United States: The Impact Of Sarbanes-Oxley On Private Companies

Last Updated: September 14 2004
Article by Thomas E. Hartman

EXECUTIVE SUMMARY

  • More than three-quarters (77%) of the private organizations responding to the study indicated that the Sarbanes-Oxley Act or other corporate governance reform requirements have impacted their organizations.

  • While a majority of these private organizations said that the governance standards were self-imposed, other common factors influencing the decision to adopt these standards included pressure from board members or auditors.

  • Many private organizations planned to adopt or have already adopted several measures in response to the Sarbanes-Oxley Act:

    • CEO/CFO financial statement attestation (44%)

    • Establishment of whistle-blower procedures (40%)

    • Board approval of non-audit services by auditors (43%)

    • Adoption of corporate governance policy guidelines (40%)

  • More than three-quarters (83%) of private organizations responding to the survey felt that corporate governance reform is "about right," while 67% of the respondents to our study of public companies felt that the reforms are "too strict." This may be because 60% of the private organizations surveyed had self-imposed the corporate governance reforms they had adopted, while the public companies surveyed have had more extensive corporate governance reforms imposed on them.

VERBATIMS

On why corporate governance rules and standards are being implemented by their organizations…

  • We feel that although SOX does not apply to private businesses, professionals who are involved with our business will insist on our compliance as a condition for association. Those might be directors, pension oversight regulators, auditing firms, etc. Some SOX regulations just make good sense.

  • What we plan to implement is viewed as good governance best practices.

  • We are a private company, but bigger than many public companies, so we want to be in step with governance best practices.

  • Partly in the expectation of a public offering someday, and partly because they just seem right.

  • Improvement in quality of financial reporting, which translates into higher comfort levels for lenders, investors and customers.

PRIVATE ORGANIZATION SURVEY

In April of 2004, Foley & Lardner distributed a survey to 9,000 CEOs, CFOs, General Counsel, Chief Compliance Officers, Board Members, Directors and other corporate executives of public companies and private organizations. A total of 30 surveys were returned from private organizations. The results below reflect the input of 8 non-profit organizations and 22 for-profit private companies (Please Note: due to rounding, not all percentages will add up to 100%).

  • Three-quarters (77%) of the private organizations surveyed feel that the Sarbanes-Oxley Act or other corporate governance reform requirements have impacted their organizations.

    • Has the Sarbanes-Oxley Act or other corporate governance reform requirements impacted your company?

 

2004

Yes

77%

No

23%

Don’t know/No Answer

-

  • More than half (60%) of the private organizations surveyed have self-imposed corporate governance reforms. A substantial number of respondents also indicated that board members and outside auditors have caused them to adopt new corporate governance requirements.

    • What groups have caused your company to adopt new corporate governance requirements? (Check all applicable boxes.)
 

2004

Customers

13%

Lenders

13%

Insurance companies

7%

Equity investors/donors

10%

Auditors

37%

State government

13%

Board members

43%

Self-imposed

60%

Other

7%

Don’t know/No Answer

17%

  • The most common aspects of Sarbanes-Oxley that private organizations have implemented or plan to implement in response to the regulations on public companies are:

    • CEO/CFO financial statement attestation (44%)

    • Establishment of whistle-blower procedures (40%)

    • Board approval of non-audit services by auditors (43%)

    • Adoption of corporate governance policy guidelines (40%)

  • A majority (53%) of the private organizations surveyed do not plan to restrict executive compensation in response to the Sarbanes-Oxley Act.

  • Most of the private organizations surveyed say they have already implemented several governance reform measures prior to the establishment of the Sarbanes-Oxley Act, including:

    • Audited financial statements (87%)

    • Establishing independent directors (63%)

    • Disclosure of critical accounting policies and estimates (57%)

    • Disclosure of off-balance sheet and contingent liabilities (63%)

    • For each of the following corporate governance practices listed below, please indicate whether your company has implemented that practice prior to SOX, implemented in response to SOX, plan to implement in response to SOX, or do not plan to implement that practice. (Check all applicable boxes.)

 

Implemented prior to SOX

Implemented or plan to implement in response to SOX

Do not plan to implement

Don’t know/ No Answer

a) Audited financial statements

87%

-

10%

3%

b) Establishing independent directors

63%

10%

20%

7%

c) CEO/CFO financial statement attestation

13%

44%

40%

3%

d) Audit committee oversight of auditors

57%

20%

20%

3%

e) Establishment of corporate ethical code

53%

24%

17%

7%

f) Establishment of whistle-blower procedures

17%

40%

40%

3%

g) Increasing internal audit functions

30%

37%

30%

3%

h) Outside audit of internal financial controls

17%

44%

33%

7%

i) Approval of non-audit services by auditors

20%

43%

33%

3%

j) Restricting executive compensation

30%

10%

53%

7%

k) Independent director approval of related-party transactions

37%

23%

33%

7%

l) Adoption of corporate governance policy guidelines

37%

40%

20%

3%

m) Disclosure of critical accounting policies and estimates

57%

20%

20%

3%

n) Disclosure of off-balance sheet and contingent liabilities

63%

20%

13%

3%

  • More than three-quarters (83%) of private organizations responding to the survey felt that corporate governance reform is "about right," while 67% of the respondents to our study of public companies felt that the reforms are "too strict." We believe this may be because 60% of the private organizations surveyed have self-imposed the corporate governance reforms they have adopted, while the public companies surveyed have had more extensive corporate governance reforms imposed on them.

    • Taking into account any corporate governance reforms you have recently adopted or plan to adopt, do you feel your corporate government procedures are:
 

2004

Too strict

13%

About right

83%

Not strict enough

3%

Don’t know/No Answer

-

  • The voluntary corporate governance measures private organizations have implemented have come at a cost to those organizations. Private organizations estimated an average price tag of $50,000 on corporate governance procedures, representing an increase of 13% over 2002.

    • Please estimate the increased annual cost to your organization as a result of additional corporate governance practices adopted since the Sarbanes-Oxley Act was enacted in July 2002, both in approximate dollar amount and as a percentage increase to the cost of your corporate governance practices prior to July 2002.
 

2004

Mean approximate dollar amount

$50,000

Mean percentage increase

13.17%

  • Private organizations were split as to whether the benefits of additional corporate governance initiatives outweigh the costs for their organizations. The most popular answer was that the benefits were equal to the costs associated with the standards and practices.

    • Do the benefits of additional corporate governance initiatives outweigh the costs for your organization?
 

2004

Benefits outweigh costs

23%

Benefits = costs

40%

Costs outweigh benefits

27%

Don’t know/No Answer

10%

 

METHODOLOGY

Working with a third-party research organization, KRC Research, in April of 2004, Foley & Lardner distributed a survey to 9,000 CEOs, CFOs, General Counsel, Chief Compliance Officers, Board Members, Directors and other executives of both public companies and private organizations. Recipients were asked to complete the study that applied to their organization, based on their standing as either a public company or private organization. The survey was distributed to and completed by private organizations via an interactive Web site. 

A total of 30 surveys were returned from private organizations. The results reflect the input of 8 non-profit organizations and 22 for-profit private companies. 

Due to rounding, not all percentages contained in the study results will add up to 100%. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions