June 22, 2005
Foley & Lardner on SOX
Posted by Christine Hurt

Foley & Lardner, a large, national law firm that began here in Milwaukee, has published a study quantifying the costs of SOX.  According to the study, compliance costs of being a public company for companies with less than $1 billion of revenue increased 33% from 2003 to 2004.  Increased auditing expenses constitute the bulk of the additional expenditures, with lost administrative time another large expense.

I don't think anyone can dispute that the costs of complying with Sarbanes-Oxley are quite high.  However, I am more interested in the motivations of a law firm in performing this study.  The press release described the methodology of the study:

In January of 2005, Foley & Lardner distributed public company and private organization surveys via mail and e-mail to approximately 9,000 CEOs, CFOs, General Counsel, Chief Compliance Officers, Board Members, Directors and other executives of both public companies and private organizations. A total of 147 public company surveys were returned.   The firm also commissioned a statistical analysis of proxy statement data compiled and maintained by Standard and Poor's Investment Services Custom Business Unit. This database contains information from more than 700 public companies included in the S&P 500, S&P Mid-Cap 400 and S&P Small-Cap 600 indices.

This study seems to have been a costly one. What motivates a law firm to spend money or nonbillable hours on such a chore? I suppose that Foley can now send this study to companies in an effort to (1) seem sympatico with the companies who are struggling with SOX and (2) recruit compliance business.  Just wondering.

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Comments (1)

1. Posted by John Steele on June 22, 2005 @ 14:48 | Permalink

Those reasons are more that just plausible. But another reason, one that's consistent with the reasons you suggest, is that lawyers are acting as "public citizens." The Preamble to the Rules states, "As a public citizen, a lawyer should seek improvement of the law ... cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law ... [and] further the public's understanding of and confidence in the rule of law and the justice system"

Suppose the lawyers think that for all its benefits the costs of SOx are staggering. Those lawyers would be fulfilling their duties as public citizens by making and publishing the study.

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