Categories
Risk Management

Political risk for market dominance

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of competition the company faces in their business. Microsoft and Yahoo are specifically named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relationships with advertisers.

I find it interesting that Google is taking the strategy of talking about the “formidable competition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?

Categories
Governance

SEC delays Sarbanes-Oxley requirements for small businesses

The Securities and Exchange Commission (SEC) has provided small businesses another 1-year delay to comply with Sarbanes-Oxley Section 404 requirements. Section 404 is the part of Sarbox that requires management to attest to the effectiveness of internal controls over financial reporting.

“This will help ease the burden on small firms and help encourage more small businesses to become public companies – while still ensuring transparency and honest accounting,” said Senator John Kerry (D-MA), chairman of the Senate Committee on Small Business and Entrepreneurship.

I see how this eases the regulatory burden on small entities, thereby indirectly encouraging small businesses to go public where they might otherwise not, but it remains to be seen how this “still ensures transparency and honest accounting”. How does not requiring companies to fully examine their systems of internal control and have management sign off on their effectiveness ensure anything?

It has been nearly five and a half years since Sarbanes-Oxley was implemented in the wake of the Enron meltdown and the delay applies to companies worth $75-million or less. When will smaller public companies be held to the same standard as larger ones?

Since the law was passed in 2002, the SEC has delayed compliance four times for small businesses. Currently, small companies … are expected to comply with the management guidance part of the law this year and the auditing section by 2009.

Legislators worked quickly to draft and pass Sarbanes-Oxley to protect investors in the aftermath of accounting scandals. Is it reasonable that it will be 7 years before it is in place for the smaller public companies in the US?