Sarbox Sobers Directors Facing Rising Compliance Costs
A Directorship/RHR International survey of nearly 270 US board directors shows compliance sticker shock along with a need to push for greater change in governance practices.
In a survey of 266 board directors of US public companies conducted by Directorship Search Group and RHR International, board members reported that the current annualized direct cost of compliance with the new regulations represented by Sarbanes-Oxley and rules set forth by the SEC and securities exchanges represent an average out of pocket cost of $16 million — an increase of 77 percent over the prior year. The average cost estimated for a mid-size public company is nearly $5 million, but one outlier respondent at a large corporation put the total cost close to $1 billion.
Respondent’s estimates may be low, as many directors remain unsure of the exact overall outlays that many suspect are much higher.
Almost two-thirds (64 percent) said they have changed the way they participate as a director in response to the new regulations. One change they report is in how the CEO is compensated. Two-thirds (66 percent) indicate that they plan to change either salary (33 percent) or salary relative to bonus (33 percent). Almost a fifth (19 percent) say they will change how shares are awarded and 12 percent indicated that stock option plans would be altered.
Curiously, directors say they are less influenced by investors, with 50 percent saying that investor groups have either none or little influence on their activities or decisions.