Risk & Compliance

Compliance Costs ”Easing,” Says Survey

More than half of respondents expect Sarbanes-Oxley to cost their companies less in 2006.
Stephen TaubMarch 20, 2006

The costs of complying with the Sarbanes-Oxley Act “appear to be easing,” according to the Business Roundtable. The association of large-company CEOs, which received survey responses from 105 of its members, observed that only 6 percent expect compliance costs to rise in 2006; 42 percent believe they will hold steady, and 52 percent expect that they will decline.

The percentage of companies that reported spending more than $10 million on compliance dropped to 40 percent, compared with 47 percent last year; 27 percent reported costs between $6 million and $10 million; 33 percent, between $1 million and $5 million.

Office Depot Inc. chairman and CEO Steve Odland, chairman of the association’s Corporate Governance Task Force, cautioned that “while these results are encouraging, we must continue to monitor the costs associated with Sarbanes-Oxley to ensure that they are not hindering business growth and economic expansion.” (Indeed, CFOs continue to have strong thought about “how they would fix the *!#& thing,” as we explore in “A Tough Act to Follow.”)

The survey also found improvement in a number of critical governance areas:

• 57 percent of respondents reported an increase in the pay-for-performance element of senior executive compensation in the past year, up from 49 percent in 2005 and 40 percent in 2004.

• 91 percent said they have an independent chairman, lead director, or presiding director, up from 83 percent in 2005 and 71 percent in 2004.

• 11 percent have an independent chairman, from 9 percent in 2005 and 4 percent in 2004.

• 69 percent of companies reported that independent (non-management) directors met in executive session at every board meeting in 2005 and that 75 percent expect the same for 2006.

• 91 percent of companies have procedures in place for shareholder communications with directors, up from 90 percent last year and 87 percent in 2004.

• 93 percent of companies said their nominating or governance committee is willing to consider shareholder recommendations for board nominees, up from the 85 percent in 2005.

Keep in mind that the Business Roundtable and the U.S. Chamber of Commerce have publicly opposed several measures aimed at improving shareholder participation in company decisions. Unlike the Chamber, however, the Roundtable has not explicitly opposed the rapidly growing trend toward majority voting.