Sarbox Costs: They Are What They Are

Lora Bentley

Kurt Schacht, managing director of the CFA Institute Centre for Financial Market Integrity, has one thing to say to businesses that are still concerned about the cost of Sarbanes-Oxley compliance, according to Financial Week: "Get over it."


I have to agree. (If memory serves, I posted about a small biotech company that said the same thing here.) As Schacht told Financial Week:

Companies have to understand that the cost is never going to go back to zero. There is always going to be a fairly significant cost associated with putting the internal controls structure in place and having somebody review it on an annual basis.

Concerns over costs are valid, the story says, but in Schacht's opinion, companies are better served with Sarbanes-Oxley than without it. He notes:

[People] didn't really understand the degree to which controls had fallen by the wayside.

What the controversial law has done to maintain the markets' integrity is far more important than concerns companies have about compliance costs, according to Schacht. And he's not alone. Henry Wander, who is a principal with the law firm of Katten Muchin Rosenman, says those who are concerned about or unwilling to absorb the costs have an easy solution: Don't go public.


Couldn't have said it better myself. Allow me to draw an (admittedly) oversimplified analogy.


The current price of gasoline has a lot of people up in arms. Yes, it's high. But it is what it is, as my boss said today. If it's too high, use public transit, carpool with friends, walk or ride a bike to work. But if you're going to drive your own vehicle, you have to pay the price. You can't just fill up the tank and then tell the attendant you're not paying for the gas -- unless you want to risk theft charges.


The same is true for Sarbanes-Oxley. Yes, it's costly. But it's part of being a publicly traded company in this country. If you can't afford it, you have three choices: Cut spending in other places so you do have the money, list in a foreign market where the costs aren't as high, or remain privately held. Is that so complicated?

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Add Comment      Leave a comment on this blog post
Oct 25, 2007 3:04 PM Kevin Kevin  says:
Your comments and the article scomments are unreasonable... So is the burden of Sarbanes. There is lots of evidence to suggest the rules imply add money to consultants coffers ( for which the rules were in part initiated to prevent collusive audit actions), reduce operation effectiveness and increase costs. If we want to be over regulated, and socialized and inertialess like the EU then carry on. But many of teh provisions inside SOX rules are ridiculous, hence the flight to private mode. This reduces opportunities for capital market raisings and leave the 'markets' to hedge funds Private small investors miss out. Wake up . Your arguement is an over simplification....If your partners analogy held tue American industry would be in a terrible state.Next Reply
Oct 30, 2007 9:52 AM Jolly Roger Jolly Roger  says:
uh, what decade did your write this in? American industry is in a terrible state but I agree on most other points.The problem is not policing if you are an officer of an honest company, then sleep well. If however your skills and situation require that one misleads others through any means to invest... then you deserve nothing less than being shunned by your D & O insurance and sent to the line with all the other criminals.I agree that the costs of SOX are the costs, however if those costs escalate then there is a problem. Misleading grandma or her retirement fund manager has a cost. Compliant companies just need to show they are compliant and remain so, fraudsters find this confusing why they cannot rig the system like everyone else used to - get over it. Add value, report honestly or pay the price. I think D & O insurance companies should make bad risk denials on bad executives like they do doctors. It is not ideal but it is better than having criminals of any ilk costing grandma her house out of greed. Stay private, or better yet retire if the plan is to steal or ignore someone else doing it. Reply

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