Executives Complying With Sarbanes-Oxley, But Say It’s Overkill
By SHERRI CRUZ
Overkill for a few bad apples.
That’s the prevailing view Orange County executives have about the Sarbanes-Oxley Act of 2002, according to a recent Deloitte & Touche Corporate Governance Survey.
Three-quarters of executives survey-ed said the new corporate rules go overboard. Two-thirds said they might consider go-ing private as a result of added regulation of public companies.
Sarbanes-Oxley, passed in the wake of misdeeds at Enron Corp. and others, requires companies to disclose more accurate and timely financial details. Executives now have to verify the accuracy of their company’s financial reports.
“We’re taking it extremely seriously,” said Jim Peterson, chief executive of Irvine chipmaker Microsemi Corp.
Peterson said he and fellow company officers have spent a lot of time getting up to speed on the new rules, which Microsemi says it is in compliance with. The company has bolstered its board and committees, adding more industry specific people as required by Sarbanes-Oxley.
In the long run, Deloitte audit practice partner Jannie Herchuk said she believes the new rules are a good thing. Executives now will have more confidence in their numbers, she said.
“But it will be painful,” Herchuk said.
According to the survey, 42% of the companies are in compliance with Sarbanes-Oxley’s provisions. Another 42% are nearly there. Some 5% said they had a long way to go, while 11% said they haven’t begun compliance.
Last month, the Securities and Exchange Commission extended the deadline for compliance with section 404 of Sarbanes-Oxley until the middle of next year, giving most companies an added year. The section covers processes and controls in financial reporting.
The survey was conducted in May by querying companies from the Business Journal’s Market Watch indexes of OC public companies. About 100 surveys were sent out with about 20 chief executives, presidents and other top officials responding.
Complying with Sarbanes-Oxley has been a time and cost burden, said Richard Babcock, a corporate and securities attorney with Sheppard Mullin Richter & Hampton LLP in Costa Mesa.
“Public companies have been complying but struggling,” he said.
Edwards Lifesciences Corp., a heart valve maker based in Irvine, is ahead of the pack in terms of providing compliance details on the company’s Web site.
Under a “corporate governance” section, the company posts Chief Executive Michael Mussallem’s financial report certifications. It also posts a 33-page report on its business practices as well as its corporate governance rules covering the structure and makeup of the company’s board.
David Erickson, vice president of investor relations for Edwards, concurred with other executives in calling Sarbanes-Oxley a result of “problems initiated by a minority of companies.”
Still, the company’s take is that “more information is better,” because it increases credibility with investors, Erickson said.
The cost to set up policies and procedures has been high for companies, more so for smaller ones with market values of $100 million or less, Babcock said.
The audit fees and the legal fees combined have nearly doubled, he said. In the future, it will be much more expensive to be a public company, he said.
The survey said 58% of the executives thought that a lack of time was their biggest challenge in meeting the new rules. Eleven percent said cost was a factor. About 16% said they didn’t understand the regulations. One in five said they were complying with ease.
Other survey findings:
n More than half of respondents thought the roles of chairman and chief executive should be combined. About a fifth, 22%, said they should be separate, while 17% didn’t know or thought it depended on the company.
n Two-thirds of executives said they had a published code of ethics, 16% said they didn’t and another 16% said they were working on it.
n Three quarters said they’ve hired outside accountants and 63% have hired attorneys to help meet the new rules.
