Compliance Costs Massively Increased By Sarbanes-Oxley

by Glen Shapiro, LawAndTax-News.com, New York

07 May 2003

A survey recently conducted by US law firm, Foley & Lardner has revealed that compliance costs for public companies have soared since the introduction of the Sarbanes-Oxley Act.

The poll of mainly mid-cap companies showed that since the law was passed in 2002, the cost of being a public company has almost doubled, leaping from $1.3 million to nearly $2.5 million.

Critics of the corporate governance bill have argued that complying with the law is proving to be disproportionately burdensome for smaller companies, which unlike their larger counterparts do not have the infrastructure in place to deal with the new regulations.

Speaking to the New York Law Journal, Michael A. King, partner at Weil Gotshal & Manges, confirmed this, observing that: 'The law was intended to address high profile scandals at very large companies, yet it is having the unintended consequence of hurting the small-cap and mid-cap companies.'

According to the Foley & Lardner poll, nearly two-thirds of the increase in expenses associated with public status comes as a result of higher directors' and officers' liability insurance, which has increased from an average of $329,000 to around $639,000.

Accounting and legal costs represent the second and third highest costs for US businesses, respectively. The survey found that both had approximately doubled as a result of the Sarbanes-Oxley Act.

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