SOX Center

Study finds small firms hit especially hard

A new University of Georgia study finds that the landmark Sarbanes-Oxley Act of 2002 and related rule changes of the major stock exchanges have dramatically altered the makeup of corporate boards, making them larger and more independent. The legislation also had the unintended effect of increasing director pay by more than 50 percent.

“Post Sarbanes-Oxley, the demand for directors by firms is up and the supply is down because the job is harder,” said study co-author Jeff Netter, a finance professor and chair holder in UGA’s Terry College of Business. “So what do you find” Pay is up – pay is way up.”

The Sarbanes-Oxley Act (SOX) was passed with near unanimous Congressional approval following the corporate scandals that brought down companies such as Enron and WorldCom. Among other things, the act and changes imposed by the New York Stock Exchange and Nasdaq sought to enhance corporate governance by promoting board independence and imposing greater responsibility and accountability on board members.

EurekAlert: UGA study finds surge in director pay following landmark Sarbanes-Oxley Act of 2002

You almost have to get lost to find Ocean Bio-Chem, a Fort Lauderdale company that makes the Star Brite brand of cleaning products for boats. It’s hidden away in the back of an industrial park alongside Florida’s Turnpike. Walk into CEO Peter Dornau’s cramped ground-floor office, and Jake, his chocolate Labrador, follows you in.

You get the picture. It isn’t exactly the IBM corporate campus or Coca-Cola’s headquarters.

Nevertheless, Ocean Bio-Chem’s shares trade on the Nasdaq, and like all companies listed on major exchanges, it must adhere to the Sarbanes-Oxley Act of 2002, the stiffened financial reporting requirements introduced in the aftermath of the Enron and fraud scandals.

Sun-Sentinel: Small businesses struggle with Sarbanes-Oxley

Challenging optimism about the efficiency of new auditing standards, the House Small Business Committee’s chairwoman called on federal regulators to give thousands of small public companies even more time to comply with a controversial section of the 2002 Sarbanes-Oxley law.

Rep. Nydia Velazquez, D-NY, said on Tuesday that the Securities and Exchange Commission and the Public Company Accounting Oversight Board must implement the internal-controls section of the law in a way that “does not hamper America’s competitiveness.” She said that “postponing the compliance deadlines for at least an additional year would allow us to make this determination.”

The 2002 law requires company management to evaluate internal controls over financial reporting, subject to review by outside auditors. The SEC has delayed applying the rules to more than 6,000 small companies at least four times, most recently citing a need to make the rules more efficient. Under current policy, small public companies will begin submitting management reports in 2008, and the auditor reports in 2009.

Nasdaq: House Lawmaker Calls On SEC To Delay Internal-Controls Rules

Telekom Austria, Vernalis Plan to Delist From U.S. Exchanges

European companies are already signaling their intent to take advantage of a pending change in rules that will let them easily cancel U.S. stock listings and escape the regulatory constraints of the Securities and Exchange Commission and the Sarbanes-Oxley Act.

Telekom Austria AG and Vernalis PLC, a small Great Britain-based pharmaceuticals company, Tuesday said they plan to delist and deregister from U.S. markets when the rules change on June 4, saying the cost of listing outweighs any benefit. Earlier this month, European staffing giant Adecco SA announced similar plans.

Telekom Austria is listed on the New York Stock Exchange; Vernalis trades on Nasdaq. Both also trade in their respective home countries.

The moves come as U.S. financial officials, including Treasury Secretary Henry Paulson, grapple with what they see as the shrinking competitiveness of U.S. financial markets. Other stock exchanges, particularly in London and Hong Kong, are winning initial public offerings that previously might have gone to the NYSE or Nasdaq.

Yahoo!Finance: European Cos. Exit U.S. Exchanges

Richard Wasielewski, Nortech Systems, Inc. (NASDAQ:NSYS) vice president and chief financial officer, testified Wednesday before a U.S. Senate Committee on Small Business and Entrepreneurship that Sarbanes-Oxley (SOX) regulatory requirements have both helped Nortech improve its internal controls and financial reporting practices but also that the new requirements have added considerably to the company’s costs.

Wasielewski appeared before the committee at the invitation of U.S. Senator Norm Coleman (R-Minn.), to address the significant time and money small public companies, such as Nortech Systems, invest in Sarbanes-Oxley compliance.

The hearing preceded the introduction of new legislation, The Small Business Regulatory Review Act of 2007 (S.1153), the following day by Senate Small Business and Entrepreneurship Committee Ranking Member Olympia J. Snowe (R-ME) and Senator Coleman. The new legislation would require the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) to take into account the burdens faced by small businesses before issuing final Sarbanes-Oxley rules and ensure that SOX regulations due in June 2007 do not disproportionately impact the nation’s small publicly traded companies

Broadcast Newsroom: Nortech Systems’ CFO Testifies on Sarbanes-Oxley Reform

The American Bankers Association has asked securities regulators to continue exempting smaller public companies from stricter accounting requirements adopted by Congress in 2002, deferring application for another two to three years.

In a letter Monday to Securities and Exchange Commission Chairman Christopher Cox, the banking trade group said it “strongly urges” smaller companies remain exempt from requirements to assess internal financial-reporting controls, have them reviewed by their outside auditor, and report major flaws to investors and regulators.

