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Private Firms Aware of Sarbanes-Oxley "Trickle Down" But only 30 percent of survey respondents understand the new law NEW YORK, May 9, 2003 While public companies scramble to comply with the Sarbanes-Oxley Act, some private businesses are learning the trickle down effects of the law that aims to help restore public trust in U.S. business and corporate reporting. According to a recent PricewaterhouseCoopers Trendsetter Barometer, which monitors the pulse of the nation's fastest growing companies, only a small number of the nation's up-and-coming companies -- 15 percent of those surveyed -- are publicly held, thus subject to Sarbanes-Oxley. The overwhelming majority -- 85 percent -- are private businesses.
In total, 40 percent of fast growth CEOs say they and their key people have an understanding of this legislation and its requirements. This group includes virtually all the enterprises that are publicly held -- 92 percent. In contrast, only 30 percent of private companies surveyed reported an understanding of Sarbanes-Oxley.
"It is noteworthy that in addition to the smaller public companies that know Sarbanes-Oxley, nearly a third of private businesses surveyed also have a grasp of its requirements," said Steve Hamm, managing partner of PricewaterhouseCoopers' middle market advisory services. "Some of this latter group may include companies that see themselves as eventual IPO candidates, or candidates for acquisition by a public company -- but a number may simply have an interest in improving their internal governance policies."
Overall, CEOs of 15 percent of fast growth companies -- six percent public, and nine percent private -- expect that Sarbanes-Oxley will lead to change in their corporate governance practices. Half or more of these anticipate that their company will change in five ways:
"It is clear that among these companies, Sarbanes-Oxley is prompting extensive changes, which will provide more effective financial reporting and corporate governance," said Hamm.
CEOs knowledgeable about Sarbanes-Oxley are split about the long-term impact it will have on their company's ability to create increased value for shareholders:
"Most CEOs of small public companies are fairly evenly-divided in their views, with both positives and negatives expected," said Hamm. "But most of those from privately held businesses are uncertain about the potential long term benefits, undoubtedly because their company may not be directly affected." There is also a split on the related long-term administrative costs their company can expect. Among the public growth companies, 81 percent anticipate that, going forward, the costs of compliance will go up; only 17 percent predict no change; and two percent are not sure. For private businesses, only 22 percent expect escalating costs; 41 anticipate no change; and 37 percent are not certain. "Clearly, publicly-held businesses expect the worst, so far as long-term cost of compliance is concerned," said Hamm. "Their private counterparts, less-directly affected, appear both more trusting and uncertain."
"The split between CEOs in the public and private sectors appears most-directly related to the cost of compliance," added Hamm. "The public companies -- which are directly impacted -- are most vocal in this regard. In contrast, the privately held companies -- most of which are beyond the purview of this legislation -- are more favorable."
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