The 2005 study measured the continued impact of public company governance reforms on private organizations and found self-imposed reforms continue to affect both for-profit and nonprofit groups. Of the organizations participating in the study, 97 percent of nonprofit groups and 80 percent of for-profit private companies reported an impact on their organizations.

"From 2004 to 2005, we're seeing a continued focus by private organizations to balance self-imposed corporate governance reforms with the related costs," said Paul Broude, study co-director and partner with Foley & Lardner. "It remains to be seen if private companies will choose to undertake Section 404 audits, but our study found generally increased pressure to adopt reforms. We are also seeing that customers and insurance companies are two emerging stakeholders influencing companies' decisions about adopting corporate governance reforms."

Foley & Lardner's 2005 study found that private organizations are adopting relatively less expensive public company governance reforms, including CEO/CFO certification of financial reports, election of independent directors, development of ethical codes, and approval of non-audit services by the board.

The 2005 study reveals that select respondents continue to feel that public company governance reforms are too strict, and yet they are still self-imposing these reforms. Some private organizations reported adopting public company governance standards in anticipation of eventual federal or state requirements.

Executives of private companies were asked to comment on how the Sarbanes-Oxley Act and other public company governance regulations, intended to apply only to public companies, are impacting their organizations. The 2005 study showed:

• Eighty-seven percent of private organizations surveyed believe that the Sarbanes-Oxley Act and other public company governance reform requirements have impacted their organizations, up from 77 percent in 2004.
• Seventy-eight percent of the private organizations surveyed have self-imposed public company governance reforms, compared to 60 percent of respondents in 2004.
• Private organizations responding to the study estimated an average annual price tag of $138,000 for public company governance procedures, representing an increase of approximately 34 percent over their estimated costs prior to the enactment of SOX.

"Even with the high price tag and perceived strict nature of corporate governance controls, privately held organizations still feel pressure to self impose these measures," said Broude.

The 2005 study finds that nonprofit organizations are enacting public company governance controls in different ways than their for-profit private counterparts, although they are also limiting their implementation to the less costly reforms, according to Richard Prebil, study co-director and senior counsel with Foley & Lardner. Prebil cited several noticeable differences:

• Ninety-seven percent of non-profit organizations plan to implement audit committee oversight of auditors, compared to 64 percent of for-profit organizations.
• Fifty-nine percent of non-profit organizations plan to implement restrictions on executive compensation, compared to 38 percent of for-profit companies.
• Additional disparity exists between nonprofit and for-profit implementation on topics related to the establishment of independent directors, independent director approval of related-party transactions and the establishment of whistleblower procedures.

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