Sarbanes-Oxley: Private Opportunity In Public Regulation

With an eye toward the future, some closely held firms voluntarily adopt SOX principles.

Public companies may find the provisions imposed by the Sarbanes-Oxley (SOX) Act burdensome, but some forward-looking private companies are voluntarily adopting SOX principles.

So say the results of PricewaterhouseCoopers' recent Trendsetter Barometer, which was based on interviews with CEOs of 340 privately held product and service companies identified as among the fastest growing in the past five years.

Slightly more than a quarter of those CEOs say their companies have adopted Sarbanes-Oxley "best practices." Of those, 30% have applied its principles in governance, 26% in transparency and 43% in both areas. Data show that adopters tend to be from larger businesses (averaging $74.2 million in annual revenues) that have grown faster in the past five years and expect 25% higher revenue growth in the next 12 months.

What's the attraction? PricewaterhouseCoopers says private firms' motivation to embrace SOX principles may be a future in the public eye. "By voluntarily embracing aspects of mandated behavior for public companies, they are using regulation and oversight as a means to an end, better positioning themselves for a future IPO or to be acquired by a public company," says Michael Petrecca, a Pricewaterhouse-Coopers private company services partner.

Indeed, "if a private company aspires to an initial public offering, registering for public debt, or one day being acquired by a public company, then it is to the benefit of that private company to be able to demonstrate good management practices and sound internal controls," says Dick Kilgust, managing partner, global public policy and regulatory, for PricewaterhouseCoopers.

However, adoption of SOX principles should not be mistaken for an embrace of increased regulation. In fact, two-thirds of companies that are considering going public say the cost of complying with Sarbanes-Oxley and other SEC-imposed restrictions is a potential barrier. On the other hand, nearly three-quarters of companies considering becoming an acquisition candidate or seeking public financing don't see such compliance as a financial obstacle.

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