SOX and the Private Company

This article by McMillan Binch on Mondaq (free subscription required) explains that private companies have good reasons to adopt corporate governance changes in the wake of the public company changes engendered by the Sarbanes-Oxley Act (SOX) stating:

"Increased accountability and transparency of internal controls and accounting processes can be a significant benefit to many organizations. Other private companies may be pressured to comply, to varying degrees, with SOX...by third parties including shareholders, private equity investors, lenders, directors' and officers' liability insurers and government regulators. Concern over directors� liability and fiduciary obligations also may motivate board members to push for improved corporate governance...

Voluntary steps that can be taken by private companies to improve governance include electing independent board members, adopting a formal code of business conduct and ethics, establishing an internal audit function, requiring certification of financial information and limiting services provided by their accounting firm/auditors."

Apparently, this message is getting through according to a recent study reported on by Foley & Lardner from the same source, stating:

"More than three-quarters (77%) of the private organizations responding to the study indicated that the Sarbanes-Oxley Act or other corporate governance reform requirements have impacted their organizations. While a majority of these private organizations said that the governance standards were self-imposed, other common factors influencing the decision to adopt these standards included pressure from board members or auditors.

Many private organizations planned to adopt or have already adopted several measures in response to the Sarbanes-Oxley Act:

CEO/CFO financial statement attestation (44%)
Establishment of whistle-blower procedures (40%)
Board approval of non-audit services by auditors (43%)
Adoption of corporate governance policy guidelines (40%)"