Private Company Sarbanes-Oxley (SOX) Considerations

Virtually every company, whether public or private, needs value for each dollar spent on sound governance and compliance. While initial efforts may be motivated by legislation, looking beyond compliance for market leadership position through internal controls can deliver significant value. A strong position with regard to compliance can offer competitive advantage with a number of stakeholder groups: analysts, rating agencies, customers/clients, and suppliers.

Private Companies may be anticipating IPO (initial public offering) or M&A (merger and acquisition) activity. Others are proactive and look at SOX from a best-practice standpoint for a variety of reasons. All organizations benefit from strong internal controls and governance structure, which in turn can become a competitive advantage. A solid governance structure along with sound management controls can go a long way in raising the comfort level of investors, employees, vendors, and other stakeholders.

Companies that have adopted the best sections of SOX find it easier to attract financing or a publicly held acquirer if this is an exit strategy. Many Board of Directors, Audit Committee members and senior management consider a private company's controls in anticipation of private merger targets. Additionally premiums for director and officer insurance can be reduced through the establishment of an audit committee of "independent" board members with at least one "financial expert." Also courts may look at SOX principles as "best practices" in holding nonpublic companies accountable, especially in civil cases.

Companies, whether publicly held or not, can seize the opportunity to turn compliance into a competitive advantage.