Fast-growing private US companies are voluntarily adopting Sarbanes-Oxley principles
Learning from others' experience. CEOs of fast-growing privately-held businesses are more positive than negative in their assessment of how the Sarbanes-Oxley Act has affected corporate governance and transparency in the public company sector. And although one in four of these private businesses have voluntarily adopted Sarbanes ‘best practices,’ three in four are opposed to mandating of these principles across-the-board: * Thirty-seven percent say Sarbanes-Oxley has done a good to fair job of improving governance and transparency for public companies, while another 34 percent have mixed feelings, and only 17 percent believe it has done a bad job overall. The remaining 12 percent are on the fence or did not report. * One-fourth (27 percent) of those surveyed say their company has adopted Sarbanes-Oxley best practices. Among these, 30 percent have applied its principles in governance, 26 percent in transparency, and another 43 percent in both areas. Adopters tend to be from larger businesses, averaging $74.2 million in revenues (51 percent above the average). They have grown faster over the past five years, and expect 25 percent higher revenue growth over the next 12 months. * However, 73 percent of those surveyed oppose any future federal or state regulations that would impose provisions of Sarbanes-Oxley upon other than publicly-traded companies—saying this would be regulatory overkill (62 percent) or a bad precedent (11 percent). Only five percent say such regulations would be a good way to improve transparency across-the-board, while 19 percent say this may be a good idea for some, but on a case-by-case basis. "Private companies that have adopted Sarbanes-Oxley principles generally are bigger and on a faster track than those that have not taken the plunge. By voluntarily embracing aspects of mandated behavior for public companies, they are using regulation and oversight as a means to an end, better positioning themselves for a future IPO or to be acquired by a public company," said Michael Petrecca, a PricewaterhouseCoopers Private Company Services partner based in Columbus. "These companies are advancing their business strategy and do not advocate this same course for others that may not share their aggressive growth strategies or other business objectives," he added. Are fewer regulations better? More than a third (38 percent) of surveyed CEOs believes that private companies enjoy a competitive advantage over publicly-traded companies because private entities are not required to comply with the same level of regulations. But 30 percent take a mixed view of this, and another 28 percent feel that regulations have no bearing on competitiveness. Certainly, regulations can be seen as a roadblock: * Two-thirds (64 percent) report that regulatory concerns could potentially derail any plans to merge with, or become subsidiaries of public companies. Only 27 percent disagree; five percent are not certain; and four percent did not report. * Two-thirds (67 percent) of those considering eventually going public say the cost of compliance with Sarbanes-Oxley and other SEC-imposed restrictions is a potential barrier. But will these costs really trump opportunity? Of the 54 percent of "Trendsetter" companies considering becoming an acquisition candidate or seeking public financing in the future, nearly two-thirds (40 percent) do not see regulation or the cost of compliance as too expensive for their company; only one-third (14 percent) disagrees. "CEOs of fast-growing privately-held businesses often see regulations as an impediment to profitable growth, and view companies that are not subject to certain regulations as having a competitive advantage over those companies that must comply," said Dick Kilgust, Managing Partner, Global Public Policy and Regulatory, for PricewaterhouseCoopers. "There are, however, some private companies that may find it beneficial to voluntarily adopt best practices from the Sarbanes-Oxley compliance experiences of public companies. For example, if a private company aspires to an initial public offering, registering for public debt, or one day being acquired by a public company, then it is to the benefit of that private company to be able to demonstrate good management practices and sound internal controls. When the company seeks additional means of funding, it behooves the company to be able to show that it has adopted best practices. In this way companies may find that voluntarily adopting Sarbanes-Oxley principles can actually be helpful." www.barometersurveys.com
•Date: 20th Jan 2006• Region: US • Type: Article •Topic: Operational risk |