Senate Small Business Committee Chairman John Kerry, D-Mass.; House Small Business Committee Chairwoman Nydia Velasquez, D-N.Y.; and the senior Republicans on those panels, Sen. Olympia Snowe, R-Maine, and Rep. Steve Chabot, R-Ohio, are in strong support of such a delay, as is the Small Business Administration, according to the ABA.

Dow Jones Newswires: Bankers Assn Seeks Continued Small-Business Exemption

Retired Congressman Michael Oxley blames the PCAOB for starting “all the problems” with the Sarbanes-Oxley Act.

Michael Oxley has been guaranteed immortality — and perhaps a degree of infamy — since his name was affixed to the Sarbanes-Oxley Act of 2002, the most comprehensive set of corporate rule changes since the 1930s.

Earlier this year, Oxley retired from Congress after serving 25 years. However, the 63-year-old Republican from Ohio is not ready to fade from the scene. In the last month, he has picked up two new jobs, as counsel for the Cleveland-based law firm Baker Hostetler and non-executive vice chairman of Nasdaq.

The act that bears his name missed unanimous passage through Congress by a mere three votes in the House, and initially received grudging lip service from a shaken corporate America. But a little noticed section, just 168 words long, soon changed the debate from whether Sarbox was essential to restoring confidence in the U.S. capital market to whether it was destroying it. Section 404, which required companies and their auditors to examine and report on the processes behind their financial reporting, quickly became the most expensive and hated provision of the act.

CFO.com:Oxley: I’m Not Happy with Sarbox

After causing grief and lost millions for many high-tech companies, Michael Oxley is now their new friend in high places.

The veteran politician and co-author of the controversial Sarbanes-Oxley corporate reform law yesterday joined Nasdaq in a newly created job as vice chairman.

The 63-year-old former GOP congressman will become a lobbyist and policy advisor serving CEOs of companies listed on the exchange, which is heavily weighted with tech firms.

Critics of the Sarbanes-Oxley law have blasted its onerous accounting red tape as having blocked many high-tech firms from going public in U.S., instead spurring many to issue shares in London where startups are cheaper and easier.

nypost.com: OXLEY’S NEW NASDAQ LOBBYIST

The head of the New York Stock Exchange has launched a blistering attack on the lack of regulation surrounding the London Stock Exchange’s junior Aim market.

John Thain, chief executive of the NYSE, criticised the junior market for its lack of corporate governance standards. Mr Thain, speaking at the World Economic Forum in Davos, Switzerland, said he felt Aim “did not have any standards at all and anyone could list”.

Although he believed it was beginning to change its approach, he added that London “had to be careful not to damage its reputation by allowing in companies that are not well run”.

He also said that he felt that neither the LSE’s Official List nor Aim had such a strict approach to corporate governance as his own NYSE or Nasdaq, which is currently trying to buy the LSE. Many in London do not want an American takeover because they fear overly-stringent regulations, such as Sarbanes-Oxley, may be forced to apply to UK-quoted companies.

Telegraph.co.uk: NYSE chief attacks Aim

Clara Furse, chief executive of the London Stock Exchange, plans to keep Nasdaq at bay, and on Thursday, she put money on it.

Furse has said privately in recent weeks that she would prefer to keep the exchange from Nasdaq’s clutches, and then promote its liberty from U.S. regulators after its rival Euronext pairs up with the New York Stock Exchange.

On Thursday, the London exchange pledged to buy back as much as £250 million, or $493 million, in shares this year, an offer that would increase the exchange’s debt load enough for Moody’s to put the stock on review for a possible downgrade. The London exchange also reiterated that Nasdaq’s offer of £12.43 a share was “wholly inadequate,” and Furse said that she was in talks with other exchanges, but would not specify which.Furse and the London exchange have been under siege since Nasdaq formally initiated its hostile £2.7 billion buyout offer in December.

Furse and the London board have refused to speak with their Nasdaq counterparts and vehemently rebuffed the bid in public, leaving the market wondering whether they were fishing for a higher price — common action in a hostile deal — or running scared.

Neither may be the case. In December, Furse told advisors that her best- case outlook would be to fend off Nasdaq, then use fear of the long arm of U.S. regulation to market the London exchange to new customers, after Euronext and the New York Stock Exchange agreed to pair up this year, according to a person briefed on the talks.

Whether Furse can hold off its hedge fund investors, who are putting pressure on the London exchange to cut a deal with Nasdaq, is unclear. Nasdaq, which already owns 28.8 percent of the London exchange, needs a simple majority, or just over 50 percent, to take control. Short-term investors, including hedge funds and the corporate raider Samuel Heyman, own an estimated 30 percent of the stock and will be instrumental in any deal.

Regulatory creep is a big worry for investors and public company executives as trans-Atlantic alliances create more global markets.

The NYSE chief executive, John Thain, has pledged that U.S. regulators will regulate only within American borders after the merger with Euronext, and that the pan-European exchange will keep its French and Dutch regulators. But many European investors are skeptical.

No matter what Americans say, some argue that the reach of the Sarbanes- Oxley law on corporate governance could create a situation where directors and company executives who list on any exchange allied with an American one are liable to lawsuits or tough U.S. rules that provide for prison sentences.

The London exchange has been a big draw in recent years for emerging-market players, who have been scared off from U.S. markets. Thain has been pressing for changes to Sarbanes-Oxley rules.

IHT: London Stock Exchange to buy back shares to fend off Nasdaq