New Survey Shows Huge Jump in Sarbanes-Oxley Compliance Costs

A survey of corporate boards by RHR International and Directorship reveals annual Sarbanes-Oxley compliance costs now average $16 million—a jump of 77% from the previous year.  Findings also reveal that nearly half (47%) of companies surveyed do not have a CEO successor in place, although 61% expect that CEO leadership transition will go smoothly, according to the poll of 266 board directors at U.S. companies.

Sarbanes-Oxley requirements have caused companies such as GE to spend a reported $30 million on internal control requirements alone.  And last May, AIG chairman and CEO Maurice “Hank” Greenberg indicated that the world's largest insurer was spending $300 million a year fulfilling the new requirements.

Of the board directors surveyed, almost two-thirds (64%) reported that the new regulations have changed their participation as a director.  One major change is that nearly two-thirds (63%) indicated plans to change either the CEO salary or the CEO's salary relative to bonus.

 “It's clear that not all board directors are fully engaged,” says J.P. Donlon, editor-in-chief of Directorship . “For example, almost one-fourth do not visit with employees, customers or suppliers, which means their only source of information is what management tells them.”

Survey results also suggest that most directors express a high degree of confidence in the judgment of their fellow directors. Only a third say the level of dissent at board meetings is high. 

“The capacity of a board to not only tolerate dissent but make it an expected and productive part of the culture of the board is most important.  In the absence of an open and candid culture, some individuals will have undue influence by default,” said Constance Dierickx, board services practice leader, RHR International.

Ninety-five percent of directors report they are “mostly” or “absolutely” confident in the current CEO, and an almost equal percentage (90%) note that they provide frequent, candid CEO feedback.  While Karen West of RHR International views the strong level of confidence among board members in their CEOs as “encouraging,” she warns that “without a succession plan, companies risk losing much of the momentum and results that today's CEOs are building.”

 Other key survey findings:

• 65% of directors say they evaluate individual board members.
• 30% of board members feel they always have adequate time to prepare for board meetings.
• 30% of board members meet four times per year without the CEO present.
• 24% report they never visit the company's constituencies.

Tips for Improving Board Effectiveness :

1. Roll up your sleeves and master the performance drivers of the business.
2. Understand the business by reading management's reports and through personal experience.
3. Perform CEO evaluations frequently and systematically.  Informal exchanges alone will not suffice. 
4. Foster a culture of contrarian thinking and vigorous debate to permit meaningful support for decisions.
5. Be intolerant of cliques.
6. Know the unvarnished truth about the management team.  Actively manage succession including selection, development and transition for the top team. 
7. “Stress test” management's candor.

To learn more, consider these AMA seminars:

• AMA's One-Day Sarbanes-Oxley Workshop
• AMA's CFO Workshop

AMA On-site: Every one of AMA's 170+ public seminars can be delivered on-site. This flexible, money-saving option allows you to train ten or more people, when and where you choose, at a low cost per participant.