Its almost hard to remember the vehement outpouring of criticism that swirled around Sarbanes-Oxley for the first three or four years after its adoption.  Everything was criticized, whether the hurried process employed in adopting the Act to greater reliance on independent directors.  For more on these views, see The Criticizing the Critics: Sarbanes Oxley and Quack Corporate Governance.

Any piece of data that could be used to challenge SOX was trotted out, the need for rigor usually a casualty of the process.  The decline in IPOs, the drop in foreign listings, the number of companies "going dark" were all trotted out as "proof."   But probably none was trumpeted louder than the rise of private equity and the likely disappearance of public companies from the market place.  No longer willing to put up with aggressive shareholders and the costs of SOX, companies would simply sell out to private equity firms.  Take a look at Lynn Stout's position on the subject.

To the extent companies sold out to private equity, it had little to do with the costs of SOX or whiny shareholders.  Instead, it took place because of self interest.  Private equity funds were able to raise large amounts of capital and borrow at low rates.  With these funds available, they could afford to pay exorbitant amounts to buy out public companies. 

Those days, however, are gone.  The debt markets are largely frozen.  Now we learn that the capital side of things is likewise winding down.  According to the WSJ, private equity has been drawing a "cold shoulder" from large institutional investors.  As the WSJ has noted:

• Public pension funds and endowments are turning down invitations to make private-equity investments. The nation's largest public pension fund, the California Public Employees' Retirement System, or Calpers, is asking private-equity firms to ease off on requests for additional capital it had previously committed to deliver. . . . Harvard University, with an endowment of $36.9 billion under Jane Mendillo, is seeking to offload about $1.5 billion in investments with private-equity firms such as Bain Capital LLC, according to people familiar with the situation.

The article also noted that the two publicly traded private equity funds had seen their shares fall by 70%. 

All of this is to say that the use of private equity as a source of cricisim for SOX was misplaced.  But then, so was most of the criticism of SOX.  Instead, what seems clear now is that SOX did not go far enough.  Perhaps that will be a topic addressed by the new administration.

One of the early claims was that SOX would damage public equity markets.  Companies were fleeing SOX and taking their IPOs overseas.  Companies would rather sell out to private equity or "go dark" rather than confront the costs and risks of SOX.  These claims have, in general, been shown to be inaccurate or overstated, sometimes after an examination of the empirical evidence and sometimes after watching the market.  The anecdotal evidence likewise suggests a contrary interpretation. 

Purveyors of private equity were among the loudest to decry the impact of SOX.  The Blackstone Group did this.  Henry Kravis at KKR was more balanced, viewing SOX as a benefit for shareholders, but still finding reason for concern:  

• "One consequence, however, is that they are also being more conservative and risk averse. An enormous time is spent on legal process by the board, rather than pushing innovative ideas. Sometimes this is to the long-term detriment of the business. It is easier to say “no” to risk and play it safe than it is to examine the risk closely to determine if it is the right decision for the business. To the extent that Sarbanes Oxley causes public companies to be less competitive, there is an opportunity for the private equity industry in taking these businesses private and putting some energy back into growing them."

• The coming IPO is in some ways designed as an antidote to its secretive and hardball-playing image by highlighting the firm's "best practices" of corporate governance and employee compensation. On the coming "road show" to present the transaction to potential investors, KKR is expected to emphasize how the new KKR will push the company's management into deeper alignment with shareholders. By buying back the KPE stake (which is itself just a vehicle for existing KKR investments) the executives will only be adding their exposure to KKR deals.