The Cost of Being Public in the Era of Sarbanes-Oxley
THE COST OF BEING PUBLIC
IN THE ERA OF SARBANES-OXLEY
Foley & Lardner law firm
SUMMARY
! Based on data received from Foley & Lardner?s 2004 and 2005 studies, the average cost of being
public in FY 2004 for a company with annual revenue under $1 billion has increased $851,000
(33%) over FY 2003. Further, from the enactment of the Sarbanes-Oxley Act through FY 2004,
the average costs have increased a total of $2.4 million, representing a 223% increase.
! In FY 2004, the average cost of being a public company with annual revenue of $1 billion and
over was $14.3 million, an increase of $4.4 million (45%) over FY 2003.
! Lost productivity continued to represent a major cost for all companies responding to our 2005
survey, particularly for the smaller public companies responding. Average costs associated with
lost productivity increased more than 556% to $1 million in FY 2004 for responding companies
with annual revenue under $1 billion, compared to an 18% increase to $2.9 million in FY 2004 for
responding companies with annual revenue over $1 billion.
! Fees paid to outside auditors have continued to increase by double digit percentages year over
year since the enactment of the Sarbanes-Oxley Act in 2002. This increase accelerated
dramatically in FY 2004. We attribute this increase to the substantial costs associated with the
financial control audits required under Section 404 of the Sarbanes-Oxley Act, which phased-in
for most domestic public companies at the end of 2004.1
- Of all the companies analyzed, audit fees increased an average of 61% between FY 2003 and
FY 2004.
- Audit fees increased an average of 84% for S&P Small-Cap companies, 92% for S&P Mid-
Cap companies and 55% for S&P 500 companies.
! It continues to be increasingly expensive for companies of all sizes to attract and retain qualified
directors. In FY 2004, S&P Small-Cap, S&P Mid-Cap and S&P 500 companies witnessed doubledigit
increases in average annual director fees with increases of 17%, 14% and 13% respectively.
Over the past four years, the impact of corporate governance reform on director fees has been
significant, with increases of 46% for S&P Small-Cap, 45% for S&P Mid-Cap and 43% for S&P
500 companies between FY 2001 and FY 2004.
! Consistent with results from previous years, a significant number of survey respondents (20%)
are considering going-private transactions as a result of corporate governance and public
disclosure reforms. Additionally, respondents to our 2005 survey are increasingly considering
other options, including selling the company (10%) and merging with another company (14%).
! There was a significant increase in the number of respondents to our survey who felt that
corporate governance and public disclosure reforms have impacted administrative expenses
?a great deal,? increasing from 54% in our 2004 survey to 70% in our 2005 survey. We attribute
this increase to the financial impact of the phase-in of Section 404 in FY 2004.
! A vast majority (82%) of respondents felt that corporate governance and public disclosure reforms
are too strict, an increase of 15% compared to our 2004 survey. READ MORE →
