Sarbanes-Oxley, a batch of legislation passed in 2002 to tighten financial controls at public companies in the wake of the Enron and Worldcom disasters, is generally a good thing.
It has one major flaw, however: A lack of guidance to companies about exactly how to comply with the Act. It hits small companies hard, because they’re forced to hire expensive accounting and legal help to interpret what are often vague guidelines. They end up overpaying, to ensure they comply.
The Committee on Capital Markets Regulation, an independent, bipartisan committee composed of corporate and financial leaders formed in September to outline how to make U.S. capital markets more competitive, issued its report today.
The report comes two weeks before the Securities & Exchange Commission begins to debate how to reform Sarbanes-Oxley. Specifically, the report suggests that small companies — those with a market capitalization less than $75 million — be allowed to defer compliance to the Act. That’s a good start.