part, of the impact new regulatory arrangements or changes to existing rules might have. You will help us maintain safe, orderly and efficient markets that facilitate capital formation and help businesses grow, while burdening small businesses as little as possible.
For 77 years, the SEC has contributed to small business growth by supporting a capital marketplace in which confident investors invested money in growing businesses. We worked to create a culture of compliance that supported transparent markets marked by high liquidity, strong secondary market trading and investor protection.
We’re proud of what we’ve done. But we recognize that markets and participants change – never faster than in the past two decades — and that regulation must change to reflect those new realities, as well.
With your help, we are working to build a regulatory structure that supports, rather than confines small business growth, while leaving investors confident that their interests in fair and secure financial markets will be protected.