Three in 10 fast-growing private companies are looking to benefit from provisions of the Sarbanes-Oxley Act. As they and others decide which aspects of the Act are appropriate for them, they must ask themselves two fundamental questions: Will adoption of those elements make a better company? Do the benefits outweigh the costs?

CEOs from 30 percent of the nation's fastest-growing private companies say that the Sarbanes-Oxley Act has had an impact on them and their business over the past 12-24 months (17 percent), or will in the near future (13 percent).

A majority of those already affected are improving their control documentation and testing (64 percent), updating governance procedures (53 percent), and strengthening their code of conduct or ethics (50 percent).

Improvement of controls is a consistent priority across all industry segments. Technology companies are particularly focused on governance and the code of conduct or ethics.

"It is clear that many aspects of the Sarbanes-Oxley Act are, or will be impacting private companies, even though they aren't currently required to comply," said Jay Mattie, a PricewaterhouseCoopers partner and national assurance leader for its Private Company Services practice.

Those involved in Sarbanes-Oxley-related initiatives see them primarily as a "best business practice" and a means to head-off future or potential problems --not necessarily a method for solving current problems. Another motivation involves future disposition of the company, including a potential sale, and possibly going public.

"Many private companies have something to gain by embracing the spirit, if not the letter of the Act," said Mattie. "In certain cases, buyers might be willing to pay a premium for companies that have brought their system of internal controls into line with standards in the Act's Section 404. Likewise, private companies that are on a path toward an IPO must be prepared to meet Section 404 and 302 requirements soon after becoming a public company."

"Trendsetter" companies currently adopting Sarbanes-Oxley initiatives tend to be:

• Larger: averaging $46.2 million in revenues, versus $28.8 million for all others, a difference of 60 percent.
• Faster growing: Despite their larger size, they are on a faster track, averaging a 387 percent increase in revenue over the past five years (versus 303 percent for all others, or 28 percent faster).
• Service companies: 19 percent of service companies, versus 15 percent of product sector businesses.
• Technology businesses: 22 percent of tech companies, versus 12 percent of non-techs.

Of the 17 percent of "Trendsetter" CEOs whose companies are currently involved in Sarbanes-Oxley initiatives, a majority expects to retain about the same level of future involvement. Fewer than half believe they will become more deeply involved than they are now.

Looking ahead over the next 12-24 months, more than half involved with Sarbanes-Oxley initiatives, 54 percent, foresee no change in related spending, and seven percent anticipate a decrease. In contrast, 36 percent expect that their spending will increase. An average increase of 13.6 percent is anticipated.

"Measures within the Sarbanes-Oxley Act hold potential benefit for some private companies, but not equally, to the same extent, or in the same way," said Mattie. "As with any significant organizational decision, the merits of adopting certain provisions of the Act -- entirely or in part -- must be evaluated in light of the related costs and their relationship to a company's overall strategies, objectives and goals."

So far, companies involved in Sarbanes-Oxley initiatives have spent only a limited amount of time and effort dedicated to meeting their objectives -- and their CEOs are divided on the costs relative to expected benefits.

Only one-third of CEOs say they have dedicated a great or moderate amount of time and effort toward achieving their Sarbanes-Oxley objectives; 64 percent say they have invested only a limited amount.

Those active with Sarbanes-Oxley initiatives are divided in terms of potential benefits their company may receive, relative to the cost of implementation. Overall, 48 percent have an upbeat view -- including 26 percent expecting that benefits will exceed costs, and 22 percent who see their involvement as a breakeven proposition. In contrast, 43 percent feel costs will exceed benefits.

"Clearly, there is a location on the cost/benefit spectrum that many private companies can find by applying some Sarbanes-Oxley provisions to critical areas of their business, whether for process improvement, governance improvement, or mitigating risk," said Mattie. "The challenge is distilling the benefits, and evaluating and implementing them at a reasonable cost."

PricewaterhouseCoopers' Trendsetter Barometer interviewed CEOs of 341 privately-held product and service companies identified in the media as the fastest growing U.S. businesses over the last five years. The surveyed companies range in size from approximately $5 million to $150 million in revenue/sales.