Michael R. LittenbergPartner, Corporate DepartmentSchulte, Roth & Zabel LLPNew York City

If nothing else, Sarbanes-Oxley is consistent. Last year’s query drew 67% negative votes concerning its worth measured against time and expense. This year, with changes to Section 404 rearing their head, SarbOx did no better. Some 73% of respondents to our Feedback Poll said it’s more of a hassle than ever, while only 27% said it’s become a non-issue. Commentator Littenberg, who’s been practicing securities law for 18 years, provides his spin:

“The reason you’re getting a thumbs-down from an overwhelming percentage of your respondents is because in the five years Sarbanes-Oxley’s been out it’s certainly increased the regulatory-compliance burden. That’s resulted in increased costs for most companies, primarily on the accounting and financial side, but to a lesser extent the legal side as well.

“Then there’s the visceral reaction to it. You don’t tend to see a lot of articles in the press that say that Sarbanes-Oxley is a good thing. You’ll see some things by shareholder-advocate groups or consumer advocates, but the overwhelming amount of commentary you’ll see is about the increased cost and burden it’s put on the business community and the perceived anti-competitive effect that it’s having on the climate for new listings.

“In Sarbanes-Oxley, Section 404 deals with internal controls and procedures. Essentially, it has two components to it. One is that management has to establish and maintain adequate internal controls and procedures over financial reporting, and they have to assess those controls. Then the outside auditors test those.

“Until this year, the bite of 404 has been on what is referred to as accelerated filers–primarily larger companies. There have been several extensions of the 404 compliance deadlines for everyone other than accelerated filers.

“Now, companies that are not accelerated filers are going to have to start complying with 404. That means that as a company you have to attest to your internal controls and you’re going to have to have your auditors give their report on management assessment. That’ll mean more auditor time, and that’s going to place more burden on management.

“Companies that have bigger infrastructures may not feel there’s a lot of benefit to all the additional compliance. It may cost them money and they may be vocal about it, but they shrug their shoulders and it’s the cost of doing business. For smaller companies, Sarbanes-Oxley tends to be more of an issue in many cases. They just don’t have the cushion in their expense budget.

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