Sorting through the SOX drawer

Six out of ten public company directors think Sarbanes-Oxley should be either overhauled or thrown out altogether.

Korn/Ferry International's 32nd Annual Board of Directors Study found "a growing contention that the impact of these rules has been negative… Many directors believe boards have become exceedingly wary and are not taking necessary risks to drive company growth. These directors are demanding reform."

SOX's chilling effect has also been expensive.  AMR Research reported earlier this month that SOX compliance has so far cost public companies some $14 billion in the four years since the sweeping regulations heralded the post-Enron Age of Corporate Transparency.  Experts expect costs to hit $20 billion by the end of this year, with most of that money going to dedicated staff, consultants, accountants and attorneys.

Twenty billion dollars. That's about equal to the country's entire holiday-season retail spending last year.  It's the entire world market for recorded music.  The entire economy of Sri Lanka.  And it's about a billion dollars more than the United States has spent shoring up security at airports and port facilities since September 11, 2001.

For large public companies that must meet the requirements, SOX expenses run on average $1 million per $1 billion in revenue.  That's going to represent a painful overhead for considerably smaller companies, which have to start complying themselves somewhere between 2007 and 2008.

Has SOX regained the confidence of our nation's investors?  Not much.  A Wall Street Journal / Harris Interactive Poll in October found that more than three-quarters of U.S. investors between 45 and 54 believe that "financial and accounting regulations governing publicly held companies are too lenient."   And only one quarter of investors thought that SOX made public companies any more transparent in communicating financial information.  Ten percent of the people surveyed thought communications had become even worse.

Even so, there are still plenty of people who argue that the high costs of complying with Sarbanes-Oxley laws are nothing compared to how public companies decide to spend their money in other areas.

Said former SEC Chairman Richard Breeden yesterday:  "The implementation costs are one-ten-millionth of executive pay."

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