Sticker Shock

And many still question whether Sarbanes-Oxley is an effective inoculation against future financial frauds. "Just having a good control environment doesn't guarantee that people will act ethically," says Deloitte & Touche enterprisewide risk-service partner Stephen Curry. Enron's trading operations, he points out, were cited as a model for enterprisewide risk management in former Andersen partner James DeLoach's 2000 book on the topic. Those close to the company agree. "What allowed Enron to melt down was its culture, and I don't think Sarbanes-Oxley would have changed that," says Sterling Chemical Inc. controller John Beaver, whose Houston office is across the street from Enron's headquarters.

Even companies touched by scandal are skeptical of Sarbanes-Oxley's healing powers — at any price. Tyco, for example, is spending north of $5 million to comply with the act and generally clean up its image by developing new editions of its controllership guide and ethics manual. Still, "that's not to say that we can document routines and controls and be assured that nothing improper will happen," says corporate-governance head Eric Pillmore. "What we hope is that by doing this, we detect problems earlier."

Across the Board

With the Sarbanes-Oxley act of 2002 raising expectations and liabilities for directors, it's no surprise that board-related costs are rising for most public companies — albeit slowly. To date, only about 14 percent of companies have seen those costs jump by more than 50 percent, according to the CFO survey, while 17 percent have not seen any hikes yet.

Those numbers are likely to increase as more companies confront higher directors' and officers' insurance premiums. Many are also in the process of adding new directors to comply with independence requirements and sweetening the pots for current ones. At its annual meeting in August, for example, Computer Associates International Inc. was seeking shareholder approval to boost the value of its annual directors' compensation from about $95,000 last year to $150,000 this year, and reversing its longtime policy of stock-only payments to allow directors to take up to half of that fee in cash.

"Board members, audit-committee members in particular, have been given a whole host of new duties," says CA corporate-governance head and corporate secretary Robert Lamm. (Audit committees, for example, must now oversee the auditors, preapprove any nonaudit services they provide, and decide how to classify nonaudit services in annual filings.) The fee increases "represent the time involved in additional documentation, for better or worse, and the checking of additional boxes."

A Silver Lining for Some

At this point, many companies are still performing low-tech risk-mapping processes to gauge the impact of Sarbanes-Oxley. But the technology sector has high hopes that soon that will give way to a need for new tools. In fact, First Albany technology strategy analyst Gerard Hallaren expects spending on compliance-related technology to grow by $8 billion to $12 billion in the next year. "We've seen a modest push from Sarbanes-Oxley so far, but I think the real spending will kick in at the end of this year," he says.

Content and document management tools, along with analytics, are likely to be among the first beneficiaries of the law, predicts Hallaren, since "auditors are going to have a hard time auditing lots of individual spreadsheets" in the Excel formats that many companies now use. Data-storage companies are likely to be next in line, as analytical and data-management systems become more voluminous.

EMC Corp., which recently debuted the "compliance edition" of its Centera product, is one of the companies waiting for the windfall. The product codes information with a unique identifier, and can automatically delete documents at the end of their required retention period. "It's more accidental offense than planned," says CFO Bill Teuber, "but any number of regulations out there...require more information to be stored, and clearly our products help in that regard."

Tough Act to Follow In August, CFO Magazine E-mailed a questionnaire on Sarbanes-Oxley compliance to senior financial executives drawn randomly from our circulation list. We received 220 responses; 139 from executives at publicly traded companies. The results below represent a combination of both public and private company responses. Note: Numbers may not add up to 100%, due to rounding. 1) Who is responsible for Sarbanes-Oxley compliance at your company? CFO 55% Controller 30% Assistant Controller 2% Treasurer 1% Other 12% 2) Are you tracking the costs to your company of implementing Sarbanes-Oxley? Yes 44% No 56% 2a) If not, when do you expect to do so? Within 3 months 13% Within 6 months 16% Within 12 months 16% More than 1 year 7% Never 48% 3) What do you estimate to be the total costs to your company to implement all portions of Sarbanes-Oxley requirements in the first year (including external audit, legal, and consulting fees; new hires; and software purchases, but not board-related costs)? Less than $500,000 52% $500,000 to $999,000 23% $1 million to $2.9 million 16% $3 million to $5 million 6% More than $5 million 3% 4) What do you expect annual compliance costs to be going forward (including external audit, legal, and consulting fees; new hires; and software purchases, but not board-related costs)? Less than $500,000 65% $500,000 to $999,000 22% $1 million to $2.9 million 7% $3 million to $5 million 3% More than $5 million 3% 5) What percentage of your time has been spent on Sarbanes-Oxley compliance, on average, per month, over the past year? None 14% 1% to 10% 51% 11% to 20% 20% 21% to 35% 9% 36% to 50% 3% More than 50% 3% 6) Going forward, how much time do you expect to spend on Sarbanes-Oxley compliance monthly? None 10% 1% to 10% 56% 11% to 20% 24% 21% to 35% 6% 36% to 50%   0% More than 50% 3% 7) Have projects or initiatives been delayed or canceled as a result of Sarbanes-Oxley compliance? Yes 33% No 54% Not sure 13% 7a) If yes, please check all that apply. Internal staff dvlpmnt. 24% Technology purchases 14% Other capital expenditures 9% M&A activity 6% Other 9% 8) How much have internal processes changed in response to compliance-related efforts at your company? Very much 6% Some 56% Very little 28% Not at all 10% 9) Has going through the Sarbanes-Oxley compliance process yielded any internal benefits for your company? Yes 49% No 52% 9a) If yes, please check all that apply. More efficiencies in reporting processes 23% More accurate numbers 10% Cost savings 3% Other 22% 10) Overall, do you think the benefits of compliance outweigh the costs? Yes 30% No 70% 11) How much have total costs to retain directors (including salaries and directors' and officers' insurance) increased over last year? None 28% 1% to ­10% 20% 11%­ to 25% 27% 26%­ to 50% 15% 51%­ to 100% 9% More than 100% 1%

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