Foley & Lardner Study Reveals Adoption of Sarbanes-Oxley Standards By Private Organizations as 'Best Practices'

CHICAGO, March 14 /PRNewswire/ -- Foley & Lardner LLP's third annual national study, The Impact of Sarbanes-Oxley on Private & Nonprofit Companies, reveals that private organizations are continuing to adopt aspects of the Sarbanes-Oxley Act as a set of best practices, despite the fact Congress never intended the Act to apply to non-public companies.

The study also shows that private organizations are consistently self-imposing Sarbanes-Oxley standards and that nonprofit organizations have been more aggressive in their adoption of corporate governance reforms than their private for-profit counterparts.

"For the past three years, executives of private organizations have told us that the standards outlined by Sarbanes-Oxley are being adopted as best practices for a variety of reasons," explained Paul D. Broude, study director and Foley partner. "Some organizations are feeling pressure from auditors or board members to adopt these standards, while others are doing so in anticipation of an upcoming IPO or sale.

"Regardless of their reasoning, one thing is clear: the time-consuming and often costly provisions outlined by Sarbanes-Oxley are having an impact that reaches far beyond public companies and into the private and nonprofit sectors."

Private Organizations Have Reached "Steady State"

The study reveals substantial consistency in year-over-year results, indicating that private organizations have reached a "steady state" and have already implemented the aspects of corporate governance reform they intend to adopt.

  Among the findings:
  -- 86% of survey respondents felt that SOX and other corporate governance
     reform requirements have impacted their organizations, consistent with
     the 87% who responded in this manner in 2005.
  -- Private organizations continue to self-impose corporate governance
     standards, but are also strongly influenced by their boards and outside
     auditors.
  -- Private companies tend to adopt the least expensive reforms, as opposed
     to more costly initiatives such as Section 404 audits of internal
     financial controls.
  -- 84% of private organizations responding to the survey felt that
     corporate governance reform is "about right," an increase in comparison
     to 2005, when 78% responded in this manner.
  -- Private organizations responding to our survey estimated an average
     annual price tag of $105,000 for corporate governance procedures,
     representing an estimated increase of approximately 26% over their
     estimated costs prior to the enactment of the Sarbanes-Oxley Act.

  Nonprofit Organizations Continue to Lead the Charge

Consistent with the study's findings in 2005, nonprofit organizations continue to adopt more aspects of the Sarbanes-Oxley Act than for-profit companies. Overall, nonprofits were more likely to have implemented or planned to implement whistle-blower procedures, board approval of non-audit services by auditors and restrictions on executive compensation, among other areas of reform.

"In our view, this is a logical development because nonprofit organizations have a greater number of stakeholders to whom they are accountable, compared to for-profit organizations which are typically more closely held," explained Broude.

Broude went on to explain that one reason for increased adoption among nonprofit organizations could stem from the fact that a large number of directors who sit on nonprofit boards also serve on the boards of public companies. These directors are therefore more familiar with the Sarbanes-Oxley Act and more likely to recommend adoption of similar governance policies by nonprofits.

To download the complete report on the study, visit http://www.foley.com/2006privatestudy.

Methodology

In January 2006, Foley & Lardner worked with research firm KRC Research to facilitate and analyze the results of a national study designed to measure the financial impact of corporate governance reform among private companies across the country.

The Impact of Sarbanes-Oxley on Private & Nonprofit Companies provides a window into the boardrooms of private organizations, illustrating how corporate governance reform is affecting for-profit and nonprofit organizations alike. Fifty-six private company surveys were completed by top executives within these organizations, reflecting the input of 20 nonprofit organizations and 36 for-profit private companies.

About Foley & Lardner

Foley & Lardner LLP provides the full range of corporate legal counsel. Our attorneys understand today's most complex business areas, including mergers and acquisitions, private equity and venture capital, life sciences, emerging technologies, corporate governance, securities enforcement, litigation, intellectual property, labor and employment, real estate and tax. The firm offers total solutions in the nanotechnology, health care, e-business and information technology, automotive, energy, entertainment and media, food, golf and resort services, insurance, and sports industries.