Study: Sarbanes-Oxley costs burden small firms

A Greater Boston Chamber of Commerce study released yesterday says the new Sarbanes-Oxley law imposes expensive compliance burdens on small companies, such as biotech and life science firms that are crucial to the future of the Massachusetts economy.

While Sarbanes-Oxley was designed to improve corporate governance and accountability, the law's unexpectedly high compliance costs could divert the limited resources of a small firm away from innovation and growth, said chamber chief executive Paul Guzzi, who recommends that the law's compliance requirements for small companies be revised.

Start-ups that might otherwise consider selling shares to the public might delay an initial public stock offering because of compliance costs imposed by the law on publicly traded companies.

''Sarbanes-Oxley has had a significant positive impact on corporate governance since its enactment in 2002," Guzzi said. ''But for many companies, the costs of Sarbanes-Oxley outweigh the benefits of going public. Without taking action to improve the legislation, we are putting the companies that fuel our regional and national economy at an unfair disadvantage in this competitive global marketplace."

''You've got to be Sarbanes-ready if you want to go public," agreed Steve Mezzio, managing director for Sarbanes-Oxley risk management services at Resources Global Professionals, a professional services firm.

The Boston chamber's $75,000 study is endorsed by other chambers in high-tech areas, including San Francisco and Raleigh, N.C., Guzzi said.

It is a job of the Securities and Exchange Commission to administer and enforce Sarbanes-Oxley, and the commission has appointed an advisory committee to assess the current regulatory system for smaller public companies, including the impact of Sarbanes-Oxley.

The committee already is weighing changes that could lighten the burden for small companies and is set to make recommendations to the commission in April, said Herbert Wander, an advisory committee co-chairman and a partner in the Chicago office of the law firm Katten Muchin Rosenman LLP.

The SEC could then accept or reject the committee's recommendations for fine-tuning Sarbanes-Oxley.

The SEC originally estimated the cost of complying with a Sarbanes-Oxley provision at $91,000, but actual costs have been higher. While big companies can absorb such costs, they are much harder to digest for a small company.

Compliance costs can represent 2.5 percent or more of a small firm's annual revenue, the chamber study noted. A one-size-fits-all approach that treats both big and small companies equally penalizes small firms, the chamber claims.

Referring to the chamber and its argument that Sarbanes-Oxley compliance costs should be lightened for small companies, Paul Danos, dean of the Tuck School of Business at Dartmouth, said, ''They're fundamentally right."

Chris Reidy can be reached at reidy@globe.com.