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SARBANES-OXLEY COMPLIANCE IS TOO EXPENSIVE FOR SMALL FIRMS. DUH.

June 16, 2005

With typical finesse, Congress reacted to the Enron and Worldcom scandals by firing into the crowd. The Congressional response, the Sarbanes-Oxley act ("SOX"), treats all public companies as potential criminals. The SOX law saddles all public companies with punishing compliance costs. While these might seem a small price to pay for a multi-billion dollar company like Microsoft, the costs aren't much less for a $50 million company.

The cost of being a public company has led many smaller companies to consider withdrawing from the public markets. The New York Times reports today that the Securities and Exchange Commission is now holding hearings on SOX costs to smaller companies. The article reports:

Big corporations are complaining about Sarbanes-Oxley, too. But there is little question that the financial burden of compliance falls more heavily on smaller companies. A study by Nasdaq released in April found that, as a percentage of revenue, "companies that have revenues less than $100 million spent 11 times more than companies with revenues of $2 billion or more." Another study, released in March by Financial Executives International, a professional association for corporate financial officers that is based in Washington, said costs averaged $824,000 for companies with annual revenues under $100 million, compared with $1,572,933 for companies with sales of $100 million to $500 million.

Once again showing that when Congress tries to solve a problem, it just makes more problems.

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