Snapshot: Private Adopters Are Bigger And Faster Growing

When Congress passed the Sarbanes-Oxley Act in 2002, it intended it to apply only to public companies. So why are some privately held companies adopting Sarbanes-Oxley principles? And who are they?

Recent surveys of private companies and organizations conducted by PricewaterhouseCoopers and the Foley & Lardner LLP law firm provide some answers.

The PricewaterhouseCoopers survey of CEOs at 341 privately held companies with annual revenue of $5 million to $150 million found that 30% said Sarbanes-Oxley had either affected their business over the previous 12 to 24 months or they expected it to do so in the near future. The survey found that private companies adopting some aspect of Sarbanes-Oxley tended to be larger (averaging $46.2 million in sales versus $28.8 million) and faster growing (averaging 387% revenue growth over five years versus 303% growth) than those that weren't.

Of the 30% of companies that somehow have been affected by the Sarbanes-Oxley Act, 64% have been improving control documentation and testing in line with the regulations, 53% have updated their governance procedures, 50% have strengthened their codes of conduct and ethics, 35% have adopted best practices of public companies, 22% have added or updated "whistle-blower" policies, 21% have created an independent audit committee, and 21% have created an independent board of directors.

In the Foley & Lardner survey, which queried 68 private companies and organizations (39 for-profit companies and 29 nonprofit organizations), 78% said Sarbanes-Oxley principles were "self-imposed," while 52% cited board members, and 35% pointed to outside auditors as driving forces behind their adoption.

The average price tag for compliance was $138,000, the Foley & Lardner survey found, up from $50,000 last year. But the average $159,000 spent by for-profit private companies was far higher than the $104,000 average spent by nonprofits.

Is it worth it? Only 5% of those surveyed in the PricewaterhouseCoopers report said the benefits of implementing Sarbanes-Oxley provisions would "far exceed" the costs, while 21% said they would "somewhat exceed" them. Twenty-two percent said the benefits-costs were breakeven, while 43% said the costs would exceed the benefits, and 9% weren't certain.

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Sarbox Isn't Just For The Big Guys